Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: SUNDAY, July 18, 1993 TAG: 9307140461
SECTION: BUSINESS PAGE: F-1 EDITION: METRO
SOURCE: Mag Poff
DATELINE: LENGTH: Long
First Union Corp. chairman Edward E. Crutchfield Jr. used the analogy in a recent speech.
He recalled the scene in which, after Butch and Sundance are chased all over the countryside by a determined posse, they are cornered on a cliff where they must either jump or surrender.
"They take one long look, scream and jump - hoping the water in the creek below is 6 feet deep instead of 6 inches deep.
"That's what going into a merger and acquisition mode feels like - jumping over a high cliff," he said.
Crutchfield, whose company acquired Roanoke's Dominion Bankshares Corp. earlier this year, gave that speech last month in Charlotte, N.C., to the Edison Electric Institute's annual convention.
His choice of subject was no accident because, he said, analysts predict utilities are only six to seven years behind banks in the merger game.
One analyst, he said, forecasts that the nation's 150 utility companies could shrink to a mere 50 in five years.
"If your industry is on the same road traveled by banks, there's some anxiety to come," Crutchfield said. "Of the banks that made up the nation's top 50 only seven years ago, 17 have disappeared, mostly through mergers.
"We've had some highs and some lows since the advent of interstate banking eight years and 35 acquisitions ago," Crutchfield said of First Union. "Happily, today the highs far outnumber the lows."
But "it's been a tough adjustment for many bankers used to a safe, predictable, regulated world.
"It may be just as tough for many of you as your regulated companies continue to be hammered by competitive forces," he said.
There are similar forces at work in utilities and banking, he warned.
"We're both faced with overcapacity. There are simply too many companies chasing too little business in banking and in utilities.
"At the same time, the barriers to entry in both industries are beginning to crumble. It's much easier for others to offer banklike services or to build a power plant, often with much less regulation and capital investment.
"As a result, we're both facing intense competition, some from companies and products that didn't exist five or 10 years ago. The necessity to reduce operating costs is also critical for both industries."
Crutchfield said First Union foresaw that mid-sized banks "were doomed." Finding no buyer, yet fearing the dangers of standing still, First Union "moved decisively" into acquisitions in 1985.
"I will admit to many dark moments and some self-doubt along the way," he said. Analysts and journalists "with five-minute attention spans" were critical.
Even his late father, a retired country judge and lawyer, raised a question: "Son, you're not catching 'em faster than you can string 'em, are you?"
But First Union's stock increased 95 percent during 1991 and another 45 percent last year. Earnings last year rose 70 percent, and today its network of 1,300 branches extends from Maryland to Florida. It is the nation's ninth-largest bank.
Here's Crutchfield's advice to utilities facing the same haul:
Learn about your merger partner. And be prepared to move quickly.
"Too often after mergers, one side or the other finds unhappy surprises. You turn up a rock and find a snake." First Union has developed a procedure for "a corporate CAT scan" of an acquired company before signing any agreements.
Communicate with regulators. "Regulators can stop plans for a nuclear power plant or a bank merger in their tracks. I personally learned that close communication with regulators is a must. We also learned not to expect consistency of behavior from regulators."
How you communicate and treat employees can make or break a merger just as quickly as the operational and financial issues. "A common mistake is to move too slowly and cautiously to help ease your employees through this stressful time."
In a merger, he noted, people go through a series of emotions "as we do with any major change in our lives, such as divorce or the death of a loved one."
Move quickly to answer employee questions.
"We learned that time and confusion are the enemy when putting two companies together . . . Our first pledge to acquired employees is to communicate quickly and tell it straight. We give them information as soon as we know it - even when that information is negative."
Focus intently on your customers, and don't let large size equal bureaucracy.
Companies live and die by their customer service, Crutchfield said, and the possibility of taking a week to answer a question "scares the hell out of me. I'm convinced that's what happened to IBM, General Motors, Sears and other so-called giants. They stopped listening to their customers. I'm determined that's not going to happen to First Union."
To that end, he has been offering $500 to any employee who cuts through bureaucracy on behalf of customers.
He calls it the "Kudzu Killer Award" after the fast-growing vine that strangles trees along roadways.
Mag Poff covers banking, personal finance, insurance and advertising for the Roanoke Times & World-News.
by CNB