INDUSTRY OPINION 52
Sudhir H. K a l é*
Does the Crown/Star merger pass the Drucker test? Peter Drucker (1909-2005) was arguably the most influential management scientist who ever lived. He was the author of some seminal books on management such as Practice of Management (1954), Managing by Results (1964), The Effective Executive (1967), and The Age of Discontinuity (1969). Forbes magazine labeled Drucker as the “Einstein of Management.”
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n 1981-82, Drucker articulated his Six Rules of Mergers and Acquisitions. We shall look at each of these six rules and evaluate the proposed StarCrown merger according to these rules.
Rule 1 According to Drucker, a successful merger or acquisition should be based on a sound business plan, not mere financial analysis. All information that has been disclosed in the Star-Crown merger thus far has been assessed solely from a financial viewpoint. Recall Harrah‘s largest single expansion in 2005, when it acquired Caesars Entertainment, Inc. for $10.4 billion. While the merger probably made financial sense, the marketing and operating strategies of the two companies were far too divergent to be placed under single ownership. Harrah’s operating model was based on the slicing and dicing of data whereas Caesars strategy was based on product differentiation. The acquisition resulted in huge debt for Harrah’s, forcing the company into bankruptcy.
Rule 2 The attractiveness of a merger or acquisition, according to Drucker’s second rule, needs to be assessed along what the company suggesting the merger will contribute to the company being acquired. The Star Entertainment Group, if merged with Crown, would add the new markets of Queensland (Gold Coast and Brisbane) and Sydney to regional monopolies of the resulting behemoth, making it the undisputed market leader on the Australian casino scene. Apart from scale, there is little that The Star could contribute to the merged entity. Rule 3 Successful mergers or acquisitions, like all alliaSuccessful mergers or acquisitions, like all alliances, must have a common core of unity. Such unity could be found in markets, technology, or culture. Of these three factors, cultural unity is most significant. Over 80 percent of mergers fail to achieve their objectives, and culture is often
Peter Drucker’s six rules
Asia Gaming Briefings | June 2021
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The successful acquisition must be based on business strategy, not financial strategy.
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The acquirer must respect the business, products, and customers of the acquired company, as well as its values.
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The successful acquisition must be based on what the acquirer contributes to the acquisition.
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The two entities must share a common core of unity, such as markets and marketing, or technology, or core competencies.
The acquirer must be prepared to provide top management to the acquired business within a fairly short period, a year at most.
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The successful acquisition must rapidly create visible opportunities for advancement for both the people in the acquiring business and people in the acquired business.
