Why did the Telia–Telenor merger fail?

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  • The business of international business is culture (Hofstede, 1994). Academic

    text as well as popular writings emphasize culture, or more specically, national

    ding auress: to CorresponE-mail add0969-5931/$ - see fro

    doi:10.1016/j.ibusrev.thor. Tel.: +46-8-16-30-63; fax: +46-8-674-74-40.

    ny.fang@fek.su.se (T. Fang).nt matter# 2004 Elsevier Ltd. All rights reserved.2004.06.002aviour explaining why many cross-bocultural dierences, as the fundamental predictor of the dynamism of international

    management beh rder ventures have failedInternational Business Review 13 (2004) 573594

    www.elsevier.com/locate/ibusrev

    Why did the TeliaTelenor merger fail?

    Tony Fang , Camilla Fridh, Sara SchultzbergSchool of Business, Stockholm University, 10691 Stockholm, Sweden

    Abstract

    The purpose of this article is to examine through a case study of the merger of TeliaTelenor why rms from apparently similar national cultures can fail to form a co-operativeventure. Telia and Telenor were the largest telecom operators in Sweden and Norway,respectively. Both were government-owned with a strong monopoly over their respectivenational markets for a long time. Despite perceived similarities between the negotiating par-ties in national culture, corporate practice, and language, the negotiation eventually wentaskew and the ongoing merger ended in December 1999 after only two months in existence.We describe the process of the TeliaTelenor merger negotiation and analyze it from a cross-cultural management perspective. Our major nding is that historical sentiments, feelingsand emotions, if not handled well, can cause fatal damage to cross-cultural businessventures.# 2004 Elsevier Ltd. All rights reserved.

    Keywords: Telia; Telenor; Merger negotiation; History; Culture

    1. Introduction

    Throughout the last decade, mergers and acquisitions (M&A) have dominated

    the world economic scene (Buckley & Ghauri, 2002). Cross-national M&A, in

    particular, have attracted increasing academic and managerial attention in the

    international business and management literature (de Beaufort & Lempereur, 2002;

    Hopkins, 2002; The Economist, 2002; The M&A Group, 2002).

  • T. Fang et al. / International Business Review 13 (2004) 573594574(e.g., Bjerke, 1999; Gesteland, 2002; Hofstede, 1980, 1983, 1991, 1993, 2001; Joynt& Warner, 2002; Lewis, 1999, 2003; Schneider & Barsoux, 2003; Trompenaars,1994).Kogut and Singh (1988) have discussed the concept of national cultural distance,

    which is conceived of as the cultural norms in one country being dierent fromthose in another country. Baarkema, Bell, and Pennings (1996) nd that culturaldistance is negatively correlated with the longevity of foreign operations, suggest-ing that the shorter the distance the longer the life expectancy of ventures acrossnational boundaries.International or cross-cultural negotiation studies also point out that cultural

    dierences, if not handled properly, would jeopardize international co-operativerelationship in general and negotiation outcome in particular. Cultural dierencestend to cause poor communication, misperception, and misunderstanding, oftenleading to a failure of business in cross-cultural environments (Brett, 2001; Buono,Bowditch, & Lewis III, 2002; de Beaufort & Lempereur, 2003; Faure & Rubin,1993; Hall, 1976; Hofstede, 1989; Hofstede & Usunier, 2003; Hopkins, 2002;Usunier, 2003). Recent research on M&A negotiation reveals that many failures ofM&A nd their cause in the mismatch in cultures (The Economist, 2002) and thelack of fruitful contacts and information exchange between the two sides at variousstages (de Beaufort & Lempereur, 2002).While much importance has been given to the consequences of cultural dierence

    for cross-border businesses, insucient attention has been directed to researchingcross-cultural similarities and their implications for international business. The lackof study of cultural similarities seems to have produced an illusion that culturalsimilarity is a less interesting subject; short cultural distance would only help createbetter mutual understanding and communication, which in turn would result inpositive outcomes.

