The softly, softly approach taken by Novartis, the Swiss pharmaceuticals group, in acquiring a fifth of the voting shares of Roche, its arch-rival, appears typical of the continental European approach to takeovers.
If talks should lead to a merger, Novartis is keen not to be seen as a predator. Voting power is concentrated in the hands of the Hoffmann and Oeri-Hoffmann families. A fight may not be entirely ruled out but a friendly deal is preferable.
It is often assumed that the consensual European approach to mergers is bound to give way to the more aggressive Anglo-American model, with its focus on delivering shareholder value. Yet, with some European companies placing greater emphasis on shareholder value, a new study* by PA Consulting Group argues that each model can learn from the other.
Most north European mergers remain co-operative, in spite of last year's hostile takeover of Mannesmann, the German telecommunications group, by UK rival Vodafone, says PA.
"We have done seminars on this with clients and academics in Germany and the Netherlands and most of the companies did not think this (Vodafone-Mannesmann) was going to be the earthquake that some people had predicted," says Jeremy Stanyard, head of PA Consulting's M&A team.
The study analysed 200 takeovers and mergers launched by companies in Germany, France, Scandinavia and the Benelux countries at the end of the 1990s, comparing them with the findings of PA research last year into UK mergers.
Focusing on issues that can cause mergers to fail, it says that European managers would do well to emulate the more formal approach to risk management taken by US and UK companies. It cites the merger of two German car parts manufacturers: the deal appeared logical on paper but the implementing team could not find enough benefits to justify it.
In other ways, however, the European model may produce significant benefits - notably in promoting long-term shareholder value and merging different corporate cultures.
A significant finding of last year's study of UK deals was that acquisitions aimed primarily at cost savings produced no shareholder benefits. Cost reduction was found to be an important motive for 64 per cent of UK companies. But it hardly figured with European managers as a motive for mergers. Instead, revenue growth - also a major motive for UK companies - and acquisition of people and technology were more important.
The low priority accorded to cost saving in Europe may be in the long-term interests of shareholders, the report says. Cutting jobs and making organisational changes can be expensive and unpleasantly high-profile - witness the uproar in France over the job losses and closures announced by Danone and Marks and Spencer.
"The shareholder value devotees say the clock is ticking from the time you hand the cheque over. You're losing the value of the benefits you can derive and missing the opportunity for change if you don't move in the first 100 days," says Mr Stanyard.
"The north European view is that you're more likely to destroy long-term value by moving too quickly in an unplanned or insensitive way."
This is interesting in the light of PA's finding last year that mergers that avoid "over-integrating" the target company produce better shareholder returns.
"Some very good German and north European organisations have been built up by acquisition," he says. "The fact that they haven't taken the 'red in tooth and claw' approach to costs as soon as they move in suggests there is more than one way of creating value out of these deals."
UK companies should bear these factors in mind when seeking to acquire in Europe, the report says. "They must be restrained in their pursuit of extensive cost reductions or trans-actions requiring high levels of integration." Northern Europeans, in turn, should warn their prospective UK parents that over-rapid attempts at absorption may run into trouble.
The fact that cultural "fit" matters in mergers came through strongly in the north European survey. More companies responded to the survey question about culture than did their UK counterparts and more saw the two cultures involved in a merger as dissimilar or radically different.
This suggests north European managers are more aware that no two companies have exactly the same culture, it says. "UK mergers may all too often steam-roller over cultural differences, destroying value in the process."
Can the gap between the two models be bridged? PA is developing a two-phase approach to integrating deals that makes use of both models. The first phase is short and sharp, putting into place essentials such as a single accounting system and job descriptions for all employees.
This is followed by a much longer period of transformation, where big and more complex projects are pursued, such as cultural change and integration of information technology. "Both phases still need management from the top and continued vigilance that the benefits are being delivered," says Mr Stanyard.
*Realising the value of acquisitions: a comparative study of European post-acquisition integration practices, available free from Chantal de Havilland,
tel: +44 20 7333 5277;
email: restructuring@paconsulting.com
Copyright 2001, Financial Times (UK)
