POST-MERGERS INTEGRATIONS:CASE HISTORIES PRESENTED BY FRANCESCO PICCONI

MERGERS & ACQUISITIONS

EXECUTIVE MBA PROGRAM

MIP SCHOOL OF MANAGEMENT POLITECNICO DI MILANO

MILAN, MAY 7th, 2009

CASE HISTORIES OBJECTIVES

Introduce some selected case histories of

post-merger integrations from an organizational and human resources perspective

Highlight and discuss lessons learned

Each case history is presented in terms of:

•Case Description

•Post-merger integration changes

•Post-merger integration approach (organization&HR)

•Lessons learned

CASE HISTORIES SUMMARY (1)

M&A INITIATIVE

acquires

Nuovo Pignone

MAIN IDEA Battle of culturesHow a major “giant” U.S. Corporation witha leadership driven culture integrates anexcellent Italian company with a strongtechnological leadership and a technologydriven culture

and

create a JV

Retaining the key people

How an Italian global multinational (part of FIAT group) with an overall “light” culture retains the key people coming from a German technology-driven multinational with a strong culture

CASE HISTORIES SUMMARY (2)

M&A INITIATIVE

acquires

MAIN IDEA Coping with failureHow an Italian industrial organization(part of FIAT group) tries to integratedownstream a financial service Frenchfamily-owned company and is forcedto re-sell because of both group financialcrisis and culture clash

acquires

Organization dis-integration

How a UK national leader, after being sold by GE, is “unpacked” and absorbed by an Italian aggressive multinational which in turn valorizes its brand

CASE HISTORIES SUMMARY (3)

M&A INITIATIVE

acquires

MAIN IDEA

The sleepers It’s not a must to integrate: alarge UK-based multinational (nowpart of TATA steel) decides not tointegrate a mid-sized Frenchcompany after many years fromthe Acquisition.

T&D

acquires

VEI Electronic Industries

The technological nuggets

How a French multinational integrates and develops two Italian mid-sized family-owned companies with a strong technological potential

GE ACQUIRES NUOVO PIGNONE (1)

WWW.GEOILANDGAS.COM

CASE DESCRIPTIONIn 1993 GE Power Systems acquires from ENI the companyNuovo Pignone, the global leader in turbines, compressors andservices for oil&gas and power generation applications. At that time, Nuovo Pignone had about 5,000 employees basedically in Italy and 2,2 BN $ sales. Later, GE built a stronger organization around Nuovo Pignone, after an impressive round of global acquisitions in machinery & services for oil&gas applications. Today, renamed GE Oil&Gas, it has 10,500 employees and 5,9BN $ Sales.

GE ACQUIRES NUOVO PIGNONE (2)

POST-MERGER INTEGRATION CHALLENGESBattle of cultures: how a major “giant” U.S. Corporation with a leadership

driven culture integrates an excellent Italian company with a strong technological leadership and a technology driven culture

POST-MERGER INTEGRATION APPROACH (ORGANIZATION&HR): Put GE people (expats and Italians) as CEO in Finance, Legal, HR,

Quality and Purchasing, but leave in the first period local Italian Management team in the core functions: Sales, Technology, R&D and Industrial

Start immediately to identify young Italian second-line managers and middle managers to be “converted”, trained and prepared to replace Senior Management in max 1-2 years in the core functions, and can later become “pioneers” on their turn when GE acquires other companies in the oil&gas business

Introduce a process-driven mentality facilitating interchangeability of people in key positions

GE ACQUIRES NUOVO PIGNONE (3)

LESSON LEARNED If you don’t know deeply the business, then send few people

in the Top Management and in the “governance” functions (finance, legal, HR), but leave initially the existing managers in Operations, in order to secure continuity while you better learn the business, the customers and the employees

Work immediately on succession plans, identifying and preparing the new leaders for the future

Send some of the future leaders abroad for a period to let them interiorize the new culture

Work on changing the culture from day 1

Magneti Marelli and Robert Bosch create JV AUTOMOTIVE LIGHTING (1)

