Analysis: What happens when CEOs leave amidst M&A deals?

UEM Sunrise has been in the news recently after it stunned the industry with a proposed merger between itself and EcoWorld Development on 2 October. Shortly after, MD and CEO Anwar Syahrin Abdul Ajib threw in the towel exiting the company. According to the property developer, the proposed merger aims to bring together the strengths and capabilities of both companies. A recent Bursa filing also explained that given the subdued macro-economic conditions and market headwinds, it believes there is a pressing need for industry players to consolidate resources and capabilities to strengthen performance and sustainability. 

While the move might surprise many, CEOs leaving companies amidst high-level merger or acquisition talks isn't new as seen in recent times. In August, Kevin Mayer stepped down as TikTok's CEO when its Chinese parent company ByteDance was in talks to sell the US operations. Mayer said back then that the role he signed up for “will look very different” as a result of the government pressuring ByteDance, the parent company of TikTok, to sell off its US business. Meanwhile, Brian Lesser, former chief executive of AT&T's Xandr, left in March this year. He had reportedly interviewed for the CEO role at WarnerMedia but according to Reuters, received an indication that he would not be chosen. This came shortly before AT&T folded Xandr under WarnerMedia in April this year.

It is common for new organisational structures, business units and reporting lines to be agreed upon during the key parts of an integration planning process. That said, Te Sheng Chang, manager at global M&A advisory firm SI Partners, said problems can also arise during this part of the merger process, and there are two potential risks when a senior team member decides to leave mid-way during negotiations.

Firstly, this may cause a merger partner to reconsider the commercial terms. Key personnel holding relationships, be it with government, clients, or suppliers, are important assets and arguably, valuation drivers of a business. "Any sudden and uncalculated departure of these personnel may cause disruption to the business and ultimately valuation, if these relationships are not embedded in the organisation, or if succession planning has not been carefully considered in advance of the departure," he said.

That said, with Khazanah Nasional ultimately being the biggest shareholder of the combined entity, putting in place a suitable leadership replacement should not pose an insurmountable challenge, Chang explained.

Secondly, there is a risk on talent retention. Employees follow leaders, and if they are no longer part of the organisation, employees may re-consider their decision to stay on. A broader consideration on culture should be taken into account as well.

Not having a leading 'representative' from the existing organisation may mean that their corporate culture becomes diluted even more quickly than it naturally would.

"Given the current proposed structure, whereby EcoWorld would become a wholly-owned subsidiary of UEM Sunrise, there may be an intention to retain the culture in the medium term and new leadership may be able to achieve this," he added.

Will it blow over?

While no one knows the answer behind the leadership exit, Lim Sue-Anne, MD of M&C Saatchi global's marketing and branding consultancy, Clear KL said such a move creates speculation among the media and the public. Lim, who also consults on leadership experiences, added:

"Normally, speculation is not good for business but since the merger can proceed despite what the public thinks as the decision maker is Khazanah Nasional, I think it will blow over and business will continue as usual," Lim said. She added that the real challenge lies post-merger as both UEM and EcoWorld have very different strategies, ambition and culture.

Hence, the trick is to quickly put in place a strong plan for post-merger integration to unlock new value and growth opportunities that neither party could have done on its own in the first place.

"It is imperative for them to consider the new company direction that can unlock the biggest value growth, communicate this clearly and visibly to all stakeholders, create internal alignment and redesignate resources to the right places," she added.

Unlike in the past, corporate mergers no longer have three or five years for post-integration work given today's fast-paced society. According to Lim, many are questioning the merger because both companies are not only huge in size but also have their value and vulnerabilities. Therefore, it is hard to imagine the aspects that UEM Sunrise and EcoWorld will not be able to do on their own.

"So I’m excited to see a new business direction and a resulting new brand as an outcome of this behemoth exercise. Show people what hasn’t been done before and the naysayers will be convinced," she added.

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