In mergers, the faster two companies can come together, the sooner they can reap the benefits. Speed also helps diminish the uncertainty that plagues organizational change, and that ends up making people work less and worry more—or just plain leave.
But mergers with substantial business overlap face a real barrier to speedy integration: Antitrust rules forbid companies contemplating a merger from sharing competitively sensitive information about their business practices while the regulatory review process is pending. Because a merger can take months, if not years, to get regulatory approval, managers may be cooling their heels for a long time before they can get to work. That’s because they’re barred from seeing the detailed inside information they need to develop comprehensive integration plans. Without robust advance planning, managers can find themselves bogged down by basic operational issues and distracted by anxious or confused employees, unable to quickly capture a merger’s promised benefits.
Without robust advance planning, managers can find themselves bogged down and distracted, unable to quickly capture a merger’s promised benefits.
But there is a way for companies to hit the ground running—without breaking the rules—as Dow Chemical showed in its acquisition of Union Carbide last year.
How Dow Did It
When Dow announced that it was acquiring Union Carbide in August 1999, company executives knew the antitrust review process would be arduous. The deal would create the world’s largest chemical, plastic, and agricultural product company, and it needed to pass muster with multiple jurisdictions worldwide. Anticipating a long wait for approval, Dow assembled “clean teams” consisting of former employees of both companies—teams that could legally review sensitive information and help ensure that Dow and Union Carbide would be ready to roll after the merger transaction closed.
Team members were completely independent of and isolated from the merging companies. Like the Deloitte consultants Dow also hired for the task, they were third-party contractors and therefore free to examine competitive information. But as previous employees, they were also intimately acquainted with their former companies’ inside operations, hence uniquely suited for this work.
Teams ranged from two to 12 members and used different approaches to get their work done. Some teams had clear leaders, while others relied on consultant facilitators. And though some teams met continually for several weeks, others came together for only days at a time over the course of a few months.
Aside from supply chain management, which was assigned two teams, the companies dedicated one team to each operational area that would benefit from a long lead time in integration planning. Those areas included purchasing, logistics, manufacturing, compensation practices, and information systems. (The last of these was particularly important because the two companies used different ERP systems.) Dow executives handled the strategic end of integration planning on their own, using publicly available information.
As specified in the confidentiality agreements they signed, clean-team members were allowed to communicate about the merger only among themselves and with the consultants. They met at off-site locations, “vacuum-sealed” from both companies’ current executives. The teams’ only dealings with Dow and Union Carbide, in fact, were requests for specific data that they sent to the companies’ legal departments. Information flowed in only one direction.
Soon after forming, the teams realized they needed to first resolve surprisingly large differences in the language the two companies used to describe similar activities. Much of the teams’ early work involved simply defining terms and harmonizing the data. Out of this effort came written guides to help the two companies communicate clearly. Beyond helping with operational issues like integrating ERP systems, the guides prevented many of the ordinary merger disputes that come from basic misunderstanding—Union Carbide employees, for example, were never confused about Dow’s benefit programs.
After reviewing the information each company provided, and drawing on their own expertise, the teams set to work developing detailed integration plans. By reviewing cost data, for example, they were able to decide which suppliers Dow and Union Carbide should favor after closing. Compensation data, meanwhile, enabled the teams to devise payroll systems for Union Carbide employees that could be implemented immediately after the merger closed. The greatest challenge was figuring out how to migrate one company’s basic processes—such as financial reporting—over to the other company’s way of doing things.
The teams’ recommendations and supporting analyses were closely guarded until the merger passed regulatory review. Had regulators rejected the merger, the teams would have simply destroyed all their material and kept what they had learned in confidence. When approval did come through, 18 months after the merger was first announced, the teams presented their recommendations to executives from the newly merged companies.
The Payoff
After receiving regulatory approval, the new executive team quickly assessed the clean teams’ reports during a brief “lockdown”—a period immediately after closing when the companies could legally see one another’s confidential business information. The executive team then made any necessary adjustments and passed them on to operational managers for immediate implementation. Just six months after the merger, Dow had realized $300 million in benefits, mostly through cost savings. Freed by this advance work from myriad operational conflicts—the sort of knotty details that can rob mergers of their momentum—Dow executives could focus on implementing their strategic plans.
This was far and away the largest acquisition that Dow had ever attempted. Yet because of the clean teams’ work—combined with diligence in general merger-related planning, coordination, and communication—Dow experienced fewer problems integrating Union Carbide than it had with any of the smaller deals it had made before. Today, Dow is using this new M&A integration competency in other deals as well.