You run a spirited young company and one day a global megacompany saunters up to your door. As the door hinges give way to one swift kick, all your talented employees scatter.
Reenacted many times each year, this scene leaves the big acquiring company with plenty of the bricks and mortar but little of the original genius that suffused the start-up.
That could change, though, because a new era in the acquisition of small companies is upon us, says Gerald Rosenfeld, a vice-president of Salomon Brothers Inc., who represents clients in merger and acquisition activities. "Now it's possible to be affiliated with a larger company and still keep the small-company spirit alive," he says.
General Motors Corp. set the example in July when it signed an agreement to acquire Electronic Data Systems Inc., a data-processing firm with sales of more than $600 million last year. GM's problem was clear: How could the second-largest industrial company in the United States (1983 sales: $74.6 billion) preserve the feistiness imbued in it by EDS founder H. Ross Perot?
Under the unusual terms of the acquisition, the carmaker offered EDS shareholders a choice between cash or a combination of cash and a new Class E stock, which looks solely to the performance of EDS for its return. Not only will EDS stock remain separate from GM stock, but the smaller company will stay in its Dallas headquarters with Perot firmly in control.
"EDS has become a great company over the past 22 years by instilling the entre-preneurial spirit in its employees," says Rosenfeld, who was part of the team representing GM. "We didn't want to squash the thing that has made EDS so successful."
Rosenfeld expects to see similar deals struck in acquisitions of "people-oriented businesses and young companies with the original founder and shareholders still in place." But he stresses that it is too early to tell just how commonplace such arrangements will become. In the meantime, it might be best to tighten the door hinges in case any big company comes sauntering up.
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