10 BIGGEST M&A "BLOOPERS" IN 1998, THE YEAR OF THE MEGA-MERGER.

SHAREHOLDERS PAY THE PRICE FOR FLAWS IN

M&A PLANNING AND EXECUTION

Merger and acquisition activity topped the $1 trillion mark in 1998. In the year of the mega-merger, Mark Clemente and David Greenspan - M&A consultants and authors of the new book, "Winning at Mergers and Acquisitions" - cite 10 of the biggest deals (completed, pending and aborted) that stand out as the greatest threats to shareholder value:

CITICORP-TRAVELLERS: WHAT'S IN A NAME? (I) In the largest of the financial services deals, the merger partners proudly announce the name of the merged firm, Citigroup, only to discover that the name already belonged to a Manhattan business woman. Wasn't there a trademark attorney amidst the army of lawyers on the due diligence team? Travelers' vast insurance and investment products were to be intertwined with Citicorp's credit and banking lines of business to spark massive cross-selling. Yet corporate infighting has led to the departure of key managers. Customer defections won't be far behind as cost-cutting and 10,000 layoffs will lead to lapses in service. This deal was originally valued as high as $84 billion, but more than half of that shareholder value vanished by the time it was finalized.

VOLKSWAGEN-ROLLS-ROYCE: WHAT'S IN A NAME? (II) In one of the more contentious battles of German acquirers, BMW and Volkswagen vied for Rolls-Royce. Initially, BMW threatened to withhold delivery of critical engine parts to Rolls-Royce unless it accepted BMW's bid. VW ultimately outbid BMW. But when the dust settled, VW had paid all those Deutsch marks to buy the business, but not the venerable Rolls-Royce brand name! BMW was able to buy that and, moreover, will assume control of the entire company in January 2003. The Rolls-Royce brand was the most valuable asset VW could attain. And yet VW will only have the pleasure of "leasing" the Rolls-Royce operation for the next four years.

EXXON-MOBIL: BIGGER ISN'T BETTER ... IT'S JUST BIGGER. The largest merger in history has the puniest strategic value of any deal in recent memory. This is not a merger to grow revenues and long-term shareholder value. It's a deal designed solely to cut costs and capitalize on a weakened oil market. The two companies portray themselves as victims of a battered industry, but over the past decade, each has delivered double-digit returns to investors. By combining operations, the merged firm will cut about 9,000 jobs, but there seem to be no growth synergies. How much gas can you put in one tank?

TELLABS-CIENA: IS ANYBODY LISTENING? The breakup of this major telecommunication deal reads like a Tom Clancy novel, with charges of corporate espionage and defamatory emails. In announcing the deal, Tellabs cited Ciena's DWDM product as the crown jewel of the transaction. Only a few months later, in calling the deal off, Tellabs claimed the product had become a commodity. Didn't Tellabs perform marketing due diligence to take the pulse of the rapidly changing market and spot the inroads being made by competitors? At one point after the deal was announced, the shares of both companies hovered near the $100 mark. Now the two companies' stock prices combined don't come close to that. Do you blame "the fickle finger of Tellabs" if you bought Ciena at $90 only to have it collapse to $15?

U.S. OFFICE PRODUCTS-ROLL-UP ACQUISITIONS: ALL FOR ONE, NONE FOR ALL. USOP increased its sales from $702 million to $2.8 billion in one year by acquiring hundreds of "mom and pop" office supply companies in an acquisition strategy called "rolling up." Each company sold out to USOP in exchange for shares in the growing company. Yet, fusing the acquisitions into one corporate whole was never part of the plan: USOP's goal was simply to centralize purchasing power while mom and pop continued running the show. In fact, USOP publicly derided the idea of integrating its acquisitions, claiming the roll-up paradigm, on its own, would drive revenues. Instead, it has led to the company's stock dropping to half of its offering price. How many of those mom and pops thought they'd be selling their companies for half price?

