Mixed blessings

The way companies approach takeovers can have a huge effect on the welfare of acquired brands. HSBC waited seven years before brutally killing off Midland – very successfully. At another extreme, Ford is embarking on the tricky task of reposit

Ford has wasted no time in announcing a radical restructure of Land Rover – the former BMW-owned off-road brand which comes under its ownership in a month’s time.

It will impose its own management team, headed by Aston Martin chief executive Bob Dover, who becomes chairman and chief executive. Meanwhile, Matthew Taylor, formerly vice-president of sales and marketing of Ford in Australia, joins as sales and marketing director (MW last week).

Land Rover has a strong brand heritage, but Ford is planning a complete relaunch to reposition the brand, with uncertain consequences.

As well as leaving the employees and suppliers (such as advertising agencies) of Land Rover in a difficult position, the new management will also do things differently to Rover Group management.

Analysts predict that Ford will increase spending to make Land Rover a bigger brand with new products and increase the number of models in its portfolio.

This alone could take some of the sheen off Land Rover’s exclusive branding. Consumers may become suspicious about buying an off-road vehicle with a Ford platform and a few extras for a premium price.

As the pace of acquisition activity reaches an all-time high, there are question marks over how takeovers affect brands. Research published this week by Cambridge University’s Judge Institute shows that companies tend to underperform following takeovers. An analysis of 77 takeovers by UK companies between 1990 and 1996 show they underperformed the FTSE All-Share Index by nearly one-fifth.

The effect of mergers on brands are not covered in the study. There are many instances – such as BMW’s acquisition of Rover or Somerfield’s takeover of Kwik Save – where the brand acquired has suffered greatly. But each scenarios is different and the brand’s role in mergers varies.

Ford’s main motive for acquiring Land Rover is to build topline growth. The most cost-effective way to achieve this is not to make more cars under the Ford badge, or create a totally new brand, but to buy other existing brands and inherit their customers.

There are other motives for acquisitions. “A company is often bought not just for its brand. A great deal of value is placed on the management,” says Raoul Pinnell, vice-president of global brands and communications at Shell International. “Not many companies will want to force out the old management.

“Look at Nestlé chairman and chief executive Peter Blackburn. He was originally a Rowntree man. Nestlé has clearly valued his input.”

In other cases, such as HSBC’s acquisition of Midland Bank, a company does not want the brand as much as the outlets, customers or factories that it owns. It does not value the brand it is buying.

The brutal approach HSBC had to its rebranding of Midland Bank resulted in the Midland brand being killed off almost overnight last year, seven years after it was bought.

Hard lessons have been learned from the disastrous way BMW handled the Rover marque. From the start the company left the existing management in place. BMW took four years to produce a new car and when it finally unveiled the new Rover 75 it chose the same day to voice its concerns that the company was in severe trouble.

Until last year, when BMW tried to increase its grip on the Rover Group, the German company had left Land Rover management more or less to its own devices since its acquisition as part of the Rover Group in 1994.

Although it has emerged that Land Rover lost E60m (&£38m) last year, the brand has remained relatively unscathed by recent events. Even if the Land Rover brand has emerged unscathed, its brand did not actually improve under BMW.

Ford, it seems, is not going to make the same mistakes with Land Rover as BMW did with Rover. Already experienced with luxury brands, it is to put Land Rover in its Premier Auto Group headed by Wolfgang Reitzle. The PAG, which includes Jaguar and Volvo, is run separately, so the brand is not managed as part of the high-volume, mass production of Ford.

Ford has done a good job with other brands it has acquired. When it bought Jaguar, another British brand, in 1989, it was a severely distressed marque. Since then it has turned the company around with new models and made the brand stronger.

Ford had to acquire Land Rover in a hurry after BMW put it up for sale, but it will need to think its strategy through carefully if it is to improve on Land Rover’s core brand values.

Ford may have an excellent track-record with its other premium brands, but Land Rover is not a brand in intensive care and Ford should think twice before modifying it.

In fact, it is already evident that Ford will embark on considerable brand-tweaking of the Land Rover image. For the moment, it will continue with BMW’s launch of a &£100,000 Range Rover replacement, in effect producing a super-premium four-wheel drive sub-brand. But Reitzle has also said that he will make a reworked version of the muscular and basic Defender model the cornerstone of the brand. The aim is to break into the US sports utility market en masse, which implies a much more sophisticated, image-conscious boulevard cruiser than the present farmer’s friend.

Cultural differences create internal tensions

Internally, a takeover is a harrowing experience for company staff and executives. Cultural differences between the two companies can create internal tensions. There is inevitable fall-out from senior management.

Last week, for example, it emerged that United Biscuits (UB) chief executive Leslie Van de Walle was bowing out after the company’s takeover by European consortium Finalrealm (MW last week). For the employees left behind after his departure, there will undoubtedly be a feeling of dread.

