:00:00. > :00:12.criminal organisation. And now, The Bottom Line with Evan
:00:13. > :00:14.Davis. When the world economy is booming,
:00:15. > :00:16.corporate bosses love nothing more than take each other's companies
:00:17. > :00:22.over. Mergers and acquisitions stall. Many of these are a waste of
:00:23. > :00:28.effort and money. When the badges come, the dealmaking culture fades.
:00:29. > :00:32.We are in a low period at the moment. With signs of things picking
:00:33. > :00:40.up, what better time to take stock of takeovers? Each week, influential
:00:41. > :00:41.business leaders gather in London for the BBC Radio 4 programme the
:00:42. > :01:02.bottomline. Takeovers, mergers and acquisitions.
:01:03. > :01:05.I have three people from the world of finance industry to take as the
:01:06. > :01:11.result and confessed their own mistakes. First of all, Sir George
:01:12. > :01:17.Buckley, former chief executive of the 3M group in the US. Soon to be
:01:18. > :01:24.head of a British engineering group. Also with us is the chairman of BT,
:01:25. > :01:30.the deputy chairman of Barclays bank. And Juergen Maier, who runs
:01:31. > :01:36.Siemens in the UK and Ireland. They thought would get you to talk me
:01:37. > :01:41.through a specific takeover you have been involved in, tell me some of
:01:42. > :01:45.the lessons you true from it. The essence of the deal is to try to
:01:46. > :01:50.make money. We always like to hear that message. There is a return
:01:51. > :01:54.calculation always make. You are investing money to return money. The
:01:55. > :01:59.second thing you are trying to do is gain some relative competitive
:02:00. > :02:03.advantage. It might be entry into market, getting a brand, getting new
:02:04. > :02:10.methods of distribution and technology. One example is the
:02:11. > :02:16.merger of Stanley and Black Decker. It was a wonderful merging
:02:17. > :02:20.together of a handful company and a powerful company. Craftsmen in the
:02:21. > :02:25.industry use both. It was a wonderful way to leveraged the
:02:26. > :02:34.market knowledge and have a bigger company that was more defensible.
:02:35. > :02:39.Did it work? Has worked superbly. So you are looking for the two plus two
:02:40. > :02:44.equals five formula. The extra one was the fact that you are
:02:45. > :02:47.distributing to the same places, so you had two distribution networks
:02:48. > :02:52.that it could now make one. You get a bigger seat at the table, Tory
:02:53. > :02:59.seat of the table were you did not have formally. `` or a seat. So you
:03:00. > :03:06.can have more influence with the customer. That is a good one. Mike.
:03:07. > :03:11.One that is quite recent and interesting involved the complete
:03:12. > :03:18.transformation of the company. So far it is doing well. It was a
:03:19. > :03:28.family publishing business in the US. It was in that area of media. It
:03:29. > :03:34.was something called SNP. `` S and P. In the past three years it has
:03:35. > :03:39.with a complete transformation of the company. It has sold its
:03:40. > :03:46.publishing businesses. The acquisition of other indices
:03:47. > :03:50.businesses. It will one day be a case study for Harvard Business
:03:51. > :03:54.School. Very few companies transform themselves from one activity to
:03:55. > :04:01.another. It takes courage to do it. You've got adjust culturally. You
:04:02. > :04:06.also realise in doing that that you get more focused on what is becoming
:04:07. > :04:11.your core business. That is quite a transformation story. He will not
:04:12. > :04:20.responsible for the takeovers, you are on the British and of it. You do
:04:21. > :04:26.make some decisions. Absolutely. Very often a large takeovers in
:04:27. > :04:33.which there are British entities they have to integrate. The example
:04:34. > :04:40.I will use is a British organisation. It is very small.
