Are mega-mergers like Citigroup workable? It can be painful but possible if both sides are willing to adjust


November 08, 1998|By Bill Atkinson

LAST APRIL, when Citicorp and Travelers Group signed a blockbuster deal to merge and create the world's biggest financial services company, a top executive said it was a transaction "whose time has come," a deal that "simply had to happen."

The same month, NationsBank Corp. and BankAmerica Corp. agreed to merge, creating the first coast-to-coast banking giant. But the mergers have hit snags as personalities along with corporate cultures have clashed. Last week, Jamie Dimon, a Travelers star seen as the heir apparent to eventually run Citigroup, was pushed out for failing to meld the companies. And David Coulter, expected to succeed Hugh L. McColl Jr. as chairman of BankAmerica, resigned Oct. 20, after losses from an investment in a hedge fund.

These surprising developments show just how difficult it is to put together big companies, and they lead to the following questions: Are mega-mergers workable? How difficult are they to put together? Are they worth the time and effort?

William W. Sihler

Professor of business administration, University of Virginia, Charlottesville

In terms of how tough are they to put together, the answer is very. It helps if one set of senior managers is retiring. It is incredibly difficult if the cultures are diametrically opposed. You think of a culture where you have intense competition for people, for promotion and you put the two together, and it can be very painful.

There is no doubt that when you have two very large

organizations, there is usually room for only one guy at the top. Joint managers have not worked very well in the U.S., especially where you have cultures where the people at the top are very aggressive and each guy is looking for a chance to outdo the other.

Citigroup -- that is apples and oranges. I am personally very skeptical of how it is going to work. Citigroup has extremely exceptional talent, but to cross-sell the banking and insurance products is a real challenge.

There clearly is a lot of pushing and shoving going on there. People were betting the people at Travelers were going to come out on top, but I wouldn't bet on it. The people at Citi[corp] have a lot of experience politically. They have a lot of very strong people.

Frank C. Bonaventure

Attorney, Ober, Kaler, Grimes & Shriver, Baltimore

It is inherently difficult to mesh two corporate cultures together without some grinding of the gears. Even a small bank merger is difficult. You have people who have certain expectations that once the two become one, those expectations may not be met. That's applicable to all mergers. Big-name executives in the two merging companies may want to retain the status that they had prior to the merger in the new company, and sometimes that just isn't in the cards. They have to be willing to change or leave.

None of that means you can't have a good merger that is well planned and expectations are met. Any mega-merger has to be contemplated with an extreme degree of planning and organization; even with that there are going to be problems and unforeseen difficulties. It is like a marriage between two people -- it takes a little adjustment. Sometimes it works, and sometimes it doesn't.

But I think we do need to be globally competitive. The foreign banks are doing big deals in the United States, and they are doing it because they have the size and the capital. You have to be of some size today.

Eric Rothmann

Senior equity analyst, Stephens Inc., Little Rock, Ark.

In a lot of these mega-mergers, the opportunities for synergies, size and scale work, but you have to get to the point where people who are the survivors can make it work or want to make it work. There is a lot of give-and-take.

If you look at Cincinnati's Star Banc and Firstar [Milwaukee], they have worked everything out ahead of time so everyone knows what part they are playing.

Something like Citicorp and Travelers, that is a very unique one. Those are two different types of businesses coming together. You have to finesse it.

We are going into a new frontier, but it is a learning process. We are going to have to have some banks that are truly global institutions, because there are many companies that want to deal with one financial services company.

Joan T. Goodman

Bank analyst, Pershing, a division of Donaldson Lufkin & Jenrette Inc., Chicago

The megas are very tough to put together. You always have a clash of wills among the chief executive officers. We see it happening with Citigroup; it happened with BankAmerica.

But the megas have proven to be pretty workable. When Chase merged with Manny Hanny [Manufacturers Hanover Corp.], that worked out pretty well. When Fleet took over Shawmut, that worked out pretty well.

In the case of Citi, it is a little more tenuous because they are so big, the head of the dragon doesn't know what the tail is doing. I still think it stands a good chance.

Pub Date: 11/08/98

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