DEUTSCHE BANK AG-BANKERS TRUST CORP: CATCH A FALLING STAR? The German financial services giant sought once more to become a major player in global investment banking. Its acquisition choice: Bankers Trust. Evidently, Deutsche Bank is betting that BT's poorly integrated acquisitions, trading scandals, earnings disappointments, and employee defections can be overcome. Is this downtrodden quasi-investment bank really the catch Deutsche Bank needs to secure its place among the global investment banking powerhouses? Or does it just want to try to play in the big leagues at any cost?

SMITHKLINE BEECHAM PLC-AMERICAN HOME PRODUCTS/GLAXO WELLCOME PLC: BLINDED BY "LOVE." Pharmaceutical giant SmithKline announced its dream merger with American Home Products - a deal that would create a comprehensive global product line of over-the-counter and prescription drugs. But at the altar, SmithKline got swept off its feet by British rival Glaxo, which promised boundless cost-cutting synergies in a better merger marriage. SmithKline left AHP in the lurch. But as in most relationships, there is usually a dominant partner. And when Glaxo attempted to install a majority on the merged firm's board, SmithKline accused them of acting in bad faith and scuttled the merger.

MONSANTO-AMERICAN HOME PRODUCTS: ON THE REBOUND. Reeling from being jilted by SmithKline, AHP quickly succumbed to the allure of its next suitor - Monsanto. The new enterprise was designed to be the world's leading crop chemicals corporation, and would have leapfrogged over multiple competitors in the arenas of seed development, pharmaceuticals, and veterinary medicine. It appeared that little would stand in the way of this synergy except for the inherently flawed notion of "co-CEOs," which both companies insisted on. In mergers, two heads are not better than one. Ultimately, a power struggle undermined what could have been a promising union. The two companies eventually parted ways, leaving shareholders' interests in their wake.

CENDANT-AMERICAN BANKERS INSURANCE GROUP: A SLIGHT CHANGE OF PLANS. Cendant, the virtual marketer of franchises such as Avis, Ramada Inn, and Century 21, outbid AIG for American Bankers, a marketer of credit card insurance. Cendant has relationships with the top 50 banks in the US, giving it access to the credit card records of nearly 80 million consumers. American Bankers offered Cendant its customer base and complementary product to pump through Cendant's distribution channels. Walter Forbes and his co-CEO, Henry Silverman, deemed the American Bankers deal to be the ultimate in strategic synergy. But while the deal waited to close, Forbes was ousted in the wake of an accounting scandal and Silverman announced the new direction of the company. No more acquisitions - even one as good as American Bankers. They'll leave that to AIG. So much for strategic synergy.

AMERICA ONLINE-NETSCAPE: WHAT HAPPENS TO A DREAM DEFERRED? Within the last three years, shares of Netscape dropped from a high of $75 to a low of $15. That all changed when AOL announced its bid to buy the company, sending shares of both firms skyward. The deal will allow AOL to compete directly with Microsoft on a number of levels. But key Netscape principals must stick around to make sure AOL can successfully do so. When IBM bought Lotus, Lou Gerstner aggressively courted the inventor of Lotus Notes to make sure he was on board. Yet it doesn't appear AOL is doing the same critical thing. Just last week, Netscape's CEO, Jim Barksdale, went to AOL headquarters for his "interview." This is the visionary who last year took a salary of $1, choosing instead to link his pay to the company's share price. Does this seem like a man who will now leave his Silicon Valley Kingdom to take orders from "headquarters?" Not likely.

According to Clemente and Greenspan, "Each of these M&A bloopers exhibit the major pitfalls that typically lessen, rather than heighten, shareholder value: a primary focus on cost-cutting instead of revenue generation; faulty integration planning; inadequate marketing due diligence examinations of products and competition; and failure to retain the prized human assets that are key to ensuring long-term success of the merger or acquisition."

Clemente, Greenspan & Co., Inc., based in Glen Rock, N.J., is an M&A consulting and training firm that specializes in helping companies ensure the success of strategic mergers and acquisitions. Mark Clemente and David Greenspan are frequent speakers before major business groups on the topics of pre-merger planning and post-merger integration. The firm's web site is: www.CGadvisors.com.