:04:41. > :04:43.Sometimes it is interesting why a large corporation should take over a
:04:44. > :04:47.small one. This company was in the 70 people. It is a beautiful company
:04:48. > :04:53.because they make manufacturing software, improving the way in which
:04:54. > :04:59.manufacturing companies scheduled that production. We have a massive
:05:00. > :05:07.ambition to be much Jong in this area. `` much stronger in this area.
:05:08. > :05:12.We cannot write this software fastener. We are looking out for
:05:13. > :05:19.these companies. He was a beautiful company. They already have 4500
:05:20. > :05:23.applications in companies over the world. For us it was a fantastic
:05:24. > :05:27.acquisition. We have to ask how you get the two plus two equals five out
:05:28. > :05:33.of this. You have a good company, Siemens is a good company, you join
:05:34. > :05:38.them together. What are you getting it adds to the value of the good
:05:39. > :05:44.company? We already have a whole host of other software suites. What
:05:45. > :05:47.we can do is now take this better software, integrated with other bits
:05:48. > :05:56.of software we have got and create even more value for manufacturing
:05:57. > :05:58.customers. This small company was getting to a point where it was
:05:59. > :06:04.struggling to get further and bigger market access will stop with our
:06:05. > :06:12.massive sales organisations, our contacts into manufacturing, we can
:06:13. > :06:15.help leveraged a lot more sales. What you also get it if its speed.
:06:16. > :06:23.You can bring the benefits you would get forward. We have had three
:06:24. > :06:28.interesting example. They have all raised different reasons. Look
:06:29. > :06:34.through a list of all the motivations for mergers. Finance,
:06:35. > :06:44.access to distribution, access to a foreign entity, maybe moving into
:06:45. > :06:49.China, media technology. A lot can be refined to what has just been
:06:50. > :06:52.said. Innovation, big companies are less good at innovation and small
:06:53. > :07:00.companies. You can bring in innovation. There is no good reason
:07:01. > :07:06.Lisicki news innovation that unless you can now use the innovation. Also
:07:07. > :07:13.you can have access to people with a particular methodology of research
:07:14. > :07:19.that is important. In other companies, particularly in the US
:07:20. > :07:24.had unique technological advances. It was cheaper to buy them then
:07:25. > :07:33.develop yourself. The event was to take it on, institutionalise it and
:07:34. > :07:42.use it. The risk is that if you're not careful, you institutionalise
:07:43. > :07:49.the people, rather than the product. A whitespace, a technological
:07:50. > :07:56.whitespace. For Siemens the red? Clear strategic ones. One is
:07:57. > :08:11.innovation. We have 30,000 people doing RNs di everyday. `` R and D.
:08:12. > :08:16.We often look for small start`up companies in innovative areas that
:08:17. > :08:19.we can join up with. Maybe a new technology, or something where we
:08:20. > :08:24.can combine technologies. The other key area is market access. We may
:08:25. > :08:28.have the technology, we think you will have a long time to market
:08:29. > :08:34.access. So you want to get into a foreign country. It is a judgement
:08:35. > :08:38.to make. Sometimes you say, we take this 10`year journey or a we have a
:08:39. > :08:43.great company with the market access. There is opportunity to buy,
:08:44. > :08:50.which is not always the case. There are often failing companies. They
:08:51. > :08:56.need to find a direction. Perhaps they can be stripped down, perhaps
:08:57. > :09:02.closed. There is a role for takeovers in those situations. It
:09:03. > :09:07.would be something very unusual for us to do. In those cases, the rainy
:09:08. > :09:10.weather given transformative value company is that you have some
:09:11. > :09:14.synergies where you can join them up and make them profitable. For
:09:15. > :09:18.organisations that Siemens that is expensive. Usually that is more
:09:19. > :09:24.where private equity companies coming. They might then sell on to
:09:25. > :09:31.companies like our companies. Even in the largest companies, you always
:09:32. > :09:37.have limited resources. Whether you are 3M, Siemens, you have limited
:09:38. > :09:45.resources. Your general philosophy is that you are better at a plane is
:09:46. > :09:53.limited philosophy is `` resources to fixing good companies and bad
:09:54. > :09:58.ones. Unless it is a special deal, we would shy away. They are often
:09:59. > :10:06.cheeky get. They may have one gem that you want. You have got to be
:10:07. > :10:11.careful you do with it. There is rubbish, and then there is rubbish.
