Announcing — and then abandoning — the merger with Sanyo Chemical (2019)

The fragility of a merger of equals

The core of this collapse can be read as a question of how much a merger-of-equals framework can withstand a gap in performance opening up during the preparation period. At the announcement in May 2019 the two companies were united around a shared goal — expanding global share — but the corporate values on which the exchange ratio rested were things that could change over eighteen months of preparation. When Nippon Shokubai’s European business deteriorated rapidly under COVID-19 and the company cut guidance three times, the very premise supporting agreement between equals was shaken.

About a year and a half after the announcement, Nippon Shokubai booked a net loss of $98.4M (¥11bn) for the year to March 2021, driven mainly by $108.4M (¥12bn) of impairment on the plant of its European subsidiary NSE. Having lost the merger option, the company went back to the problem it had carried before the announcement was ever made: rebuilding the SAP business alone. This break-up shows how fragile a merger of equals becomes when the results assumed at the moment of judgment diverge from the results that materialize at the moment of execution.