UNC Kenan-Flagler Business School


The Importance of Post-Merger Branding


Fusion strategy yields a higher payoff

Maybe those women who hyphenate their last names when they marry are onto something.

New research by marketing professor Natalie Mizik suggests that “fusion branding” yields a higher payoff over the years for newly merged firms.

Though mergers are central to corporate growth strategies, they are disruptive events that give customers, employees and investors an opening to reassess their relationships with the newly formed entity. The need to rebrand all or part of an entity after a merger gives the firm the chance to consider how it presents itself to the public.

Importance of Post-Merger Branding

Corporations can handle the rebranding after a merger in three ways: Business-as-usual – Neither firm changes its branding. Though restructured as a single entity, each part continues to operate under its original name and brand symbol. When Fox News and News Corporation merged, for example, each kept its brand identity.

Assimilation – The newly merged entity assumes the identity of one of the firms, such as when Verizon and Alltel merged, and the Alltel brand disappeared.

Fusion – Both firms contribute elements from their separate identities to form a new brand. For instance, when United Airlines and Continental Airlines merged, they used United’s name but paired it with the recognizable slice of the globe from the Continental logo. When J.P. Morgan and Chase Manhattan merged, they became JPMorgan Chase & Co.

Business-as-usual branding preserves the brand equity but does not seek to enhance it and does not capitalize on potential synergies. Assimilation branding discards all brand equity of the target firm, along with the embedded customers’ and employees’ goodwill. Fusion branding seeks to preserve, enhance and leverage brand equity of both merging firms. Fusion also lends itself to a more nuanced communication and messaging; its greater flexibility means it can be better tailored to suit a specific business context.

To determine which branding strategy yields the best results and under what conditions, Mizik collaborated with Isaac Dinner of IE Business School and Jonathan Knowles, CEO of Type 2 Consulting. Highlights of their study appeared in the September 2011 issue of Harvard Business Review.

The researchers studied 216 companies formed in the largest mergers between U.S.-based companies from 1997 to 2006. They separated companies into three groups based on the branding strategy each company chose. In their sample, 119 mergers used assimilation branding; 53 used business-as-usual branding; and 44 used fusion branding. The researchers examined the stock market’s immediate reaction on the day of the merger announcement for each firm and noted the average three-year postmerger return for firms in each group, relative to the market as a whole.

Mergers typically underperform the market. Surprisingly, the study found that merger performance differed significantly depending on the choice of the corporate branding by the merged firm.

Fusion branding showed the best performance overall. Unlike assimilation-branded and business-as-usual-branded mergers, fusion-branded mergers did not generate an immediate negative market reaction at the time of the merger announcement and did not show negative returns in the years after the merger was completed. Interesting differences between assimilation-branded and business-as-usual-branded mergers became apparent as well.

“We found that the stock market was better able to recognize the negative consequences of acquisition-branded mergers and to penalize the firms early on,” Mizik said. “The valuation of those firms was adjusted immediately when the merger was announced, but there was no significant underperformance after the merger was completed.”

The business-as-usual-branded mergers had only a small negative market reaction at the time of the merger announcement but showed a significant postmerger drop in valuation. “The investors seemed to appreciate the clarity of the assimilation and fusion strategies,” Mizik said, “but they tended to have difficulty properly pricing the business-as-usual-branded mergers and overvalued them initially.”

After adjusting for such factors as risk, size and market-to-book ratio, Mizik found that, three years from the day of the merger announcement, companies using an assimilation branding strategy fell short of the market return by 15 percent on average. Companies using a business-as-usual approach fell short by 25 percent. But fusion-branded companies exceeded the market return by 3 percent.

Mizik’s research is the first to systematically examine the value implications of corporate branding strategies in mergers and to document the differences in performance across fusion-branded, assimilation-branded and business-as-usual-branded mergers. Assimilation and business-as-usual branding strategies might be more expedient but are associated with inferior performance compared to fusion branding. Given the continuing popularity of mergers as a component of corporate growth strategy, Mizik’s insights are all the more relevant.

Effective branding can help the merged entity enhance or preserve brand equity and customer equity of the merging companies. It can expand the appeal of the entity’s products to new segments and generate new incremental value to customers and employees through improved image and better marketing of products. Investors might use branding strategy as an indication of how well the companies have thought through the merger transaction and integration. It signals the strategic direction and vision, managerial intent and commitment to successful integration.

Managers should be more deliberate in evaluating the options and selecting branding strategies, said Mizik. “Corporate branding can help mitigate some of the uncertainty caused by clarifying the intent of the merger to customers, employees and investors – the three key constituencies whose ongoing loyalty largely determines the merger’s success or failure.”

Key take-aways

  • Branding affects customers, employees and investors. The reaction and the ongoing loyalty of these constituencies determine the financial success of a merger.
  • Firms using acquisition and business-as-usual branding strategies underperform those using fusion branding.
  • Acquisition branding is penalized immediately at the time of the merger announcement, while business-as-usual branding has only a small initial penalty. But in the postmerger period, firms using business-as-usual branding perform worse than those using acquisition branding.


Natalie Mizik is a former associate professor of marketing at UNC Kenan-Flagler.