:10:12. > :10:15.There is no such thing as a cheap acquisition. If it is cheap to buy,
:10:16. > :10:22.he had to invest hugely to make it work. We have listened to your
:10:23. > :10:27.explanations. We have a comprehends it less. Good reasons for mergers.
:10:28. > :10:33.We know a lot of them do not come out as planned. Give me some of the
:10:34. > :10:39.bad reasons for takeovers. Ego. Personally I think the commendation
:10:40. > :10:43.of big egos and too much cash leads to huge pressure from shareholders,
:10:44. > :10:53.particularly now, to give the cashback. Use it or give it back
:10:54. > :10:56.through special dividends. If you have it, give it to the
:10:57. > :11:01.shareholders. It is what is happening. The boss wants to do the
:11:02. > :11:06.deal, investment bankers come in and what to do a deal. If you are not
:11:07. > :11:10.careful, you are on a rollercoaster. History shows there are a few of
:11:11. > :11:15.those. They are in the minority, but it does happen. It is eager where
:11:16. > :11:19.emotion is a bigger driver than looking at the value being
:11:20. > :11:30.generated. Sometimes size gets people. We need to be bigger, how
:11:31. > :11:35.large are we? It must be good. The companies are good, so we must make
:11:36. > :11:39.ourselves big. The ones where the risk grows is when you start and
:11:40. > :11:48.acquisitions away from your core. Transformation as resistance ``
:11:49. > :11:51.acquisitions, we say, I do not like this space and they want to move
:11:52. > :11:56.into another one. The matter how much you try to convince herself,
:11:57. > :12:03.you do not know the customers, the market, the technology. It is a
:12:04. > :12:14.risky pathway. It is an example of a bad one. AOL Time Warner. It was
:12:15. > :12:24.announced in 2000. It was a three and $60 billion `` three page and
:12:25. > :12:31.$60 billion. It was gently dismantled ten years later at less
:12:32. > :12:36.than a quarter of the value. What was the problem with that one? They
:12:37. > :12:42.did not understand the business is that they were in. When the future
:12:43. > :12:47.is less certain, I do not mean uncertain, you have a big dream, at
:12:48. > :12:52.the idea, you have to remember there is a big difference between dream
:12:53. > :12:56.and fantasy. Sometimes it is a fantasy, rather than a dream. As a
:12:57. > :13:03.consequence, these things sometimes go wrong. Especially in these cases
:13:04. > :13:09.when you are mixing the old traditional companies with a seven
:13:10. > :13:13.metre distribution with a new thing where neither party knows much about
:13:14. > :13:18.the other. I can give you a bad example from Siemens. During the
:13:19. > :13:25.worst we lost most of our assets, something would not talk about much
:13:26. > :13:31.and Siemens. Most of our assets were taken by the government and given
:13:32. > :13:35.away. When we came back into Britain with innovation of products, we were
:13:36. > :13:40.desperate to get back what we originally had. One of those was, we
:13:41. > :13:45.wanted to buy back a brand. Everywhere else in the world it
:13:46. > :13:51.belongs to Siemens. In the UK it belongs to GEC. We were desperate to
:13:52. > :14:00.get that brand. It was our main focus. Alongside of it, we picked up
:14:01. > :14:06.all this other stuff that was an absolute nightmare to integrate. I
:14:07. > :14:10.spent about three years closing down a couple of the factories because it
:14:11. > :14:15.did not work. The other thing was, I have her chief executives say that
:14:16. > :14:24.the only thing we can use is to take our overvalued stock and buy theirs.
