After months of intrigue, Kraft finally made a successful bid for venerable British candy maker Cadbury, leaving archrival Hershey’s on the sidelines.

Kraft management predicts that the $50 billion combined company will be able to save $675 million over three years, but that’s not the primary reason for the merger. It’s all about global distribution and access to developing markets. Cadbury has it, Kraft wants it. Makes sense on paper.

Most mergers do make sense on paper, yet many become spectacular failures. The reason? A lack of appreciation for just how difficult it is to integrate not only global operations, but two proud and independent workforces.

Kraft is going to face this problem in spades with Cadbury. Todd Stitzer, Cadbury’s CEO, said that Hershey’s would have been a better cultural and operational fit. The company’s Chairman, Roger Carr, took it a step further by saying Kraft is “an unfocused conglomerate” with “unappealing categories” and management that “underdelivers.” Carr went on to say, “There is no strategic, operational, managerial or financial reason” for the merger.

Sure, Carr’s statement may have been a bit of strategic bluster to raise the value of the offer (which he succeeded in doing), but it sounds pretty categorical to me. And it was telling that not a single Cadbury executive was present on the conference call with analysts to discuss the deal. Hmm.

Kraft estimates it will take $1.3 billion to “integrate Cadbury.” I’m not sure exactly what that means or who came up with the number, but I don’t know how anybody could forecast the costs associated with the fear, resentment and internal jockeying with which Kraft and Cadbury managers and employees are now having to deal. The fact that Britons consider Cadbury a national treasure that has been overrun by ugly Americans sure won’t help.

Let’s hope Kraft doesn’t end up with a stomachache.

I’ve kept my eye on Sara Lee for several years now, originally because the company was a poster child of the Loss of Focus principle. But in 2005 new CEO Brenda Barnes introduced a plan to streamline Sara Lee, which analysts would have described as a conglomerate but could more accurately have been characterized a beast.

Launched in 1939 as C.D. Kenny Company, over the course of the next sixty-plus years the organization acquired and divested brands in industries as varied as supermarkets (Piggly Wiggly), electronics (Electrolux), apparel (Aris Isotoner, Hanes, Champion, Playtex), shoe polish (Kiwi), and even chemicals (Oxford Chemical Corporation). It took its present name from a company acquired in 1956, The Kitchens of Sara Lee.

By the early 2000s Sara Lee’s strategic chickens had come home to roost in the form of slow sales growth and weak earnings. A company that had fueled growth for decades through artificial diversification had simply become too unwieldy to manage.

That’s when Barnes launched (according to internal company documents) “a bold and ambitious multi-year plan to transform Sara Lee” by divesting brands comprising 40 percent of its revenues and focusing R&D; efforts on food. By 2007 Sara Lee was increasing market share faster than any of its major competitors, and last month Barnes announced that she was selling Sara Lee’s deodorant and skin care brands to Unilever. When asked about the rationale behind this recent move, Barnes—no doubt for the umpteenth time over the past four years–said, “Our intent is to build a great business in food and beverage.” (It was a “multi-year plan,” remember?)

Count me a fan. Contrary to the strategic flailing about demonstrated by many companies when they encounter rough waters, Sara Lee has kept its focus. Barnes has consistently executed on her now four year-old strategic plan, and the nearly $2 billion take she’ll get from the sale to Unilever will equip her to further strengthen Sara Lee’s food and beverage brands. Which will leave a good taste in the mouth of the company’s investors. Smart.

The “Lack of Consensus” problem rears its ugly head again:

January 10, 2000 (CNNfn):“In a stunning development, America Online Inc. announced plans to acquire Time Warner Inc. for roughly $182 billion in stock and debt Monday, creating a digital media powerhouse with the potential to reach every American in one form or another…’Together, they represent an unprecedented powerhouse,’ said…a media analyst…’If their mantra is content, this alliance is unbeatable. Now they have this great platform they can cross-fertilize with content and redistribute.’”

May 29, 2009 (LA Times):“Time Warner’s rocky marriage to AOL is coming to an end. Citing irreconcilable differences, Time Warner Inc. said it was legally separating from its much younger spouse, America Online. The marriage, which was announced to great fanfare in January 2000, had been on the rocks practically from Day One — doomed from the get-go by lofty expectations of a new power couple that could dominate the media landscape for generations to come…The new Time Warner was applauded by analysts.

So “analysts” thought the AOL/Time Warner merger was brilliant. Until they didn’t anymore. Just goes to show that you can’t believe everything you read.

Make your decisions based on what you know, not what they think.

Last week the Wall Street Journal announced the news that Dell was looking to hire an M&A chief.

Now that’s scary. It’s one thing for companies to come across what they believe is a strategic opportunity and make a play for another organization. It’s quite another to pursue acquisitions as a growth strategy, which apparently the masters-of-the-universe investment analysts are pressuring Dell to do. According to the Journal, “Wall Street has been calling for Dell to spend some of its $9 billion in cash to buy its way into other businesses.”

