Deals from Hell

9

December 1993: Renault’s Proposed Merger with Volvo

On September 6, 1993, the CEOs of AB Volvo and Renault an nounced plans to merge Volvo’s auto business with Renault.¹ This triggered a dramatic contest that temporarily destroyed a fifth of Volvo’s market value, ousted Volvo’s longstanding CEO and four directors, distracted the diplomatic relationship between Sweden and France, and when the proposal was finally withdrawn in December, set in motion changes in the firm’s governance, ownership structure, and strategy and ended a major strategic alliance between Volvo and Renault. Renault/Volvo remains probably the most significant failure of a merger proposal within Europe.

A counterpoint to the story of Renault/Volvo is the contest to approve Hewlett-Packard (HP)’s acquisition of Compaq Computer in 2002. HP/Compaq is strikingly similar to Renault/Volvo in several respects: charismatic CEOs, depressed industrial conditions, declining market positions and profitability due to overcapacity in the industry, large prospective synergies, and fierce opposition by employees and influential shareholders. Yet in HP’s case, the merger was approved. The comparison of these two cases highlights the vital roles of credibility of synergies, careful deal design and communication.

MOTIVES FOR MERGER: RENAULT AND VOLVO

In the early 1990s, three developments seemed to indicate a fundamental shift in competition in the worldwide automobile industry. First, growth in unit demand was slackening, ...