Management consultants are famous for coming up with figures showing how many mergers fail.
Usually it amounts to more than half. That’s why there was scepticism about the merger of Banco Santander and Banco Central Hispano in early 1999. Would it create more problems than gains?
A year and a half later it’s becoming clear that the Spanish can teach the world a thing or two about mergers. Modestly, they retort that it was the direct experience of going through bad ones – the merger of Bilbao and Vizcaya in the 1980s being the prime example – that showed them how to do it right. BSCH wins the award for putting together its two halves so quickly and successfully and increasing profits 26% in the process. The resulting bank is Spain’s largest and the sixth largest in Europe by market capitalization.
There seem to be four major lessons of the BSCH merger: conduct the negotiations as rapidly and as secretly as possible; have agreement on who will occupy the most senior positions before the merger is announced; adopt a multi-branding strategy that prevents customers from being alienated while still allowing for cost cuts; keep the bank outward looking even while the merger is in progress.
BSCH has achieved all of these and excelled in the last one. Faced with all the difficulties of merging, the bank has been every bit as aggressive on the acquisition trail as Santander – noted for being a robust M&A player – was before. Since the merger BSCH has got itself involved in two takeover battles: it defended Société Générale from a hostile bid from BNP and sided with Royal Bank of Scotland in its ultimately successful bid for NatWest in the UK. The internet has been a central focus and BSCH bought internet portal Patagon.com. In Portugal BSCH bought Banco Totta and Crédito Predial Português which involved a lengthy dispute with the government. It also continued its expansion into Latin America, buying Serfín in Mexico for $1.5 billion, the Meriodional group in Brazil which includes Bozano Simonsen and the 28% of Banco Rio in Argentina that it didn’t already own.
The success of Latin America is another key factor in the award. The string of banks acquired there over the past few years required huge investment in systems and a clear-out of bad assets. When Latin American volatility spilled over into the Santander share price the wisdom of the strategy began to be doubted. But now the results of BSCH’s work in turning around the Latin American operation are starting to show. The bank is set to earn 40% of total earnings from them.
