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Get Four
|  | MARCH 29, 2004
By David Liss Citigroup's Magner on the Art of M&A Sandy Weill's protégé explains the secrets of a successful acquisition: A clear mission, no customer disruptions, and a lot of employee support With recession a fading memory and some giant companies flush with cash again, mergers and acquisitions seem to be coming back in vogue. Witness J.P. Morgan's (JPM ) recent takeover of Bank One for $58 billion in stock or the effort by Cingular Wireless to buy AT&T Wireless (AWE ) for $41 billion in cash (the largest all-cash deal in history), or Comcast's (CMCSA ) $54 billion hostile bid for Walt Disney (DIS ). The hunt is on for deals that can squeeze more profits and better efficiencies from industry consolidation. Yet, economic and academic studies have long shown that one out of every two ultimately fail to achieve their expected results, often miserably. The most common symptom of merger mania is indigestion, in which one or both companies fail to successfully incorporate their business models, goals, or cultures into an integrated whole. The promised payoffs never materialize. Eventually, investors flee, and stock values go down. The most prominent example in recent corporate history was 2001 AOL-Time Warner (TWX ) deal. One company that has been successful with acquisitions, however, is Citigroup (C ). In 1998, Citibank's $70 billion merger with Travelers Group, which established the world's largest financial-services firm, was the biggest in history until the AOL-Time-Warner deal. AT SANDY'S RIGHT HAND. Since then, under the reign of Chairman Sanford "Sandy" Weill, Citigroup has been a lean wolf on the hunt, snapping up dozens of companies. Yet, through it all, Citigroup increased its annual earnings more than 700 times, Weill likes to boast. No one disputes the outfit's success with M&A. Marge Magner is a Weill protégé who first worked for him back in 1987. She has held many executive positions at Citi, including chief operating officer. For the past eight months, she has headed Citigroup's Global Consumer Group (GCG). As such, she's a key architect and executor of the company's acquisition strategy and has directly negotiated and implemented Citicorp's buys of European American Bank (EAB), Washington Mutual Finance (WMF), Golden State Bancorp, Sears' credit and financial products business, and Banamex-Banacci. Last year, incomes from Magner's operations totaled $9.6 billion of Citigroup's total $17.85 billion profit, accounting for 55% of the corporation's earnings, with a 17% growth rate. If Magner's group were an independent entity, it would be the seventh-largest corporation in the world. Her latest foray: GCG made a $2.73 billion cash offer to buy Koram Bank, South Korea's sixth-largest, in February. How does Citigroup do so well with mergers? And why do so many others' fail? I asked Magner for some answers. Here are edited excerpts from our conversation: Q: When should a company consider a merger or acquisition? A: It depends on your vision for the business. You have to understand what the dynamics are that are uniquely driving your industry. It also always depends on whether you're in a consolidating industry, which creates opportunities for mergers and acquisitions. Consolidation takes place because of scale. You're either doing consolidation or receiving it. You will be involved one way or another. Generally, people would rather decide their own fate and determine whether to acquire, not the other way around. Ideally, you're looking to acquire products, a distribution method, or something that you don't have now that clearly moves you forward in terms of your business strategy or provides greater leverage for your overall business platform. Maybe the acquisition allows you to bring costs down or to distribute your products to an expanding consumer base. Q: O.K., so when isn't a good time to merge? A: [You should never do it just] because everyone else is merging and acquiring. Just because it's right for some other company in your industry or in another industry doesn't mean it's right for you. Two companies that are weak players in their respective markets can't merge to cover up their individual problems. One will end up pulling the other down. Q: How do you determine a specific target for acquisition? A: You can spend lots of time thinking about what business is a perfect fit. You can look at factors ranging from geography, product line, distribution systems, and information technology. What strategic advantage does that target bring you? Where are you trying to take your business? At the end of the day, that potential target company must be available. That takes investment-banking help. You can also pick up the phone and call that company's CEO and have a casual chat. A lot in the business world happens because of relationships.
BW MALL
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