Issues Surrounding the AT&T and NCR Merger In late 1990,NCR Corporation ( formerly the National Cash Register Company) was doing well. Its management had transformed a stodgy company into a leading player in the computer game, one that was beating out IBM and other world class firms in automatic bank teller machines and other rapidly growing high-tech markets. In the words of Value Line, a leading investment advisory service, \"This is shaping up as the ninth consecutive year of earnings growth for NCR. We're looking for continued games out till the next years to come.\" These good quality shares are ranked to outpace the year-ahead markets. \"NCR's stock was selling for $65, up from $9 in 1982, so its stockholders had benefitted from management's good performance. NCR's workers had also been well served and were happy, as were its customers. AT&T, meanwhile, had been raking in huge cash flows from its quasi-monopolistic telephone business, but it had failed in its efforts to become a major player in the computer industry, and it was losing lots of money there. Then AT&T's Chairman, Bob Allen, decided to buy NCR. Allen approached NCR's Management and suggested a price of $90 per share, or $6.2 billion in total, and he indicated a willingness to negotiate, i.e., to go higher. NCR's Chairman Charles Exley responded that \"the company is not for sale.\" He felt, justifiably, that his team had done a good job, and he wanted to continue to control a dynamic, growing entity, not just become one part of a huge conglomerate. Exley commented, after his talk with Allen, that AT&T ought to change its advertising slogan from \" Reach out and touch someone\" to \" Reach out and grab someone.' NCR's labor force , by and large, agreed with Chairman Exleythey were well aware that, in most mergers, quite a few workers lose their jobs as tasks are consolidated. Further the higher the worker in the hierarchy, the more likely he or she is to lose out. Exley would no longer be chief executive of a major company, and his top managers would, if they were retained at all, be subordinates of AT&T's senior executives. NCR's customrs were also concerned - the company had been turning out good, attractively priced products. Would the same situation hold under AT&T's control? Customers like having as many potential suppliers as possible, and, if the merger occurred there would be one less firm in the computer industry. Further, NCR is headquartered in Dayton, Ohio, but if AT&T acquired it, many headquarter functions would be moved to New York. This would have an adverse effect on Dayton, so the city fathers were not happy about the prospects for the merger. NCR's stockholders , meanwhile, had mixed feelings. On the one hand, thoughtful investors recognized that the company had been run well, that the management deserved a chance to remain in control and that investors might be better off in the long run if Exley and his team remained in charge. On the other hand, the stock had been selling for only $65, yet AT&T had offered $90 and held out the chance for more, and a quick 40% profit is nothing to sneeze at. Further, almost 70% of NCR's stock was owned by institutional investors such as pension funds, mutual funds, and insurance companies, whose owners like to see rapidly rising values such as the buyout would provide. Considering the grasp that you may have on Financial Management, answer the following issues: 1. To what extent should NCR's managers let their own personal positions (versus those of NCR's stockholders) influence their decision to resist AT&T advances? 2. Should the fact that Charles Exley would no longer be the chief executive influence his actions? 3. To what extent should consideration be given to the views of NCR's non management labor force? Its customers? Residents of Dayton? 4. If you were an NCR stockholder would you vote for the merger? 5. As an AT&T stockholder what would your reaction be? GENERAL MOTORS The first week of November 1992 witnessed the replacement of two world-renowned leaders Bill Clinton replaced George Bush as president of the United States, and John L. \"Jack\" Smith replaced Robert Stempel as Chief Executive Officer(CEO) of General Motors. The change of GM, that bastion of old-line industrial America, was a real shock. The major difference between the Clinton and Smith victories is that it is not unusual for voters to elect a new president but until recently it was rare indeed for a corporate board of directors to oust a reigning chief in favour of new blood. GM's problems began years ago, when foreign automakers, particularly the Japanese, started to gain U.S. market share at the expense of the domestic manufacturers. In spite of the increased competition, U.S. manufacturers failed to respond with quality products that met consumer's needs. In the early to mid 1980's, Ford and Chrysler did embark o cost cutting and product development programs that turned their fortunes around, but GM never got back on track. At GM, CEO Roger Smith, who led the company from 1981 to 1990, ruled the board of directors with an iron hand. He withheld key financial data and budget-allocation proposals from the board until the day before the meetings, and he sometimes even distributed them as the meeting convened. The monthly sessions were rigidly structured, and Smith adjourned them promptly at five minutes to noon, leaving little time for discussion. Smith could deal with the board in this way because few members had the ability or desire to take him on. As late as 1989, for example, 3 of the 15 board members were GM executives who owed Smith their jobs. Another four were what one critic called \" we the people\" members: generally minorities, women, or retired statesmen. Of the other eight directors, two were retired businessmen and a third ran GM's primary Detroit bank. For their service on the board, directors received $45,000 annually and a new GM car for personal use four times a year. By 1987, evidence of GM's mismanagement had become so apparent that the directors could no longer ignore it. Smith then tried to pack the board with three more insiders, but the directors rebelled. Soon thereafter, American Express CEO James Robinson quit the board, apparently in frustration with Smiths intransigence and his own lack of clout. Nevertheless, since Smith was due to retire in 1990, the majority of the board chose to do nothing, Hoping they would get better results from Smith's successor. When it was time to pick Smith's successor, the board settled on Robert Stempel, the inhouse favourite, for CEO, but they questioned Stempel's choice of his long time friens, Lloyd Reuss, as president. When Stempel persisted, the board withheld from Reuss the title of chief operating officer. Stempel took office August 1, 1990, and several outside directors soon realized they had made a mistake. Out of loyalty to friends and old ways, Stempel was slow to make changes. He concentrated on the engineering and manufacturing functions but seemed oblivious to organizational, cost and marketing issues. It seemed obvious to everyone that GM needed to drastically and quickly cut capacity to reduce costs, but such actions were slow to materialize. Stempel's repeated admonitions to stockholders for patience quickly wore thin, and the board became increasingly alarmed at mounting losses and hints from credit-rating agencies that GM's once impeccable financial position was becoming shaky. As the situation deteriorated, a new and revitalized board emerged, composed of many CEO's who had braved corporate crises of their own, often doing what GM should have done -downsizing and cutting coststo ensure their firms' ability to survive in a global marketplace. The directors fired their first public shot in April 1992, when they removed Reuss as president and put in Jack Smith, the successful head of GM's international operations. Along with Reuss, two other old-line managers were demoted and removed from the board. The board also revived its inactive executive committee and replaced Stempel as Chairman with outside director John Smale, the retired CEO of Procter and Gamble. By ordering Stempel to report to Smale, the board had in effect , demoted the chairman and CEO. Some directors thought that the demotion would encourage Stempel to quit, but he hung on. By mid October, newspaper stories indicating that the outside directors were preparing to remove Stempel began to appear, Detroit reporters started a career deathwatch, pursuing Stempel in public, at one point even chasing him through a hotel kitchen. Finally, on October 26, Stempel announced his resignation, and on November 3, the board announced a new management team. The episode at GM raises many important financial management issues concerning forms of business organization and corporate control. What is a corporation and how do its owners- the stockholdersexercise control? What responsibilities do directors have to the firm's stockholders? Do directors owe any allegiance to the firms managers? Finally, whose interests should managers consider most important: their own, the firm's employees, or its stockholders? Additional Question: 1. What are the key difference between sole proprietorships, partnerships and corporations? 2. Explain why the value of any business other than a very small one will probably be maximized if it is organized as a corporation