AT&T / T-Mobile

The merger between AT&T and T-Mobile was announced this morning, though commentators expect it to take a year to clear regulatory hurdles before closing. I haven't studied the deal, but it would seem at first glance to put AT&T in a more solid position relative to Verizon or Sprint. I have an iPhone tied to AT&T and have not been that impressed overall - but maybe some extra towers from T-Mobile will help.

I was watching some commentators earlier on CNBC, and one noted that AT&T was expecting to get $40 billion worth of synergies from the combination. He further explained that since the company was only paying $39 billion for the target, it was basically getting T-Mobile for free.

Huh? Something about that logic just doesn't make sense. Getting the fourth-largest cell carrier in the country for free? Evidently AT&T shareholders agreed - their shares were only up about 1.5% at mid-day.

Regardless of whether there are really $40 billion of synergies or not, I have another question. If we assume that the natural owner of any set of assets is the entity who would likely demonstrate the highest degree of effectiveness in operating them, are we really prepared to say that AT&T is that entity?

Give me a week without a dropped call and I'll believe you.

The Move

During the last month my family and I moved to a new home. I won't go on about what a hassle it was -- because I am sure you have been through it yourself and also endured the stories of friends who have gone through it.

In the past, I have taken a "do it yourself" approach to moving, in an effort to save money. This time I decided I would hire others to help with packing, moving, painting, and some minor carpentry. Why?

• I wanted it done right, and I am not an expert at any of those things. Those I hired had more experience and better toools.
• I couldn't afford to take six weeks out of my life to focus solely on this project.
• I learned important things from those who helped us, which will allow me to do things in the future I otherwise could not have.

As I reflected on this, I saw a paralell to acquisition and integration support. All of the bullets above apply just as easily to a company working to acquire and integrate another. Many start with the attitude that they can take care of everything. More seasoned transaction veterans, however, see these points clearly and consider bringing in outside resources.

Hindsight

Take a look at this article from a couple years back. Can anyone reading this conceive of making a $850 million deal without asking senior executives? Aside from common sense, was there any corporate governance model in place? An investment review board? Anything?

The proof is in the putting. I have never heard of Bebo. Even MySpace has fallen by the wayside, leaving only Facebook and a distant LinkedIn. It may not be too long before we struggle to recall AOL as well.

Crisis Management

The oil spill in the Gulf of Mexico continues to get worse and worse, not only for the residents of coastal areas and for the environment at large, but also for BP's public image. I ran across this video this morning:



It's funny for the rest of us, less funny for anyone whose way of life is tied to BP's success. As usual, we reflect and ask, "What can we learn from watching this?"

I'm no expert, but it seems like BP is doing everything it can at this point. Since the original explosion occurred they have brought enormous sums of money and expertise to bear on fixing the problem, including investing millions in mutually exclusive solutions for the sake of redundancy. In a way, we are lucky that someone with such deep pockets is responsible for this, and further is taking responsibility. At least this is one thing taxpayers won't have to shoulder.

Given this point, I think the lesson has to do with planning versus coping. The old addage about an ounce of prevention and a pound of cure comes to mind. Things go better when we

• Recognize that the "hundred year flood" does happen every hundred years
• Knowing, in excruciating detail, where the boats are and who is responsible for loading the life vests
• Keep an eye on the hoizon for approaching thunderstorms

Unfortunately, in many cases, by the time we know there is a problem it's too late to do anything about it. We therefore begin putting solutions in place before the problem develops -- or suffer with videos like the one posted above...

Closed!

My client closed his acquisition this past week, and the employees of the target found out that unless they are ready to move to Texas, they won't have jobs ninety days from now. In addition, we have already cut some major processes over to Houston headquarters, with resulting stress on both organizations -- acquirer and target.

We're now working hard to mitigate confusion and frustration on both sides. Despite weeks and weeks of planning, small issues inevitably arise. Two main conclusions arise for me:

• Were it not for all the careful planning that we did, we would be seeing an absolute stoppage in the business, which would have quickly begun to destoy IRR
• Soft skills are critical in motivating people to do things when their incentive is not quite clear. We are depending on people whose future is uncertain, hoping they will focus on what we need.

It's a great example of the relationship between intangible issues and tangible results.

Update

Things on the blog have been a little quiet lately, I know, and apologies for that. Though I have the best of intentions for keeping this site current, lately a large project has distracted me from posting new thoughts.

I've been working with a client who is in the midst of transforming his Company with a really exciting acquisition. We are prepared to consolidate all of the target's operations back to Houston within ninety days of close, an ambitious but important target.

Despite having been part of countless transactions in the past, I am learning a lot, as every deal differs on the basis of the personalities involved. Once the smoke clears expect to see more about this situation: where we started, what we did, and how it turned out.

Excellence In A Seemingly Unlikely Place

Over this past holiday season, we had some tire trouble, specifically a nail that embedded itself in one of our tires when we drove over it. Annoying to be sure. When I realized I would need to have it looked at, I did what I always do in cases like this: I went to the Discount Tire Store near my house.

