Abstract:This paper is an attempt to explain the paradoxical nature of mergers and how different mergers havemet with different fates in the past. The paper also talks about various underlying issues and reasons forthe success(failure) of various mergers. The failure may be a result of asymmetries in information inaddition to problems of cooperation and coordination within recently merged firms. The firms mayagree to merge and then abstain from putting forth any post-merger efforts, counting on the otherpartner to make necessary efforts. The reasons for the success of merger may be the perfect blend ofcultures, complete and clear merger objectives, proper communication and information sharing andexchange, resource planning, and risk management. This paper studies the cases of AOL-Time WarnerMerger and HP-Compaq mergers as failures and successful merger of Adidas-Reebok and tries tounderstand why these mergers met whatever fate they did. Additionally, a merger between Idea-Vodafone was analyzed. However, since the merger is still under process, its future is uncertain.Introduction:All companies come into business with the common goal of profitable growth. This can be achieved byboth internal and external factors. Internally, by introducing new products or by increasing market shareor by increasing sales or via expansion. Externally, it's achieved via merger and acquisition(M&A) ofexisting business firms. Currently, around the world, M&A is used extensively as a strategy to achievelarger asset base, for generating newer markets and increasing market share.Interestingly, mergers happen in waves. The following figure (Figure 1) talks about the different mergerwaves that have occurred and are currently occurring:Figure 1: History of Merger Waves. key 7The past decade in India saw a major merger wave in a variety of sectors, especially in the Internetspace. The merger wave in Internet began by acquiring of Bazee.com (Online auction portal) by eBay in2014. Indian e-commerce sales are expected to grow to $120 billion by 2020 from $30 million in 2016.The acquisition of Ibibo by rival company MakeMyTrip at $1.8 billion is one of the largest mergers inIndian internet market. The merged entity is now dominating the market with 50-60% market shareleaving almost no room for competition. In other sectors too, a similar story of merger wave can be seenwritten in the past decade. Mergers between Indian companies is not the most common. Rather mergerbetween Indian and foreign companies is something that's been seen very often. In 2015, one of highprofile merger of India through absorption was that of Kotak Mahindra Bank Ltd., and ING Vysya, theIndian branch of the Netherland’s ING Bank. Kotak Mahindra signed a Memorandum ofUnderstanding(MoU) with ING Bank, establishing both firms’ cooperation in exploring cross-borderopportunities, and leading to ING now owning a minority stake in the Indian firm.Despite the higher degree of strategy and planning & investments of hundreds of crores of rupees, alarger number of mergers fail to generate value. In 1987, the professor of Harvard, Michael Porter foundthat around 50-60% mergers ended in failures. In 2004, McKinsey too found that only 23% of theacquisition ended up on a positive note on the investment front.We did an analysis of different mergers and compared successful and failed mergers and found answersto merger paradox. Finding adequate answers to the merger paradox is important for several reasons.Firstly, understanding the determinants of merger failure is helpful to developing effective corporatestrategies in daily business practice. Secondly, since merger failure not only appears to express itself interms of profits or innovation but in terms of shareholder value too, understanding merger dynamics isalso helpful to investors. Finally, since merger failure at times is so widespread, understanding its causesbecomes of use for public policy makers too.Keywords: Merger-paradox, mergers, HP-Compaq Merger, AOL-Time Warner Merger, Idea-VodafoneMerger Paradox. mergers and acquisitions, M&A, advisory firms, merger & acquisition process, projectmanagement, critical success factors, project success criteria.Literature Review:The term merger implies joining of two or more companies resulting in the continuation of one of theexisting entities or forming of an entirely new entity. When one or more concerns merge with anexisting concern, it is the case of absorption. The merger of Global Trust Bank (GTB) with Oriental Bankof Commerce (OBC) is an example of absorption where after the merger, the identity of the GTB getslost and OBC retains its identity. Amalgamation is the process of merging of two or more companies andforming a new company. The merger of Bank of Punjab and Centurion Bank resulting in the formation ofCenturion Bank of Punjab is an example of amalgamation. Acquisition is the act of acquiring effectivecontrol over the assets or management of the corporate without any combination of both of them. An'unwilling' acquisition is called takeover. Even though the terms mergers, acquisitions and takeovershave specific meanings, they are used interchangeably. Further, they may be friendly or hostile.Generally, mergers are friendly whereas tender offers are hostile. M&As aims optimum utilization of allavailable resources, exploitation of unutilized assets and resources including human resources,eliminating or limiting the competition, achieving synergies, achieving economies of scale, forming aMerger Paradox5 | Pagestrong human base, installing an integrated research platform, removing sickness, achieving savings inadministrative costs, reducing tax burden and ultimately improving the profits.Figure 2: Map of merger process key 7KPMG, an accounting firm, predicts the following sectors will be ripe for significant M&A in India:Consumer goods; Medical devices, Healthcare, Pharmaceutical; Media & Technology; Energy;Infrastructure.Some mergers fail and some succeed.KPMG identified six factors that lead to a successful merger. These factors are