On Beretta and Ruger and Aligning Common Interests

Monday’s announcement that Beretta and Ruger had chosen to do business rather than engage in all-out corporate combat is a win for all parties concerned, especially the Ruger’s shareholders. Having watched Wall Street and corporate America battle for what is rapidly approaching a half century, the facts of these sort of matters make it obvious that a negotiated peace is decidedly better than protracted combat.

In general, a collaborative agreement focuses on the common goal of all companies: making money. Each company is formidable in its own right. Beretta has more than twice the corporate history of the United States (the country) and “Holding” – the conglomerate of today, is made up of nearly 50 companies worldwide in its portfolio. Ruger isn’t just an American icon, it’s an extremely successful company with popular, reliable products, no corporate debt, and cash reserves that are the envy of the industry.

With this week’s announced agreement, both sides appear to have realized that it’s better to align their common interests than it is to engage in the expensive business of hostile corporate combat. As is essential in all negotiated agreements, both sides appear to have made concessions. Ruger is dropping its poison pill defense designed to dilute a hostile takeover attempt. Beretta, in turn, agrees to cap its holdings of Ruger stock at twenty-five percent, with additional shares to be acquired in a tender offer  $44.80 per share in cash.

Beretta’s is withdrawing its nominees to the Ruger board of directors, pledging not to make another proxy tender for three years and has agreed to vote its shares with the Ruger board of directors, unless a matter works directly against Beretta’s corporate interests. In return, Ruger will “temporarily” expand their board by two members…to be selected by Beretta.

Having spoken at length with high ranking officers on both sides, the idea of a protracted battle inside the firearms industry was mutually deemed as not being in any of our best interests. Ultimately, that mutual agreement helped lead them to seek areas where they could use their respective strengths to their mutual advantage, rather than seeking to highlight the others’ perceived shortcomings to win a corporate fight.

Beretta Holding is one of the great global business success stories. But its culture is familial, not corporate. Ruger may have begun as a Horatio Alger-type “only in America” success story, but today it’s a publicly-held corporation. Those are drastically dissimilar cultures. Blending the two isn’t work for the faint-hearted or the thin-skinned, even when both parties agree.

That’s why it would appear that this three-year working agreement is best for everyone. When I was involved in the merger of Continental and Eastern Airlines (that makes me feel really old), I was talking with an Eastern Airlines captain and asked his feelings regarding the merger. “Merger,” he snarled, “this isn’t a merger; it’s a mid-air collision. We’re headed for a smoking hole.”

He was more correct than I could have imagined. He was basing his feelings regarding the outcome on the airlines’ corporate cultures and how different they were. The business “leaders” didn’t know anything about those corporate cultures. They were looking at the revenue potential of overlaying the Continental and Eastern route maps, cutting out “inefficiencies” and maximizing both lift and yield.

There were numerous arguments between the two companies as to which was more valuable, “lift” or “yield.” One said the capacity was most important. The other said smaller planes flying full had a higher yield. The two sides never agreed. Consequently, the pilot’s assessment turned out to be the most accurate of all.

No one wins cultural wars. Even corporations.

We’ll keep you posted.