A successful South African demerger : the case of South 32

Abstract

Merger and acquisitions (“M&A”) and divestitures dominate corporate strategies. As a result, substantial academic focus is given to these strategies and little attention is given to demergers. Several demerger studies explore the financial benefits of executing such a strategy. This study uses these M&A studies as a basis to explore the success factors of the post-demerger phase. The M&A literature indicates that in post-integration the critical variables for the success of the merged entity are: culture; identity; speed of implementation; communication strategy; business model; and leadership. This study adopts a qualitative case study approach to evaluate and identify variables that contributed to a post-demerger phase success. In contrast to M&A findings, the culture and identity variables did not strongly support the success of the post-demerger. This study showed that the parent company culture contained elements that suited the new strategy and business model. Culture was therefore not the key element to be changed or worked on to facilitate the success of the organisation. Similarly, the company had an identity that was already entrenched. It was possibly always going to be difficult to introduce a new one or rapidly change the original identity. Unlike in M&A’s, these two elements are key for the success of the merged entity, since the domination of one company’s identity or culture could compromise the integration process, limiting the benefits that could be achieved from synergies. This study found that the leadership was the foundation and enabler of the other key success factors, such as communicating with stakeholders, strategy and business model. It also emerged that in the post-demerger phase, the structures to support the vision and leadership are critical for the success of the demerged entity.