I go there for two reasons. They sell quality products at low prices, and the people are amazingly competent at what they do. I have never had a disappointing experience there, and that's a rare thing to say.

Yesterday I was even more amazed by my experience than I had been in the past. I wound up buying four new tires at a very low price, based on a road-hazard policy I had purchased and credit given on the other three tires for unused mileage. Things were going well already.

But the real treat came in watching them change out the tires. The technicians moved quickly, working hard enough to build up a sweat even though the temperature in the garage was below 50 degrees. They teased each other as they went, laughing and having fun with their work. Each person on the team knew exactly what to do and when to do it, ensuring that the work was done both well and quickly. They also observed safety guidelines, pausing every once in a while to signal cars in and out of other bays.

Another customer had a locking lug nut on his Mini, but had lost the key. The folks at the shop spent over an hour with all manner of tools working to get the nut off its mount. They did this so he wouldn't have to hire a tow truck to take his car to the dealership. I watched for a minute as they used a grinder on the nut, sending a shower of sparks flying. A few seconds after I started watching this someone handed me some protective eye gear so I wouldn't be in danger. And all this was going on 15 minutes before closing time.

I'm unable to explain what I see at this tire store. Not only are they very good at what they do, they care about people and go above and beyond for them. Every member of the team is focused on the customer. Execution is amazingly high consistently and predictably, despite the fact that the work is repetitive and somewhat thankless, and the employees are likely not paid at a very high rate.

If you every want to take a field trip to study a high-performing team in an unlikely place, let me know and I will tell you where to look.

Decisions, Outcomes, Results

Have you ever stopped to think about where financial results come from? We are all familiar with the accounting software and general ledger entries that give way to numbers and generate reports. But where in turn do these things come from? This second question takes us deeper, into commercial events and transactions within the business: customers' decisions to purchase the company's products; employees' decisions to purchase raw materials, supplies and services; and executives' decisions to invest in equipment, buy other companies, or sell off underperforming assets. So, financial results stem from decisions made inside and outside the organization.

We are all likely to agree that good decisions will lead to good results. What then is critical to good decision making? Well, decisions are based on two fundamental factors, information and judgement. Alternatively, one could call them data and analyses. If either of these two elements is weak, it threatens to undermine the quality of the decision, and therefore the quality of the outcome.

Good data has three key qualities. First, it is relevant. Data about things that have little impact is of little use. Second, it is accurate. Incorrect data may be worse than none at all. Third, it is delivered on a timely basis, so that decisions can be made while they still matter. If they lack a data set with these three components, managers and leaders are effectively flying blind.

Between data and decision lies analysis, interpretation, and judgement. Organizational culture, motives, experience, and intelligence all play roles here. Even if individuals are making good independent decisions, the team may still not be making good decisions as a group. A team that is not aligned around a single mission is unlikely to interpret information in a way that is internally consistent, and therefore mutually reinforcing.

Almost all business leaders want to grow their business and improve results. In many cases, we get bogged down in day-to-day issues and fail to see where the most impactful opportunities lie -- either in the data that is being gathered or the analysis that is being performed. Despite the challenge, identifying the greatest impediments to good decision-making is absolutely essential to generating better results.

I've been reading today about Berkshire Hathaway's buy-out of Burlington Northern.

http://www.bloomberg.com/apps/news?pid=20601087&sid=aseXHPBeRtRE

Warren Buffett's strategy is pretty well known and documented by now:

• Buy businesses that have sustainable competitive advantage
• Buy and hold for a long time, rather than following fashion
• Only buy things you know; you don't have to have an opinion about everything

Clearly, this purchase satisfies all of these criteria, and seems to be a bet that over the long term, raising energy costs will continue to make rail an increasingly competitive mode of transport.

Note: This may not ever help Amtrak operate at a profit. I heard the other day that their San Antonio to Los Angeles route is the least profitable in the network, with the company losing over $400 per passenger carried. Unlike some, they have done the profit analysis and yet still aren't prepared to do much about the results.

Anyway, one last thought on Buffett. He's been talking for some time now about how hard it is to find something to buy that will have an impact on his EPS. I've also heard that called, "The law of big numbers." I don't think Berkshire falls into this category, but in some cases management teams that have historically grown by acquisition have a hard time giving up and simply returning the excess cash to shareholders. It's possible that B-N is the last big deal, and that we'll see dividend rates increase down the road as no viable acquisitions remain.

Good Points on Integration Management

The folks at McKinsey Quarterly have published some research related to merger integration efforts. Specifically, they have found that of all functional areas, sales organizations prove to be the most difficult to merge. Perhaps this is because when it comes to this group, executives must not only communicate with their own employees, but must also leverage them to communicate with their customer base.

http://www.mckinseyquarterly.com/Mastering_sales_force_integration_in_a_merger_2455

In the meantime, competitors often use a transaction as an opportunity to spread disinformation or doubt in the marketplace. Without proactive, clear, and frequent communication from the acquiror, these efforts at disruption may indeed be successful.

The implication is this: communication about the deal and its implications should be clear and frequent, since customers and employees may assume the worst when actual facts are hard to come by.