Executive Clashes Can Disrupt Mergers

"Grinstein's got a legacy management problem. He doesn't want his legacy to be the guy who sold Delta Air Lines."


CHICAGO -- When Gerald Grinstein retires as chief executive of Delta Air Lines, he may not want to be remembered as the man who surrendered the No. 3 U.S. carrier to the brazen, young management team at US Airways.

Grinstein, 74, has said he plans to retire after Delta exits bankruptcy and he knows his legacy at Delta is riding on what he does over the next few months. He has made clear his opposition to a hostile $8.6 billion takeover bid by US Airways.

Experts say mergers can often be a difficult experience for executives struggling to retain power or simply remain relevant at companies they spent many years helping to build or run. In the aviation profession, these leaders may simply want to stand out in a field that's had more than its share of luminaries.

"Think [Pan Am founder] Juan Trippe, Charles Lindbergh," said airline consultant Robert Mann, noting that a tendency to measure one's performance against the greats can lead to bad decisions.

"Egos, innovation and high finance. A potentially valuable, but most often disappointing combination," Mann said.

Grinstein's opposition to a takeover may be partly rooted in this kind of internal conflict, experts say, without passing judgment on the wisdom of his position.

"Grinstein's got a legacy management problem. He doesn't want his legacy to be the guy who sold Delta Air Lines," said Stuart Klaskin with KKC Aviation Consulting.

Meanwhile, US Airways, under the leadership of 45-year-old Doug Parker, is appealing directly to Delta's creditors to force Grinstein, who was CEO of Western Airlines when it merged with Delta in 1987, to reconsider his plan that Parker claims could save the combined airline $1.65 billion a year.

Some aviation-business experts say part of Parker's agenda may be to cement his own legacy as the CEO who led the overall consolidation of the airline industry.

A common problem

Other industries, like telecommunications, have seen management showdowns intrude on merger talks.

This year, French communications-equipment maker Alcatel acquired rival Lucent Technologies for $10.9 billion.

The deal came five years after the companies first considered merging, and the earlier talks broke down over management and cultural issues and Lucent's refusal to accept a takeover, rather than a so-called "merger of equals."

With the airline industry likely in the early stages of consolidation, such conflicts could become increasing common among carriers attempting to merge.

Aside from US Airways' bid for Delta, United Airlines, is in merger talks with Continental Airlines, raising the question of who would lead that merged company: United's Glenn Tilton or Continental's Larry Kellner.

"Basically one side is in there negotiating their jobs away," said Darryl Jenkins, an independent airline consultant. "If you're an airline or any other company CEO, you need to have a very thick skin."

Speculation also swirls around bankrupt Northwest Airlines as a possible takeover target for American Airlines.

A tricky game

It's not just management clashes that can disrupt merger negotiations.

"What happens more often is the clash of cultures rules out certain combinations [American] and Northwest for example where mutual antagonism over issues such as proposed changes to fare structures and competitive battles over a period of decades is palpable," Mann said.

Corporate cultures, which govern such things as employee relations, operations manuals and worker compensation, can be especially difficult to blend, said airline consultant Michael Boyd.

Those watching for a possible American-Northwest linkup also are quick to note the contrasts between labor relations at American and Northwest.

American has taken strides recently to improve its labor relations by involving its unions in restructuring efforts.

Northwest, meanwhile, has used bankruptcy to alter union contracts and win employee concessions. The company is in court to block a possible flight attendants' strike.

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