the proper initialevaluation, well-made integration project planning, due diligence, making a capable management team,cultural issues resolving and importantly, good and transparent communications.In measuring the failure of a merger, the big problem is determining the criteria that should be met fordeeming of a merger. Failure of a merger may be a result of the information asymmetries arising fromthe pre-merger period in addition to the problems of cooperation and coordination post the merger.Also, the target company may have a superficial strategic fit and the failure may be a result of a flawedbusiness strategy.So, it’s pretty evident that mergers are fraught with complications. Without detailed due diligence andcareful executions, these big-ticket mergers are sure to be doomed. It’s a phase of transition and thesetransitions are not easy. There are troubling questions in every stakeholders’ mind. Layoffs, customerintegration, leadership change, product portfolio revamp is a long process and not so easy to deal with.Merger Paradox6 | PageTable 1: Causes of Failures versus Causes of Success key 8The above table from Carlton (1997), studies 100 failed mergers, states the above as the key causes ofsuccess and failures of mergers.It is commonly believed that the failure rate of M;As' is a whopping 83%. A merger is considered to besuccessful if it increases the merging firms' value. But an equally important aspect that should be takeninto consideration is the sustenance of the positive benefits of any merger post-merger integration.Industry Case Studies:AOL-Time Warner Merger. Status: Failure.AOL and Time Warner combining their businesses is usually described as the worst merger of all time. In2000, AOL announced the purchasing Time Warner for $164 billion. AOL shareholders would own 55% ofthe new company, due to the larger market capitalization of while Time Warner shareholders ownedonly 45%.At the time of the merger, a lot of people thought that it was a brilliant move and were worried thattheir own companies would be left behind. At that time AOL was at the head of the pack as the’dominant' player and its sky-high stock market valuation, bid up by investors searching for a windfall,made the young company more valuable in market cap terms. Then CEO Steve Case was already lookingaround before the Time Warner opportunity came up. On the other hand, Time Warner anxiously tried,and failed, to establish an online presence before the merger and was looking at this merger as thesolution and the strategy sounded compelling. Time Warner viewed it as an opportunity, via AOL, tonow have a footprint of tens of millions of new subscribers. AOL, in turn, would benefit from access toTime Warner's cable network as well as to the content, adding its layer of ‘user-friendly' interfaces ontop of the pipes. Had these initial assumptions been borne out, it might today be known as a visionarydeal.Merger Paradox7 | PageThe lack of due diligence of culture by merging entities is seen as the reason for their failure. The mutualdisrespect due to aggressive and arrogant AOL people ‘horrifying' the staid and corporate Time WarnerEmployees discolored their relationship.A few months later after the deal closed and the dot-com bubble burst economy spiraled into recession.This lead to AOL being forced to take a goodwill write off of close to $99 billion dollars in 2002 thatshook even the hardened Wall Street Journal writers. AOL was losing its subscribers and subscriptionrevenue and its total value went down from $226 billion to $20 billion.This was a case of when a combination of capabilities that at one point made a firm a leader, erodes andis replaced by the next form of competitive advantage. AOL was indeed the king of the dial-up Internet,but in a rapidly changing world, importance was moving towards a much faster broadband. At the timeof the merger, half the country had Internet access, but only 3% had broadband. AOL’s original businessmodel – based on payment for usage and subsequently for a monthly subscription – was about toimplode. The eventual divorce of the two businesses was inevitable.The following graph is an accurate representation of what happened to post the merger was announcedand how it’s classified as one of the biggest blunders in the history of mergers:Graph 1: Impact of AOL-Time Warner MergerKey-9HP-Compaq Merger. Status: FailureMerger Paradox8 | PageIn 2001, Hewlett-Packard Company and Compaq Computer Corporation announced the merger whichwould lead to the creation of an $87 billion global technology leader. The combined company wasexpected to have No.1 worldwide positions in servers, access devices and imaging and printing, as wellas leading revenue positions in IT services, storage and management software. The merger wasexpected to generate approximately $2.5 billion annually and drive an enhanced cost structure. HPshareowners owned approximately 64% and Compaq shareowners owned 36% of the merged company.The merger was expected to lead to the formation of a stronger company and would lead to largermarkets and developments in newer markets however it leads to a completely different tangent. Thecritics called it a strategic blunder and some claimed it to the dumbest deal of the decade. Together, thepair lost US$ 13 billion in market capitalization in a couple of days. A major reason for the failure of thisdeal is lack of proper strategy. HP culture was largely based on engineering and compromise, whileCompaq had a hard-charging sales culture hence the cultural blend never occurred. Rather than beingfree and flexible, the management was bit autocratic and centralized. Legal contemplations,compatibility issues and risk management failures were reasons why this merger is considered ablunder.Adidas and Reebok Merger. Status: SuccessIn 2005, Adidas announced the plan to acquire Reebok North America at an estimated value of $ 3.78billion. Offering a 34% premium on last closing price which was an excellent deal for Reebok as it toowas facing tough competition from companies like