Final requiem for AT&T

Tuesday’s paper reported the final death of AT&T. It had been dying a slow and lingering death since the end of the dot-com bubble killed the demand for telecommunications equipment.

When I say AT&T, I don’t mean SBC, the San Antonio-based Baby Bell that bought a struggling long distance company in 2005, and with it, rights to call itself “AT&T.”

No, I meant the most innovative part of AT&T prior to the 1984 divestiture — the part that brought us the transistor, cellular phones, information theory, communications satellites, lasers, electronic switching, Unix, C, C++, and a host of other key technologies. In short, the part that housed Bell Telephone Laboratories aka Bell Labs.

After 1984, as AT&T kept getting reorganized, Bell Labs went with Western Electric which became Lucent in the 1996 trivestiture. In his 2003 book, Narain Gehani does a great job of capturing the spirit of Bell Labs during its last lingering days, a commendable spirit despite being obviously long after its 1950s-1960s peak.

In 2006, Lucent disappeared from the face of the earth, when it was acquired by the French company Alcatel, née Compagnie Générale d'Electricité. The new company was headquartered in Paris, and despite claims of a merger of equals, the French division was clearly dominant.

While a certain amount of power sharing between the two countries and cultures been maintained since the merger, that ended Tuesday when the company announced its new CEO and chairman. The Wall Street Journal noted that the two appointments are a clear indication that the Francophone culture has become dominant. As Heidi Moore noted:

The choices also signal that the combination wasn’t a merger in the first place: it was a takeover, by Alcatel, and future leaders ought not to forget it. It also shows the dangers of not working out such details when negotiating a cross-border deal in the first place.

Moore noted that former Lucent CEO Patricia Russo refused to learn French. Advice to company executives: if you don’t want to learn French, don’t sell your company to French owners.

Moore continued on:

We have seen this movie before, most famously in the 1998 combination of Daimler and Chrysler. From the beginning there was an uneasy fit between Mercedes’ upscale, expensive parts and processes and Chrysler’s more workaday functions. There also was the cultural rift: in the weeks before the combined company took on its new NYSE listing, executives bickered over whether to use business cards in American sizes or European sizes. (The European sizes won).

The deal, initially billed as a merger of equals, clearly came to be seen as a takeover by the company that had the stronger will and the more-forceful culture: Daimler.

In her list of acquisitions, Moore forgot to mention the 2002 HP-Compaq “merger of equals,” now run by HP with the HP brand and HP headquarters.

I don’t know why any reporter or analyst ever ever buys into the fiction of a “merger of equals.” They don’t exist: one side wins and the other loses. Occasionally the surviving company is not the one that put up the money, as with the 1996 reverse acquisition of Apple by NeXT that brought Steve Jobs and his management team to turn around the company.

When people are pretending to merge, then the battle may be resolved over years rather than up front. However, in any acquisition one set of values, systems, culture and executive will be left standing when the integration is finally resolved. The only exception would be when the alien body is spit out, as with Daimler’s 2007 de-acquisition of Chrysler.

This is why small acquisitions seem to me to be the least troubling: everyone knows which culture and leaders will survive, so no time is wasted on pretending that the acquiree will play a meaningfull role in defining the overall corporate strategy or culture.