If Delta and Northwest airlines announce a merger, its success likely will depend on whether top executives establish their employees as the No. 1 stakeholders in what would be America's largest carrier. They also must focus more on increasing revenue than on cutting costs.
That's the upshot of a conversation I had last week with Dick Kovacevich, the chairman of Wells Fargo & Co. who is widely regarded as America's most successful banker and merger architect over the last couple of decades.
Kovacevich declined to comment directly on the Delta-Northwest merger talks or the CEOs involved. But his experience bringing together two banking giants with distinct regional personalities is instructive. After all, airlines and banks are both highly regulated businesses that deliver essential services to retail customers.
Kovacevich put together a string of mergers, capped in 1998 by Norwest Corporation's stunning acquisition of the larger Wells Fargo.
Most bank mergers were disasters because they focused most on short-term cost cuts that were designed to please Wall Street analysts and investment bankers. Too often, they aggravated overworked employees and shortchanged customers, many of whom fled to smaller competitors.
"Revenue is the gift that keeps on giving," Kovacevich said in an interview last week. "My belief is that you should never do a merger unless revenue growth of the combined companies in the future will be greater than the sum of the two had they remained independent.
"Many times you see cost cuts, but revenue goes down because you cut the heart out of the service. Many mergers have resulted in less revenue. In about 80 percent of mergers, the stock of the buying company goes down."
A lot of big bank mergers were premised on promises to Wall Street that the buyer would cut up to 30 percent of the acquirer's costs within a year. Running against conventional wisdom, Kovacevich, in his capstone Wells Fargo deal, told Wall Street he would cut 6 percent of cost over three years.