Nike, Adidas and Puma. In North America, thefootwear market was dominated by Nike by around 36% market share. Increased market share and costcutting through synergies were the clear-cut strategies for both merging firms. The quality of productsof Adidas with Reebok's style quotient was the plan to capture the scene.In 2005, post the acquisition of Reebok, the market share of Adidas-Reebok in the US catapulted to 21%from 8.9% which was very close to the 36% share of the market by Nike. Sales revenue spiked to 52% in2006, which was a representative of highest organic growth of the Adidas group within last eight yearsand was the first time in the group's history that it managed to cross EUR 10 billion benchmarks.A lot of factors lead to the success of the merger such as the blend of individuality and union along withcultural blend and economies of scale. The effortless merging of Adidas and Reebok culture gave a newidentity to the organization. This merging was a result of effective implementation, propercommunication and clear strategies of the merging entities. Adidas-Reebok is one such merger whereboth the companies managed to create a portfolio of new offerings while keeping their individualityintact. While Adidas focused on its international presence and high-end technology, Reebok banked onits strong presence with the youth. In North America, Reebok already had a strong foothold whichAdidas used to enhance distribution. Increased operations translated into reduced cost across eachforward of the value chain such as manufacturing, supply, distribution and marketing.Idea-Vodafone Merger. Status: Set to trial of time.The merger deal between telecommunications businesses of Vodafone India and its wholly-ownedsubsidiary Vodafone Mobile Services, with Idea Cellular, was announced in March 2017. It's expected tobe completed by 2018. This will lead to the creation of the country's largest mobile phone operatorworth more than $23 billion with a 35 percent market share. It is the largest transaction by value in theMerger Paradox9 | Pagehistory of Indian M&A. Shardul Amarchand Mangaldas and Co is the advisor for Vodafone India andVodafone Mobile Services on the deal. According to the statement issued the regulator carried out acomprehensive review of the transaction and had concluded that from the proposed merger there wasno appreciable adverse effect on competition. Law firm Trilegal is the Idea Cellular advisor on thecompetition law aspects and had said the deal with Vodafone India has received CCI approval. TheSecurities and Exchange Board of India (SEBI) and exchanges have given a conditional go-ahead to thedeal and is now subjected to the outcome of an ongoing probe by the regulator and approvals frompublic shareholders and the National Company Law Tribunal (NCLT).Mergers and acquisitions beyond a threshold require approval of the Competition Commission of India(CCI), which keeps a tab on unfair business practices across sectors. The deal would not be subject todetailed scrutiny due to the fact that it got approval within the 1st Phase. In transactions involving primafacie concerns i.e. they would adversely impact competition are taken into Phase II for an in-depthscrutiny. Post the transaction, Vodafone is set to own 45.1 percent stake in the merged entity while theAditya Birla group, parent of Idea, will hold 26 percent after a payment of approximately $595 millioncash. The remaining will be held by other shareholders.Our Idea:Due to pressure from key stakeholders vigilant in their pursuit of increased shareholder value, mergerscontinue to be a prominent growth strategy. This study, therefore, tries to identify key factors whichshould be kept in mind while planning for successful mergers and uses case studies to highlight majorcauses of merger failures. A study of such a kind can be beneficial for those who want to learn from thepast mistakes of other companies repeating the same mistakes cannot be affordable. Though a lot hasbeen tried to cover in this paper still a more detailed comprehensive study needs to be done keeping inmind the importance and usefulness of successful mergers in the currently fast-moving economy.Merger failure research has now been on-going for close to 5 decades yet very little change has beenseen in failed merger rates. So, some key steps can be taken to reduce this massive failure rate like –1. Executives playing a more sincere and positive role in merged firms with a motive of profit-maximization.2. Need for lookout for clear reasons and solutions to merger failure and better-quality research.Conclusion:To face competition due to globalization, liberalization and rapid technological change, every businessfirm has to work very hard for-profit maximization. The success or the failure of a merger or acquisitiondepends upon a lot of factors – both endogenous and exogenous. The presence of the right mix ofpeople at the helm and the mere presence of a proper plan of integration is not always enough. Thespeed of implementation and the managers' ability to communicate properly their intentions to thelower levels plays an equally plays an important role. Proper research into the acquired company and itsactivities before going ahead with the merger are important too. While the Adidas-Reebok merger wenton to taste success due to the fact that even though new entities were created, the firms held onto theirMerger Paradox10 | Pageindividuality thus creating a blend of union and individualism. On the other hand, while there wasgrowth of Broadband, AOL even after having the brand and credibility to capitalize on growth in thisarea, it lacked the necessary infrastructure. Additionally, due to many non-operational distractions likebattles with the shareholders and costly lawsuits management had to divert focus from strategic andmanagement planning leading to overall disaster of the merger between AOL and Time Warner. Onlytime will tell if the Idea- Vodafone merger shall withstand the test of time and what the future holds forthe firms and its shareholders.