Another corporate breakup. Ho-hum. Another mega-merger that is being unwound. Ho-hum. When will CEOs ever learn? Today's news: Kraft Heinz will split into two companies. As Jesse Newman reports in the Wall Street Journal, "The food giant said it plans to split its business into two companies, unwinding an industry megamerger that married two packaged-food behemoths."
Why the breakup? We read a few explanations in the Wall Street Journal article:
- Miguel Patricio, Executive Chairman of Kraft Heinz: “We can allocate the right level of attention and resources to unlock the potential of each brand to drive better performance."
- TD Cowen analyst Robert Moskow: “Food companies have found that their breadth of influence in the grocery store does not necessarily yield the advantages they expected."
- Kraft Heinz CEO Carlos Abrams-Rivera: “Scale by itself is not the answer, but having scale along with focus creates opportunities."
For me, the lessons are simple, yet many leaders do not seem to recognize them as they rush headlong into these megamergers:
- CEOs often overestimate the economies of scale and scope, and they discount or downplay the diseconomies.
- Leaders often overestimate the extent to which more market power will lead to huge benefits as they bargain with suppliers and buyers.
- The benefits of simplicity and focus are often underrated by executives.
- Merging two companies with inherent weaknesses does not automatically make them stronger together.
- The challenges of merger integration often overwhelm top management teams and distract them from giving critical strategic issues the attention they need and deserve.
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