Knowing when not to pursue a merger

This year is the 50th anniversary of one of the most catastrophic mergers in history — the merger of two very large railroad companies, the New York Central and the Pennsylvania Railroads. Already powerful, the two combined were the sixth-largest corporation in the U.S. (Though ever-fluctuating, by comparison in today’s economy, Apple, ExxonMobile, and Walmart reside somewhere at that level on the corporate size lists.)

Two years later, in 1970, the newly merged company, Penn Central, filed for bankruptcy. It was then the largest bankruptcy in America’s history.

In retrospect, there were quite a few reasons why the merger was ill-fated. Market forces—the steady march of emphasis on automobiles, trucking, and airplanes for transportation—had already placed the two railroad companies in a weakened position. Rising costs and increasing regulation were also a stressor.

And that old yet persisting reason for failed mergers—the inability to align competing cultures—likely played a significant role in the two long-time rivals’ failure.


continue reading »