If two plus two can sometimes equal five, the rationale for global mergers and acquisitions would have some justification. If the result is at least a four, as the math indicates, the risks are worth it. But if the chances are that two and two will end up as three, no deal makes sense.
M&As are driven as much by emotion as cold logic. Companies dreaming of inorganic growth are particularly vulnerable to the lure of combining beauty and brains in the hope that the resultant offspring will be both beautiful and brilliant. The flaw in the argument was pointed out in a possibly apocryphal story involving George Bernard Shaw. When dancer Isadora Duncan tossed up the idea of a union to Shaw with this beauty-plus-brains assumption in mind, the witty Shaw is supposed to have declined pointing out the opposite possibility: That their progeny could well end up with his looks and her grey matter. Neither beauty, nor brains.
The Apollo Tyres-Cooper Tire merger that would have created the world’s seventh largest tyre company, with a presence in all the critical markets of North America, Europe, China, India and Africa, came unstuck last month when Cooper cancelled the deal. Faced with the belligerence of its own unions, and the local partner of its Chinese subsidiary—who bridled at the thought of an Indian company owning them—the deal ultimately did not make sense even to Apollo. To be financed with $2.5 billion in debt—something that had the markets fretting—the M&A had all the looks of a potential loser that would destroy shareholder value rather than grow it. The world over, the vast majority of mergers fail to achieve their potential revenue or market share targets for two simple reasons: People and culture. Assets that look good on paper and on the Excel sheets of corporate match-makers usually fail because mergers involve an attempt to marry two cultures and employees with a different outlook.
Quite apart from the Chinese balking at the idea of having an Indian shareholder as boss, it was an open question whether even the India-US cultural mish-mash would have been easy to absorb. Apollo is probably well out of it – though there is still a messy court battle ahead.
Our auto industry watcher, Ashish K Mishra, who has recently been moaning and groaning about the lack of action in the slowing Indian auto market, suddenly sprang to life as the Apollo-Cooper engagement broke off before the wedding. Divorces always make for good stories, as Mishra’s blow-by-blow account of how this deal fell apart shows. Don’t miss it.