Mergers and Acquisitions

Transcription

1 Chapter 12 Mergers and Acquisitions 1 Learning Objectives After reading this chapter, you should be able to: Understand the various types of mergers and acquisitions Explain why organizations merge and the methods used to achieve a merger 2 Learning Objectives After reading this chapter, you should be able to: Identify the financial and human impacts of mergers Describe the issues involved in blending cultures Discuss how a merger affects HR planning, selection, compensation, performance appraisal, training and development, and labour relations 3 1

2 Review Strategic Types (Ch 1) Corporate Strategy- organizational-level decisions that focus on long-term survival 1. Restructuring includes turnaround, divestiture, liquidation, and bankruptcies 2. Growth includes incremental, international, and mergers and acquisitions 3. Stability maintains status quo 4 Definitions Merger - the consolidation of two organizations into a single organization Horizontal merger - the merging of two competitors Vertical merger - the merger of a buyer and seller or supplier 5 Definitions Conglomerate merger - the merger of two organizations competing in different markets Acquisition - the purchase of an entire company or a controlling interest in a company Consolidation - two or more organizations join and form a new organization Takeover - one company acquiring another company 6 2

3 The Urge to Merge Companies merge for 3 reasons: 1. Strategic Benefits 2. Financial Benefits 3. Needs of the CEO or managing team 7 Strategic Benefits Operating synergy - the cost reduction achieved by economies of scale produced by a merger or acquisition Vertical integration - the merger or acquisition of two organizations that have a buyer-seller relationship Horizontal integration - the merger or acquisition of rivals 8 Financial Benefits Organizations need to reduce the variability and risk of their cash flow Organizations often use cash cows to fund star operations All growth strategies have different tax implications Developing new products and entering new markets is expensive Financial statement analysis often reveals undervalued organizations Goal is to increase shareholders wealth 9 3

4 Needs of the CEO or Managing Team Managers may pursue their personal interests at the expense of stockholders Often the motives of executives can be deemed unconscious Some managers make decisions only to prove their capabilities Other studies link personality factors such as the need for power to management decisions 10 Mergers Merger Methods The Success Rate of Mergers Financial Impact Impact on Human Resources 11 Merger Methods Hostile takeovers are dramatic and complex Poison pills refers to the right of key players to purchase shares in the company at a discount making the takeover extremely expensive White knights are buyers who will be more acceptable to a targeted company Pac-Man is a defensive manoeuvre where the targeted company makes a counteroffer for the bidding firm 12 4

5 The Success Rate of Mergers Only about 20 percent of all mergers (and acquisitions) are successful; 60 percent are disappointments; 20 percent are complete failures Best success rates are with similar businesses rather than dissimilar ones Mergers take so much time and resources often the original business is neglected Mergers are more successful when a large firm absorbs a small firm Mergers are less successful in service industries (compared to manufacturing) due to greater risk 13 Financial Impact Estimated financial returns are rarely realized Many mergers fail because the buyer overextends itself financially with high debt loads and then must apply cost cutting measures to service the debt Some forecasted economies of scale are never achieved 14 Impact on Human Resources Reduced morale may lead to lower productivity, sabotage, stress, anxiety, survival tactics, higher turnover and lower efficiency, all of which have financial consequences to an organization 15 5

6 What is Culture? Culture - the set of important beliefs that members of an organization share 16 Cultural Issues in Mergers Cultural Options for Mergers and Acquisitions: 1. Assimilation 2. Integration 3. Deculturation 4. Separation 17 Assimilation Assimilation occurs when one organization willingly gives up its culture and is absorbed by the culture of the acquirer or the dominant partner 18 6

7 Integration Integration refers to the fusion of two cultures, resulting in the evolvement of a new culture representing the best of both cultures This form rarely occurs because the marriage is rarely one of two equals, and one partner usually dominates 19 Deculturation Deculturation sometimes the acquired organization does not value the culture of the dominant partner and is left in a confused, alienated, marginalized state known as deculturation This is a temporary state, existing until some integration or separation occurs 20 Separation Separation in some instances, the two cultures resist merging, and either the merged company operates as two separate companies or a divorce occurs 21 7

8 HR Planning in Mergers and Acquisitions Planning moves beyond the traditional concepts of HR planning for several reasons: 1. The Contingency Plan 2. HR Due Diligence 3. Transition Team 22 The Contingency Plan Plan should identify the contact person and the merger coordinator Contact person should develop a plan Plan should outline the chain of command, communication methods, procedures, and negotiation skills training 23 HR Due Diligence Due diligence is a process through which a potential acquirer evaluates a target firm for acquisition including the review of: Collective agreements Employment contracts Executive compensation contracts Benefit plans and policies Incentive, commission, and bonus plans Pension plans and retirement policies WSIB statements, claims, assessments, experience rating data Employment policies Complaints employment equity, health and safety, wrongful dismissal, unfair labour practices, certification and grievances 24 8

9 Transition Team Appoint a transition team to deal with: 1. Urgency 2. Information gaps 3. Stress HR policy review might uncover complementary, duplicated or contradictory HR policies for the merger companies 25 Impact of the Merger on HR Merger affects the following functions: 1. Selection 2. Compensation 3. Performance Appraisal 4. Training and Development 5. Labour Relations 26 Selection The two most critical issues for HR are related to: 1. Retention, and 2. Reduction HR managers must terminate duplicate positions and redundant employees once the merger or acquisition is completed How many employees does the merged company need? Lean and mean cuts to the workforce results in greater work overload and stress 27 9

10 Post-Merger Changes in Status 1. Demotion under the new organizational structure, some employees are given less responsibility, less territory, or fewer lines due to amalgamation 2. Competition for the same job some companies force employees to compete for their old jobs 3. Termination some employees are let go strategically 28 Compensation An important compensation decision for post-merger company is related to: 1. Merge compensation systems? 2. Adopt a totally new compensation system? 3. Create a new compensation system? All employee benefits will be subjected to the same scrutiny 29 Performance Appraisal Employee behaviour and performance is usually not typical after a merger or acquisition Employee behaviour post-merger can be modeled into three categories: 1. Not knowing remedied by more communication 2. Not able the solution is training 3. Not willing a strong case for performance management through feedback and incentives 30 10

11 Training and Development Managers and peers may need some additional training in the role of coach and counsellor to deal with post-merger behaviours Employees need training for stress reduction and relaxation techniques 31 Labour Relations It is important to interpret the collective agreement for all relevant clauses that may affect employees and/or managers and their rights to job security, seniority, buy-outs, etc. Collective agreements ultimately need to be renegotiated to protect the rights of employees and/or managers that belong to unions Early union participation helps the merger process go more smoothly because unions make valuable contributions 32 11