Finalrealm could hive off UB brands

Finalrealm has yet to announce plans for restructuring UB’s UK business, which includes KP Foods and McVitie’s.

But industry observers believe the new management could hive off some of the UB brands.

French group Danone, which already owns the Jacob’s Bakery, is poised to snap up UB’s central European brands and could be hovering over the crumbs of UB’s biscuit and snack business in the UK.

One analyst says: “UB was about to increase its marketing spend quite significantly, but I’m certain that won’t happen now.

“I suspect the new management will look closely at the cash consumptive parts of the business.

“If anything is going to be sold off during a restructure, it is likely to be KP, possibly to the likes of PepsiCo.”

Some observers feel Finalrealm will have to wait until US giant Nabisco is bought out before revealing its plans for the UK – particularly since Nabisco now owns 26 per cent of UB.

Another analyst says: “Danone is bidding for Nabisco, which could leave it with a significant proportion of the UK biscuit market.

“I’ve been told morale is low at UB at the moment. No one knows if KP or McVitie’s will be divested.

“There will also be an adverse effect on brands if marketing spend is put on hold for too long.”

There will be confusion at Interbrew UK

A further example of brand portfolio consolidation. Whitbread has worked with Belgian brewer Interbrew since 1976, building Stella Artois into the UK’s top-selling premium lager.

So on the surface, last month’s &£400m takeover should be a relatively painless affair.

The Whitbread board structure will remain, with Whitbread Beer Company managing director Miles Templeman staying on as managing director of Interbrew UK, reporting to Ignace Van Doorselaere, executive vice-president of Interbrew’s West European division.

However, there are still significant differences in corporate culture between the two companies.

Interbrew has a loosely-defined culture, which has absorbed influences from around the world as it has grown, but one insider describes it as still being “a very Belgian company”.

It is family owned and most of its shareholders are members of the Belgian aristocracy.

A source says: “I think there will be a certain amount of confusion at Interbrew UK as they adjust to the new regime. Whitbread has only dealt with the front end of Interbrew’s operation to this point.

“I think they will find it a more autocratic environment, with more power being concentrated at the centre.

“It will probably be less open than the team is used to. It will also have to get used to being part of a much larger operation. Interbrew UK is just one division of Interbrew’s Western Europe organisation.”

Control of Stella Artois is to remain with Interbrew headquarters in Brussels – even though the UK is by far its biggest market, accounting for almost half of brand volumes.

Because the two companies have a long history of working together, Interbrew UK is expected to be given a relatively free hand – particularly in marketing. It is accepted that there is not a strong brand strategy at Interbrew, in comparison with Whitbread, which was very marketing-led.

Former Whitbread people are also likely to benefit from being part of a genuinely international beer company. “In the past, if you wanted to move within the Whitbread organisation you would have to go over to retail or leisure.”

Mergers sometimes backfire financially but, for brands, they can also offer a fresh lease of life.

“Takeovers can be of huge benefit to the company in question, says Shell’s Pinnell. “Acquisitions often bring large cash injections and breathe life into old organisations.”

With additional reporting by Ian McCawley and Brian Wheeler

BRAND MERGERS

  • BMW/Rover – The notorious 1994 takeover of Rover by BMW turned sour following the inability of BMW managers to intervene in what was a company already in need of an overhaul. The sorry attempt at consolidating the global car industry only came to an end after BMW had poured &£2m a day into keeping the company afloat.
  • Somerfield/KwikSave – The deal epitomises what can go wrong when retailers respond to today’s competitive climate by attempting to increase market share through acquisitions. The June 1998 takeover has seen neither store chain curtail its downward slide. Like-for-like sales in the three months to April 29 for Somerfield were down 9.8 per cent. KwikSave faired even worse – sales dropped 16 per cent over the same period. According to analysts Retail Intelligence, only one merger of the top retail companies has so far proved a success – Safeway/Argyll. As well as Kwik Save/Somerfield, it also lists BHS/Habitat and Boots/Ward White as partnerships which have varied between failure and disaster. It points the finger at acquisitions among retailers not from similar sectors, which should “stick to what they know”.
  • Wal-Mart/Asda – The high profile takeover of supermarket chain Asda by US-based Wal-Mart last year was seen by many as a defining moment in UK retail history. With enormous combined buying power, the Asda brand looks well set to capitalise on offering cheapest prices. Asda Wal-Mart announced it will be building ten megastores over the next five years, carrying the dual-brand Asda Wal-Mart.
  • HSBC/Midland – HSBC paid $6.1bn (&£3.8bn) to take over Midland Bank in 1992. Since dropping the Midland brand almost overnight, the fortunes of what was considered to be the UK’s weakest major bank, have been dramatically improved.
  • By Henry Palmer

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