WWW.AL-LIGHTING.DE

CASE DESCRIPTION In 1999 a 50%-50% JV was created by managing together the car lighting businessof the Italian multinational Magneti Marelli (mainly Carello), the automotivecomponent business of FIAT Group, and the lighting division of the Germancomponent maker Robert Bosch, to create the global n.2 player in the automotivelighting business. The aim was to put together two complementary marketstrenghts in the high-tech, high price segment (R. Bosch) and in the mid-tech, price sensitive segment (Magneti Marelli). In 2001 Magneti Marelli acquires the Italian rearlamps maker Seima and merges it with Automotive Lighting, thus reaching 75% and 100% in 2003. At the time, the new company had about 8,500 employees worldwide and 1 BN Euro Sales turnover. From a people standpoint, the main emergency in the first 2 years has been the risk that the key ex-Bosch people could go back to the “big mother” Bosch, as all Bosch sites are normally co-located. In the due diligence phase, a clause to prevent all employees from going back to the mother companies, had not been stipulated.

Magneti Marelli and Robert Bosch create JV AUTOMOTIVE LIGHTING (2)

POST-MERGER INTEGRATION CHALLENGESRetaining the Key people: how an Italian global multinational (part of FIAT

group)with an overall “light” culture retains the key people coming from a Germantechnology-driven multinational.

POST-MERGER INTEGRATION APPROACH (ORGANIZATION&HR):

In the first year, while a 50%-50% JV, Magneti Marelli launched a global campaign to identify the 100 ex-Bosch key people at any level in the organization and to assess who could be culturally “converted” to the new organization.

For these people, an individual channel of communication was opened and a retention plan (future promotions and salary increases) could be communicated to them.

“Lobbying” activity with Robert Bosch to prevent “poaching” from Automotive Lighting these key people and to convince them to stay with the new JV.

Launch of a large scale communication campaign (house organs, specific initiatives) to create a sense of common culture among all employees.

Magneti Marelli and Robert Bosch create JV AUTOMOTIVE LIGHTING (3)

LESSON LEARNED

Spend time and money in the due diligence process In the due diligence, include an interview with senior managers, to

early assess their motivations and their criticality to business success Put safeguard clauses on employees, banning the seller form hiring

them for a minimum of 2-3 years without prior agreement, even if they, in that period, join a third company

Keep cultural stereotypes in mind in order to find ways to overcome them…

Identify early the new leaders and open a direct channel of communication with them, sharing career and (why not) salary perspectives

Communicate the new culture heavily…it is often a matter of bringing our fears from “the belly” to “the head” and rationalize

IVECO ACQUIRES GROUPE FRAIKIN (1)

WWW.FRAIKIN.COM

CASE DESCRIPTIONIn 2001 the Italian multinational IVECO, the truck business of FIATGroup, acquires the French family company Groupe Fraikin, active in multi-brand leasing and renting of industrial and commercial vehicles, and merges it with its financial services business (financing and leasing of IVECO trucks). At that time, Fraikin had 2,500 employees in Europe and about 500 MN Euros sales turnover. After some attempts to bring the service-led Fraikin in the structured industry-led culture of IVECO, and in particular following the financial crisis of FIAT Group in 2002 which imposed a drastic cut of gross debt, Groupe Fraikin was re-sold to the French investment company Eurazeo.

IVECO ACQUIRES GROUPE FRAIKIN (2)

POST-MERGER INTEGRATION CHALLENGESCoping with failure: how an Italian industrial organization (part of FIATgroup) tries to integrate downstream a financial service French family-owned company and is forced to re-sell because of both group financialcrisis and culture clash.

POST-MERGER INTEGRATION APPROACH (ORGANIZATION&HR): IVECO appointed the former CEO of Groupe Fraikin as MD of its

whole financial service business. Same for the CFO, while the HR Director was moved to the new headquarters in Paris.

Operations were never really integrated. HR was left basically with the responsability of driving the people

integration, with little commitment from both the IVECO top management and the Fraikin top management.