    1.1. TeliaTelenor

    The failure of one of the largest mergers in the modern Nordic history, occurringin 1999 between Telia and Telenor, has triggered our curiosity. Telia was Swedenslargest, and for many decades, sole telecom operator. Telenor has been Norwayslargest telecom operator. Telia and Telenor were both government-owned and hada strong political inuence and monopoly position in their respective national mar-kets historically. Given their long-standing inuence in their respective nationalmarkets, Telia and Telenor were regarded as a kind of national symbol by peoplein their respective nations. Despite similarities and nearness in national culture,corporate practice, and language, and despite the fact that the EU had approvedthe merger, the TeliaTelenor negotiation eventually went askew. On 16 December1999, the TeliaTelenor merger ended after only two months in existence. The fail-ure of the merger had cost Telia SEK 200250 million alone.While some analysts described the failure of TeliaTelenor merger as one of the

    largest industry project ascos in modern Nordic history, a few executives involvedin the TeliaTelenor merger process considered the break-up a suitable way out for

  • which now is the leading telecommunications group in the Nordic and Balticregions. Telenor was also listed on the Oslo Stock Exchange and NASDAQ in

    575T. Fang et al. / International Business Review 13 (2004) 5735942000, and it remains Norways largest telecommunications group, with substantialinternational mobile operations.The purpose of this article is to examine through a case study of the merger of

    TeliaTelenor why rms from apparently similar national cultures can fail to forma co-operative venture. The fundamental research question is: why did the TeliaTelenor merger fail? We are aware that a comprehensive investigation into thecause of failure of international mergers of such magnitude as TeliaTelenor wouldrequire multiple perspectives involving, for example, strategy, organization, corpor-ate nance, international business, negotiation, culture, history, diplomacy, and soforth. However, given the purpose of this study and to be able to generate crucialinsights, we have chosen to narrow down the scope of our research. Thus, thefocus of this article is to describe and analyze the TeliaTelenor merger processfrom a cross-cultural management perspective. Although culture and negotiationwill be discussed, cross-cultural management is the main theoretical base on whichthis study rests. By culture, we mean a unique lifestyle of people in a given society,which has been cultivated and shaped from history to date.

    2. Methodology

    Given the purpose and the type of research question of this study, a qualitativecase study research method based on in-depth personal interviews is considered tobe the most suitable research strategy (Yin, 1994). One of the greatest challengeswas to identify key negotiators from both the Swedish and Norwegian sides whowere insiders in the merger process and convince them of the value of thisresearch in order to secure their participation as informants. During April2003February 2004, contacts were made and in-depth personal interviews wereconducted (each 12 h) with most of the respondents. The respondents includedindividuals such as: Telias former CEO Jan-Gke Kark (interviewed in Stockholmon 30 April 2003); Telenors former CEO Tormod Hermansen (Oslo, 14 October2003); Jan-Erik Brask, chief of Telias M&A department (Stockholm, 23both parties. Had the merger been allowed to continue, one said, it was likelythat political relations between Sweden and Norway would have been inuencednegatively, as the project involved keen commitments from both Swedish andNorwegian governments. The strategic intent of the Swedish government was touse the ongoing merger to bolster the privatization process of Telia and in turn tohave the company listed on the stock market, while the Norwegian governmentseemed to attempt to use the merger to reinforce an increasingly powerful nationaltelecommunications sector led by Telenor. After the short-lived merger, both com-panies seemed to have pursued their BATNA (Best Alternative to a NegotiatedAgreement; Fisher & Ury, 1981). Structured reforms were carried out on corporategovernance. Telia was listed in the Stockholm Stock Exchange in 2000, and itmerged with the Finnish telecom operator Sonera in 2002 to become TeliaSonera,

  • Telenor merger negotiation. We will also present our analysis of the TeliaTelenorcase and discuss its implications for both theory and practice.

    T. Fang et al. / International Business Review 13 (2004) 5735945763. Negotiation and national culture

    Classic negotiation literature (e.g., Dupont, 1996; Fisher & Ury, 1981; Kennedy,2001) has oered many useful thoughts and models about how to study and con-duct negotiations. However, the fallacy of such approaches is that negotiationstend to be viewed as culture-free, deal-focused, and watertight legal packages thatexclude soft factors such as culture and people. For example, one widely readpiece of advice is to separate the people from the problem (Fisher & Ury, 1981).However, the deal-focused approach is common only in a small part of theworld (Gesteland, 2002: p. 19). More recently, negotiation scholars have startedto doubt this deal-focused approach to business negotiation, suggesting thatnegotiation strategy needs to be modied and expanded to take cultural dier-ences into account (Brett, 2001: xix). A cross-cultural approach to business nego-tiations, both country-general (e.g., Brett