Even as Comcast celebrates gaining a controlling interest in NBC-Universal, there’s a flashing red light on the horizon warning of the company’s potential demise.

This is a guest post by Ken Krushel, a senior alliance member of the Devil’s Advocate Group. Ken has held senior strategy positions at NBC, Paramount and MGM. He has consulted with Warner Brothers, Sega Corp., MGM and Lifetime Television. He was CEO of College Enterprises, Inc., which merged with Blackboard, Inc., to create the largest enterprise educational software company in North America. He also founded Proteus, Inc. a pioneer in marketing specialized subscription-based content for mobile phones.

The Kraft plan to buy Cadbury hinges on synergies between their distribution channels, which brings up an ugly memory: the Quaker Oats purchase of Snapple for $1.7 billion in 1994, followed by the sale of Snapple three years later for just $300 million (accompanied by the departure of the longtime Quaker CEO). [You can hear an audio excerpt of our Quaker Oats case study at the Billion-Dollar Lessons website.]

Pulte’s agreement to buy Centex for $1.4 billion means, in the words of the Wall Street Journal, that Pulte “succeeded in its quest to become the largest home builder in the U.S.,” but Pulte’s may be a Pyrrhic victory. The acquisition shows many of the characteristics of the classic mistake we identified in our book as “Doubling Down on a Bad Hand.”

We’ve updated “Perfecting the Art of the Deal,” a working paper that applies our research to potential mergers and acquisitions. Read the introduction below and click to download the entire article in PDF form.

There are some curious ideas being bruited about in the computer industry these days. It seems that cash is burning a hole in the pockets of healthy companies such as IBM and Cisco. Rather than have the cash sit around earning basically nothing at today’s low interest rates, the companies have decided to start looking for acquisitions. While that can be a splendid strategy in the right circumstances, the combinations being discussed don’t make much sense. Shareholders would be better off if the companies followed Oracle’s example and declared a dividend.

We’ve finalized two working papers that apply our research to today’s business challenges. The first, “Beyond Fear and Greed,” is an overall look at current strategic opportunities and pitfalls. Read the paper here, or download it in PDF form. The second paper, “Perfecting the Art of the Deal,” applies our research to potential mergers and acquisitions and is available in a separate blog entry.

Beyond Fear and Greed:
Capitalizing on Opportunities in the Current Crisis

By Paul B. Carroll and Chunka Mui

Warren Buffett says his guiding principle is to “be fearful when others are greedy and greedy when others are fearful.” There’s certainly plenty of fear out there, and thus plenty of opportunities to get greedy. Greed, however, does not necessarily translate into wealth. In this article, we draw on our two years of research into more than 2,500 major corporate failures and our related consulting work to describe the landmines that companies are mostly like to hit as they try to capitalize on today’s market turmoil. We also lay out a process for ensuring that greed does not send you down the wrong path–increasing the chances that you’ll pick a prosperous road.

Let’s say a pharmaceutical company is conducting clinical trials on a drug. Two trials find major problems. Several similar tests by others end in failure, too. Would the company get the drug approved? Of course not. Yet Pfizer is trying to drum up enthusiasm for its plan to buy Wyeth for $68 billion, even though its two other major acquisitions since 2000 have flopped and even though the track record for big M&A deals in the pharmaceutical industry is spotty at best.

In the process, Pfizer is raising numerous of the red flags that, according to our research, can mean a strategy is in peril. Pfizer seems to be seeing synergies that aren’t there; is underestimating the complexity that can come with additional size; may be paying too much; isn’t learning from prior mistakes; isn’t considering all its options; and is acting more because of problems in its core business than because of opportunities in a new one.

There’s something important that is getting overlooked in all the coverage of the stunning news that Bank of America has had to line up $20 billion in assistance from the federal government to handle problems at Merrill Lynch, just days after closing the Merrill purchase.

That something is this: The problems are just beginning.

As we’ve watched the Wall Street Journal chronicle the problems with Bank of America’s integration of Merrill Lynch’s retail brokers, we’ve assumed that competitors would be going as hard as possible after BofA and Merrill clients. We figured those competitors would succeed, too, because our research is full of examples of customers being poached during transitions such as those that follow a merger. Now, though, a WSJ article describes a strategy by Morgan Stanley that may be too aggressive.

The article says Morgan Stanley wants to combine its brokerage operations with those of Citigroup’s Smith Barney, to become the biggest retail broker. There are several problems, though, even beyond the sorts of culture clashes and other formidable integration problems that have afflicted BofA and Merrill, as well as many, many others.

Much of the $700 billion financial rescue package, originally intended to buy toxic assets, seems to be destined instead to finance a financial industry consolidation. An article in today’s Wall Street Journal highlights one of the dangers awaiting consolidators: the complexity of integration.

The article is replete with examples of how “the job of combining two banks is notoriously expensive, complicated and risky.”