Merging Esso Iceland and Bilanaust (A)

In 2006, Hermann Gudmundsson (the chief executive officer [CEO] of Bilanaust, an Icelandic automotive spare parts retailer) was part of a group of partners that had purchased Esso Iceland. He had subsequently been appointed to the CEO position at Esso Iceland. The two companies were quite different: Bilanaust dealt with real-time customer needs, carried a wide range of products, and enjoyed a rising market share and profits. Esso Iceland was 12 times the size of Bilanaust, skilled at developing and executing medium- to long-term strategies, and was operating in a stagnated market. Gudmundsson evaluated the opportunities in front of him: could a successful merger be wrought from the two companies or would it be better to maintain two separate entities? He determined that a lot of work would need to be done to gain consensus around the right strategic direction for the future. Careful thought identified three areas of initial focus: 1) improving staff morale; 2) creating a sense of optimism; 3) placing effective leaders at key points in the organization.