Overcoming Culture Clash

question 79

Essay

Overcoming Culture Clash:
Allianz AG Buys Pimco Advisors LP

On November 7, 1999, Allianz AG, the leading German insurance conglomerate, acquired Pimco Advisors LP for $3.3 billion. The Pimco acquisition boosts assets under management at Allianz from $400 billion to $650 billion, making it the sixth largest money manager in the world.

The cultural divide separating the two firms represented a potentially daunting challenge. Allianz’s management was well aware that firms distracted by culture clashes and the morale problems and mistrust they breed are less likely to realize the synergies and savings that caused them to acquire the company in the first place. Allianz was acutely aware of the potential problems as a result of difficulties they had experienced following the acquisition of Firemen’s Fund, a large U.S.-based property–casualty company.

A major motivation for the acquisition was to obtain the well-known skills of the elite Pimco money managers to broaden Allianz’s financial services product offering. Although retention bonuses can buy loyalty in the short run, employees of the acquired firm generally need much more than money in the long term. Pimco’s money managers stated publicly that they wanted Allianz to let them operate independently, the way Pimco existed under their former parent, Pacific Mutual Life Insurance Company. Allianz had decided not only to run Pimco as an independent subsidiary but also to move $100 billion of Allianz’s assets to Pimco. Bill Gross, Pimco’s legendary bond trader, and other top Pimco money managers, now collect about one-fourth of their compensation in the form of Allianz stock. Moreover, most of the top managers have been asked to sign long-term employment contracts and have received retention bonuses.

Joachim Faber, chief of money management at Allianz, played an essential role in smoothing over cultural differences. Led by Faber, top Allianz executives had been visiting Pimco for months and having quiet dinners with top Pimco fixed income investment officials and their families. The intent of these intimate meetings was to reassure these officials that their operation would remain independent under Allianz’s ownership.
-What else could Allianz have done to minimize potential culture clash? Be specific.

Apply cost accounting concepts to make informed financial decisions.

Understand and apply absorption costing techniques.

Understand and apply variable costing techniques.

Prepare and analyze income statements under both absorption and variable costing.

---

Definitions:

Separate Companies

Distinct legal business entities, often established to pursue different objectives or strategies, that operate independently of one another.

Merger Negotiations

The process of discussing and reaching an agreement between two or more companies to combine their operations and form a single entity.

Post-merger Control

The governance and management practices in place after two companies have completed a merger.

Severance Packages

Compensation given to an employee after termination, which may include monetary payments, benefits, or other compensation.