I have just one question: Why? If Dell can’t achieve healthy, profitable growth via its core operations (see General Dell and Dell Revamping posts), why would any wise investor be fooled by tacked-on revenues?

I make the case in When Growth Stalls that acquisitions are often a form of denial; management of a struggling company convinces itself that everything is OK as long as the top line is growing. That may be understandable thinking on the inside, given the daily pressure company leaders face to outperform the previous quarter. But dispassionate external observers should know better.

Interestingly, one column away from the Dell piece was a story about the latest results of a merger that analysts also once thought was smart. The headline: “Alcatel Loss Widens as Sales Fall.” As I documented in the book, the Alcatel-Lucent merger was a longshot from the start. According to the report, the company is still struggling with “increased competition, tough regulatory pressure and the impact of the economic crunch.” That’s a market tectonics triple play, and it’s going to keep Alcatel from being scored as a success for some time–if at all.

Dell’s $9 billion war chest is a powerful asset, but it should be used to reward investors–through dividends, share buybacks, or innovation focused on organic growth. It’s always better to build the team than to buy it.

The news broke late yesterday that Oracle pulled a fast one on IBM by acquiring Sun Microsystems in a $7.38 billion deal. Larry Ellison, Oracle’s CEO, says Sun’s Java programming is “the single most important software asset we have ever acquired.” He may be right, and this deal may go down as Ellison’s master stroke.

On the other hand, it could be a big flop. Java accounts for a small percentage of Sun’s revenue, the bulk of which comes from hardware in which Oracle has precious little experience. Oh, and Sun’s hardware business is currently unprofitable.

Let’s not forget that companies like Sun, Oracle and IBM are run by larger-than-life CEOs who are continually trying to out-maneuver one another for competitive advantage (and bragging rights). It’s possible that Oracle’s interest in Sun was piqued by IBMs overtures, and only then did they find a way to justify doing the deal. Very few decisions in business are completely rational–especially decisions of this magnitude and urgency, around which the adrenaline can’t help but flow.

I’m no computer industry analyst, so I will leave the professional prognosticators to analyze how a purchase that will take a big bite out of Oracle’s margins may be overcome by giving them a leg up in software development. What I will say is this: when companies of this size and importance merge (particularly in industries as competitive as hardware and software) in an economy this unstable, issues surrounding consensus, focus and consistency are sure to arise. As I detail in When Growth Stalls, these are the unexpected internal dynamics that often take companies down.

I wouldn’t be surprised if a year or two from now we were reflecting on the acquisition that should have worked, but didn’t. It’s all too common when growth stalls.

With the Departure of John Thain from Bank of America, now Merrill Lynch’s former no. 1 and no. 2 guys are gone from the merged entity. Word is that the rest of the former Merrill staffers are now left wondering, as the Wall Street Journal put it, about “a rocky integration into a bank that was supposed to offer stability.”

Is anyone surprised? Corporate marriages are never easy, especially when they’re a product of shotgun weddings. In real life, the key to marriage is compatibility, and successful corporate mergers are no different. That’s why so many of them fail. The suitors get romanced by the idea that one plus one will equal three in terms of market opportunity and back office synergy. But Merrill and BofA differ from culture to compensation, and it may turn out that in this case one plus one may not even equal two.

Our research shows that despite outward appearances, companies often don’t get what they want out of acquisitions. They too often fall for the promise of what could be rather than the reality of what is.

THIS JUST IN: Pfizer is considering an acquisition of Wyeth in a $60 billion deal. Both have been struggling with competition, changing industry dynamics and weak new product pipelines (see “What Not To Cut” below). It will be interesting to watch as things develop whether this is a marriage for love or money.

America’s three largest banks have demonstrated a healthy appetite as they help Washington clean up our messy economic table.  J.P. Morgan Chase gulped down both Bear Stearns and Washington Mutual, Wells Fargo swallowed Wachovia, and Bank of America is trying to digest Merrill Lynch & Co. But news reports are suggesting that they each may be in for a period of significant indigestion as they merge very different corporate cultures. Witness Robert McCann, Merrill’s former brokerage head, who announced his departure just four days after the BofA takeover was complete.

The fact that these mergers were made under extraordinary economic circumstances is likely to exacerbate the problem. Our proprietary research among hundreds of corporations shows that the acquisition of a like-minded company pursuing a complimentary strategy can, like a well-balanced meal, contribute to healthy growth.  But more often than not, corporate acquisitions are more like junk food–they taste great but go down hard. Now that the calories have been consumed from these drive-thru mergers, their nutritional value will become apparent.

The strong acquiring the weak may be a net benefit to the economy at large as events play out. But the odds are strong that one or more of these big banks will come to regret their gastric choices.