Surviving a Merger
[Note: further information on surviving a merger can be found in my other blog: www.survivingmergers.com]
If your company is merging, acquiring, or (the worst situation, unless you’re the owner and negotiated the deal) being acquired, should you stay or leave? This is another area where scenario planning and business intelligence is critical . These topics can therefore apply to individual managers and employees as well as the company itself. Most of this blog has been addressing mergers from the corporate perspective, but that doesn’t even matter if you haven’t looked out for #1.
The first question to ask oneself: ‘Can the merger can actually serve as a jump start to a new career?’ In answering this question, stay focussed on career goals. Do you want to remain with the new company, or is this a perfect opportunity to change? The merger can often be used as the excuse to move. Fortunately as well, prospective employers will assume that every merger has the consequence that good people leave (and the market often assumes that the best people are the ones who leave first as they have the most external career opportunities and are the people who don’t want to waste time to wait to see if they are retained).
Perhaps there will be an opportunity to take an attractive redundancy or termination package. Redundancy packages can often be higher immediately after a merger than at other times because the company has taken financial provisions for such redundancies and/or you will be part of a larger group being made redundant; most acquirers also want to avoid negative publicity during a merger. A redundancy package would be especially attractive if you were considering leaving anyway, as many companies not only pay for you to leave, but offer at the same time outplacement counselling, re-training, relocation benefits, or other benefits. Most employees made redundant are also considered ‘good leavers’ and thus keep many of the benefits that they had accrued during their career, such as health care and other insurances, long-term incentive options, and even deferred cash bonuses.
Of relevance today to the fight by the Royal Bank of Scotland and Barclay’s bank for ABN AMRO is the acquisition of Bankers Trust, acquired in 1999 by Deutsche Bank in a transaction that was, at the time, the largest purchase of a US bank by a foreign company. Of course, the two bids for ABN AMRO dwarf that deal from almost a decade ago, but there are some interesting lessons.
In 1998, the senior management of Bankers Trust, the eighth largest bank in the United States, knew that it would be acquired. The principal banking regulator in the US, the Federal Reserve Board, had told Bankers Trust management that they needed to take steps to improve their capital base and reduce risks. They were told to look for a strong partner.
Given that management knew that they would likely be acquired, preparations were made by many in the bank to reduce their personal financial risks. There was some history to this preparation, as disclosed by the equity research analysts at Sanford Bernstein.
In 1997, Bankers Trust had acquired Alex Brown, the oldest investment bank in the United States. At the time of acquisition, it became known that the top twenty executives of Alex Brown had signed employment contracts and that Bankers Trust had earmarked nearly $300 million over three years for incentive compensation of a group of several hundred Alex Brown staff members.
Given this history of retention payments and the expectation that they were to be acquired, it is not surprising that when Deutsche Bank acquired Bankers Trust just under two years later, Bloomberg reported that the Chairman of Bankers Trust signed a contract worth $55 million over five years plus $14 million over three years in deferred compensation, but it was rumored that his severance package was $100 million when he ultimately left Deutsche Bank only a month after the deal closed in June 1999. The Bankers Trust CFO also left, reputedly with another sizeable package.
It was not only the very top staff who benefited from these retention and redundancy payments. At the time of the acquisition, Deutsche Bank announced that it expected to take a charge of DM 2 billion ($1.2 million) to cover severance payments and to set aside DM 700 million (almost $420 million) over three years for retention payments to retain 200 key staff.
Not a bad deal if you can plan for it in advance! One wonders how many managers in ABN AMRO have had such packages hastily added to their contracts. We may find out soon, or we may never know. Are there any other such examples?