:14:25. > :14:31.That is a disaster. Then you are losing something really valuable. A
:14:32. > :14:39.bad one is the acquisition of BMW buying another company. This is BMW,
:14:40. > :14:45.that was a small volume luxury German Carmody Thatcher are trying
:14:46. > :14:51.to buy into a Walkman to market. That did not work. Again, what it
:14:52. > :15:00.did do, there were still a silver lining to the cloud and that it got
:15:01. > :15:03.many. BMW had planned on a small entry`level car, and got the brand
:15:04. > :15:10.along with it. Even though they wasted some money on the rover Peter
:15:11. > :15:17.the acquisition, it turned out that the many brought their plans for
:15:18. > :15:25.Wigan by about seven years. Sometimes in a real terrible
:15:26. > :15:28.situation, there is a silver lining. Let's go into some of the mechanics
:15:29. > :15:33.of this. Most people have not been in the `` involved in a merger at
:15:34. > :15:37.the top level. Take us through the process, from inception to
:15:38. > :15:46.completion. It is a bit more than buying a house. How much due
:15:47. > :15:50.diligence do you do? The classic way that these things happen, investment
:15:51. > :15:56.bankers come along, they tried to market it to you. Usually when I
:15:57. > :15:59.received those visits, I go hide in the cupboard. They are the last kind
:16:00. > :16:04.of things that I want to be involved in. My approach is to build
:16:05. > :16:09.relationships with those companies in segments. It may take several
:16:10. > :16:13.years. You may have a partnership of some kind early on, sharing
:16:14. > :16:17.technology, maybe they are eight supplier, or a competitor, but you
:16:18. > :16:27.supply a bit to them. The best targets for me, founder companies,
:16:28. > :16:32.where there is no successor, we can beat the solution to their problem.
:16:33. > :16:35.Every owner worth its salt, a bit like living down, you want to make
:16:36. > :16:41.sure that your dog goes to a good family. We find in those cases, we
:16:42. > :16:44.have a good chance of making a successful acquisition, because we
:16:45. > :16:50.are not in an auction and the price is more modest. Is it going to be
:16:51. > :16:58.contested, is going to be by agreement? Is it public company? You
:16:59. > :17:03.have to have equal access, or is it a private company? The process can
:17:04. > :17:07.vary enormously. You could have significant amount of commercial and
:17:08. > :17:15.financial due diligence, some you can with a public company, some you
:17:16. > :17:18.cannot, also on timeframes. An opportunistic bid that had to be
:17:19. > :17:27.done at very fast notice, which did fulfil a strategic objective. The
:17:28. > :17:32.Barclays acquisition of Bateman. `` laymen. It fulfilled a strategic
:17:33. > :17:45.goal. It came after the collapse of linens. By Monday, the guys were in.
:17:46. > :17:50.The bank... Whether the whole thing could be saved, but it could not be.
:17:51. > :17:53.But it was opportunistic. You had to go fast with the key things. Do the
:17:54. > :18:02.deal very quickly to keep the resources. The compaction of time.
:18:03. > :18:05.Did it work? I do not think it would be right but the payback period
:18:06. > :18:11.could be measured in much less than years. Let's suppose you have the
:18:12. > :18:17.best of intentions, good strategic intentions, long`term ones, you have
:18:18. > :18:21.done your due diligence, you have butted up the company that you are
:18:22. > :18:27.buying, you have persuaded them it is a good team, they are or opt for
:18:28. > :18:36.it, now you have sealed the deal. It is where the trouble begins. The
:18:37. > :18:40.real key to success is execution. Recently, BT did a post acquisition
:18:41. > :18:47.review of what had been sent to the board and what actually happened.