The sudden financial crisis of FIAT Group in 2002 did the rest…

IVECO ACQUIRES GROUPE FRAIKIN (3)

LESSON LEARNED

Events apparently far from the acquired context (F.I. crisis of car business of FIAT in 2002) can dramatically impact and change perspectives in the business acquired

Don’t feel necessary forced to integrate cultures in the short term…But if you choose to do that, be consistent and do it seriously

Don’t let HR manage integration! Top managers should do that

INDESIT COMPANY ACQUIRES GE HOTPOINT (1)

WWW.INDESITCOMPANY.COM

CASE DESCRIPTION In 2003 the Italian multinational INDESIT COMPANY (at that time named Merloni Elettrodomestici) acquired from GE Appliances the UK-based division GDA-HOTPOINT, national leader in household appliances. GDA-Hotpoint had 6,000 employees, almost 1 BN Euros sales turnover and a strong local brand. In 2005, Hotpoint was disassembled and its 5 plants largely reaggregated to the Indesit Company division. Several of them have later been closed or are currently under closure. Today Hotpoint has been developed in terms of sales force and service, and as centre of excellence for the top-load washing machines. Today IndesitCompany employees about 17,000 people with sales turnover of 3,1 BN Euros.

INDESIT COMPANY ACQUIRES GE HOTPOINT (2)

POST-MERGER INTEGRATION CHALLENGES

Organization dis-integration: How a UK national leader, after being sold

by GE, is “unpacked” and absorbed by an Italian aggressive

Multinational which in turn valorizes its brand.

POST-MERGER INTEGRATION APPROACH (ORGANIZATION&HR): Indesit initially moved to the UK a small team, including the new MD,

the Finance Director, the Operations and R&D leaders, to get a better understanding of the industrial footprint.

Later, Indesit reorganized the activity, downsizing heavily and moving production largely to the East Europe, strenghtening the sales and the service organization.

The future…Will Indesit Company be re-named “Hotpoint”?

INDESIT COMPANY ACQUIRES GE HOTPOINT (3)

LESSON LEARNED Have clear in mind what you want to achieve from an

acquisition (a market, access to technology, a service organization…)

Take the time to understand the new organization before reorganizing it

Once you get a good grasp of the acquired company, act swiftly and consistently

When you have to change the organization, “unfreeze” the status quo, then “cut” and then quickly “freeze” again. Don’t let organization change drag on and on for months.

AREVA T&D ACQUIRES PASSONI&VILLA SPA and VEI SPA (1)

WWW.AREVA.COM T&D VEI Electronic

IndustriesCASE DESCRIPTION: In 2007 AREVA T&D, the Transmission&Distribution Business of the French multinational AREVA, acquired Passoni&Villa SPA and VEI SPA, two mid-sized Italian companies, from the founders or their families. In both cases, the acquired companies have a global leadership position (N.3 worldwide) in high voltage insulators (Passoni&Villa) and some medium voltage products (VEI). The aim of AREVA T&D is to make of both companies a Centre of Excellence for the Group, and to expand significantly the capacity, particularly with Joint Ventures and start-ups in China and India.

AREVA T&D ACQUIRES PASSONI&VILLA SPA and VEI SPA (2)

POST-MERGER INTEGRATION CHALLENGESThe technological nuggets: how a French multinational integrates anddevelops two Italian mid-sized family-owned companies with astrong technological potential.

POST-MERGER INTEGRATION APPROACH (ORGANIZATION&HR): As in these family-owned companies the managerial and talent

pipeline is often dry, AREVA T&D started by securing and “converting” the GM, one of which later retired to be replaced by a reputed Swiss external new GM.

In one year the Management Team of both companies has been rebuilt with external managers, or Italian Areva T&D managers previously based in France.

A “not without you” approach has been chosen, persuading the former senior managers, to stay with AREVA T&D, by accepting to report to external new managers with multinational culture.

AREVA T&D ACQUIRES PASSONI&VILLA SPA and VEI SPA (3)

LESSON LEARNED Work hard to identify the “technological nuggets”: companies

not necessarily big who own a unique product or technology. Then develop them into a bigger context.

Trying to keep the existing senior managers on board can be the best option. If necessary, persuade them to accept a different role in which they can bring their technical competence and market knowledge.

Keep in mind that family-owned entrepreneurial companies have often a more practical and less burocratic management: this is frequently a strenght point.