Amongst the due diligence, negotiations, and deal making in crafting a merger between two companies, one issue that arises is what to name the new company. A newly merged company’s choice of name may have much to do with how shareholders, customers, and other corporate constituents perceive the newly merged company.
As one example of the importance of names, it has been previously estimated that among law firms “about half of the proposed mergers among equal-sized firms, with living, named partners, fail on the issue of firm name alone.”[1] While this sounds drastic, choosing a name for a newly-merged company seems to have at least some bearing on the future business of the company.
In some instances, changing names after a corporate transaction can be a positive signal to corporate workers and consumers. After DaimlerChrysler sold its majority interest in Chrysler, Chrysler celebrated its return to its pre-merger name and its return to American ownership.[2] It was expected that the name change and reintroduction of Chrysler’s pre-merger logo would be a “welcome change for the company and for the reputation of Chrysler’s name.”[3] Yet, not all corporate transactions and resulting name changes have resulted in such a welcome change.
In the same transaction that split Chrysler from DaimlerChrysler, the remaining Daimler contingent faced shareholder challenges to bring the “Benz” name back to Daimler.[4] In the original merger between Daimler-Benz and Chrysler, “Daimler offered to drop the Benz hyphenate if Chrysler agreed to take a back seat in the name DaimlerChrysler.”[5] With the Chrysler name now severed from Daimler, shareholders rallied to bring “Benz” back to Daimler, stating that “[r]einstating the name of one the company’s founding fathers would ‘constitute a certain degree of compensation for the many years of frustration for the employees, particularly in the traditional Benz plants.’”[6] Thus, while the Chrysler contingent welcomes a return to American ownership and an identifiable American name, the Daimler shareholders express concern with not returning to the pre-merger name of Daimler-Benz.
Deciding on a corporate name after a merger or similar transaction also can prove complicated to properly identify a company’s strongest businesses. Consider the early 2001 merger of America Online, Inc. and Time Warner Inc. America Online and Time Warner merged “the world’s most highly respected and valuable entertainment, news and Internet brands,” labeling the new company “AOL Time Warner Inc.”[7] AOL Time Warner was expected to “lead the convergence of the media, entertainment, communications and Internet industries and provide wide-ranging, innovative benefits for consumers.”[8] A few years later, the AOL Time Warner Board of Directors voted to rename the company “Time Warner Inc.”[9] The new name was cited as one that “better reflects the portfolio of [the company’s] valuable businesses and ends any confusion between our corporate name and the America Online brand name.”[10] Also notable, in the same press release describing the new name, the company describes itself as “the world’s leading media and entertainment company, whose businesses include filmed entertainment, interactive services, television networks, cable systems, publishing and music.”[11] One might wonder why in the 2001 merger announcement, the internet services are promoted, yet the same services are downplayed if even existent in the 2003 description of the same company operating under a different name. Some analysts attribute this move to Time Warner backing away from the America Online name and financial losses and to America Online’s need to prove itself to Time Warner in light of the changing internet landscape.[12] Time Warner’s message in eliminating AOL from its company name could signal a shift away from viewing the internet business as an integral part of the corporation.[13] It could also signal a shift toward severing AOL from the business of Time Warner, as analysts estimate that “Time Warner could realize more shareholder value if it were split up.”[14]
To further complicate the name game, in 2006 Time Warner announced it would retire the “America Online” name and operate as “AOL.”[15] The mission of America Online was to literally “[get] America online,” and that mission appears long since to have been accomplished.[16] Thus, reflecting on the pattern of name changes in Time Warner, it appears that internet and entertainment businesses were once equally lucrative, and at some point the internet business was judged not truly indicative of the broader corporate portfolio of businesses and created confusion with the America Online brand name. Regardless of the changes, it appears that Time Warner changed its name to highlight the value of its businesses over time.
In contrast, consider Macy’s (formerly known as Federated Department Stores, Inc.) acquisition of May Company. As part of the transaction, Macy’s changed the names of several regional department stores formerly operated by May Company.[17] Depsite a statement that Macy's "carefully research[ed] customer preferences"[18], the name change had the effect of “alienating thousands of customers”[19] who dislike the newly-named store and remain loyal to the previous branded department store. Unlike Time Warner, who appeared sensitive to customers’ and analysts’ perception of the America Online name and its internet business, Macy’s alienated customers merely by changing the name of its businesses. While part of the merger process appears to rely on synergy of the merging companies, it seems that the names chosen may have much to do with the way the newly combined company is perceived.
Ultimately, the name of a newly merged company is just one of several terms to negotiate in the merger process. However, companies should take note that the names they choose may have a significant impact on corporate and customer image and branding.
[1] Mary Ann Altman, Law Firm Mergers, PRAC. LAW INST. Order No. A4-4242 (Oct. 17, 1988).
[2] Nick Bunkley, With Sale, Chrysler’s Identity is Simplified, NY TIMES, Aug. 4, 2007, available athttp://www.nytimes.com/2007/08/04/business/04auto.html?_r=1&oref=slogin.
[3] Id.
[4] Mark Landler, From Now On, It’s Just Plain Daimler, NY TIMES, Oct. 5, 2007, available athttp://query.nytimes.com/gst/fullpage.html?res=9C02E3D8133EF936A35753C1A9619C8B63.
[5] Id.
[6] Id.
[7] Press Release, TimeWarner, America Online and Time Warner Complete Merger to Create AOL Time Warner (Jan. 11, 2001), available athttp://www.timewarner.com/corp/newsroom/pr/0,20812,668364,00.html.
[8] Id.
[9] Press Release, TimeWarner, AOL Time Warner to Rename Company “Time Warner” (Sept. 18, 2003), available at http://www.timewarner.com/corp/newsroom/pr/0,20812,670030,00.html.
[10] Id.
[11] Id.
[12] See, e.g, Louise Story, Moving Downtown: AOL Seeks New Image, NY TIMES, Sept. 18, 2007,available at http://www.nytimes.com/2007/09/18/business/media/18adco.html.
[13] Id.
[14] Id.
[15] Press Release, TimeWarner, America Online Changes its Name to AOL (Apr. 3, 2006), available athttp://www.timewarner.com/corp/newsroom/pr/0,20812,1179447,00.html.
[16] Id.
[17] Press Release, Macy's, Inc., Federated Announces Strategic Decisions to Integrate May Company Acquisition; Company to Focus on Building the Macy's and Bloomingdale's Brands While Increasing Profitability (Sept. 20, 2005), available at http://phx.corporate-ir.net/phoenix.zhtml?c=84477&p=irol-newsArticle&ID=758787&highlight==.
[18] Id.
[19] Michael Barbaro, Macy’s and Hilfiger Strike Exclusive Deal, NY TIMES, Oct. 26, 2007, available athttp://www.nytimes.com/2007/10/26/business/26retail.html?_r=1&oref=slogin.