:18:48. > :18:52.There were some brilliant products in their, technologies that we never
:18:53. > :18:55.properly expanded. We do not understand the people, the elements
:18:56. > :18:59.of smaller companies with good products. We found that some things
:19:00. > :19:05.were better than we thought, but not for the reasons that we thought. It
:19:06. > :19:08.epitomised the things that I have seen for many years. If you do not
:19:09. > :19:12.understand how you are going to integrate the company and its
:19:13. > :19:17.products, its people, particularly when you are big and they are small,
:19:18. > :19:21.in a way that motivates them, so they do not walk out the door, so
:19:22. > :19:26.you can take the technology and use it around the whole organisation,
:19:27. > :19:31.these are challenges which you have. The one thing you do not know until
:19:32. > :19:36.you have started, the cultural aspects. A company like Siemens, you
:19:37. > :19:40.cannot take a small company and throw what can be quite complicated
:19:41. > :19:50.systems onto them. You will stifle them. Listening to you talking about
:19:51. > :19:57.the motives for takeovers, the execution of takeovers, it does
:19:58. > :20:02.sound like... And this is a business point which is not original, the
:20:03. > :20:09.human factors are absolutely key. Everything is about human factors.
:20:10. > :20:13.It is 5% manufacturing plants and synergies, it is all about the
:20:14. > :20:16.motives, they are driven by human beings who have egos and fighting
:20:17. > :20:23.battles which may be relevant or irrelevant. There is a lot of gut
:20:24. > :20:28.feeling on the end of it. It is not an individual one. At the end, a
:20:29. > :20:33.team of you will get together with different experiences. The Finance
:20:34. > :20:40.people were put their advice in, but in the end, it does come down to a
:20:41. > :20:44.gut feeling. Many people think there is an intuition that people have
:20:45. > :20:48.about certain issues. It tells you about something about people at the
:20:49. > :20:53.company. Their run things that you can never programme for. It is not
:20:54. > :20:59.good to be stupid, but it is not enough to be clever. You need to
:21:00. > :21:03.have a bit of luck. Technologies suddenly get taken over that you did
:21:04. > :21:09.not expect. Markets collapse for reasons that you could not have
:21:10. > :21:18.foreseen. That is business. That is boosting king. `` risk taking. There
:21:19. > :21:29.is an interesting piece in Robinson Crusoe, he is asking himself, why do
:21:30. > :21:35.C think something is logically, it goes wrong, but when he relies on
:21:36. > :21:40.his gut instinct, it goes right. There is no such thing as gut. It is
:21:41. > :21:46.a collection of experiences, observations, packaged in a single
:21:47. > :21:50.kind of conglomerate block. That is what you are relying on. It is not
:21:51. > :21:55.guesswork. It is the sum of experience. There is the emotional
:21:56. > :22:02.factor that you cannot get away from. Would you all agree that
:22:03. > :22:06.executives, corporate executives, should not view business as a
:22:07. > :22:15.process in dealmaking, buying and selling, it is about creation. Isn't
:22:16. > :22:20.it exhilarating? It is. We could leave people with the impression
:22:21. > :22:25.that it is all about deals. At a company like Siemens, and innovation
:22:26. > :22:31.company, if you are not innovating, that is 90% plus. We have 30,000 R
:22:32. > :22:35.people. What we have been talking about is the 10% on top, which is
:22:36. > :22:40.just something that we could not quite do ourselves. We are adding to
:22:41. > :22:45.a portfolio. It cannot be the majority. Innovation is not only
:22:46. > :22:58.about doing innovation, it is about Ding and adopting stop `` adopting.
:22:59. > :23:02.There is no doubt that at some period, 80s and 90s, if things are
:23:03. > :23:13.going bad, confuse everyone by buying a company. I think in the
:23:14. > :23:18.end, in many respects, their run more companies to destroy value
:23:19. > :23:21.through acquisitions. There should always be a buy Apple where sticker
:23:22. > :23:34.on acquisitions. Thank you all, gentlemen. `` buyer beware.
:23:35. > :23:42.I will be back with more guests next week. Don't forget that you can
:23:43. > :23:50.download the show. Details on our website. You can always listen to it
:23:51. > :23:55.on BBC Radio 4. We also like to get your emails. Drop us a line: