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Sunday, July 8, 2012

A tale of two companies

Company X takes over Company Y. X's top guy was supposed to relinquish the CEO position of the post-merger corporation to John Doe, the top guy at Y. Immediately after the merger was consummated, however, Doe resigns.

An outcry has ensued. Here's how I see it.

  • Y's board says that Doe's retention by X was integral to the deal. Such a statement reflects poorly on Y's board; they look naive for trusting X and overly concerned about protecting their buddy Doe. Y's board feels guilty about the whole deal because of the small premium that X paid for Y and the hundreds of Y employees whose jobs will be eliminated by X. Y's board certainly doesn't want anyone to sue on grounds that they breached fiduciary duty.
  • Politicians distrust X although they liked or at least tolerated Y. The expectation that Doe would run the post-merger corporation made the deal palatable to politicians. Problem is, that's a lousy basis on which to consider a deal. Remember that Doe's predecessor at Y dropped dead while CEO. Never allow a single individual, even if it's Steve Jobs or Warren Buffett, to color a deal.
  • Had X already decided to force out Doe before the merger was consummated? If so, they may have knowingly misrepresented the deal to regulators. That's dynamite if it can be proved. The NCAG smells blood on this one, and it would be a feather in his cap.
  • No one in the general public feels sorry for Doe, who got a $44 million settlement. Also, after a brief duration of no-compete he'll be able to pursue a CEO job elsewhere. For that reason I don't think you'll see Doe go public with his thoughts, unless he is subpoenaed.
  • Perhaps X cynically manipulated Y and then reneged on a gentleman's understanding for no good reason. But I don't believe so; this doesn't sound like a faux pas by Doe on the golf course. Eighteen months passed before the deal closed -- a sufficient period of time for mistakes to be made, dirty laundry to be aired, new facts to emerge, serious disagreements to arise, etc.
  • Corporate politics at this level are a contact sport. Nobody in this game was a rookie.
Keep watching the newspapers; this could get interesting.