Ch 12 Mergers/Acquisitions, 14 q's on exam Flashcards
Define Merger, Horizontal Merger, and Vertical Merger.
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
What is a Conglomerate merger?
Conglomerate merger - the merger of two organizations competing in different markets
What is an Acquisition?
the purchase of an entire company or a controlling interest in a company
What is Consolidation?
two or more organizations join and form a new organization
Define Takeover.
one company acquiring another company
What are 3 reasons that companies merge?
- Strategic Benefits
- Financial Benefits
- Needs of the CEO or managing team
Part of the Strategic Benefits. Name and define the synergy and integrations.
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
What are 6 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 sometimes reveals undervalued organizations
- Goal is to increase shareholders’ wealth
What are 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
(the winner’s curse)
What are 4 methods of Merging?
- Hostile takeovers
- Poison pills – refers to the right of key players to purchase shares in the company at a discount (about 50%) 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
What is the Success Rate of Mergers? Include successful, disappointments and failures.
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; vary by sector and by size
What are Financial Impacts from Mergers?
- Main benefit: to reduce expenses by reducing headcount, factories, and/or branches.
- 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
What are the Impacts 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, insecurity among employees lower levels of satisfaction, less affective commitment, loss of trust in the firm
- Sources of lower levels of employee productivity:
o Hide: Afraid to put their jobs at risks
o Rumors of misinformation
o Stress and anxiety are the key sources
What is Culture?
Culture - the set of important beliefs that members of an organization share
What are the Cultural Issues in Mergers? (include Cultural Options for Mergers and Acquisitions)
- Assimilation
- Integration
- Deculturation
- Separation
What is Assimilation?
occurs when one organization willingly gives up its culture and is absorbed by the culture of the acquirer or the dominant partner
What is an 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
What is 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
What is Separation?
in some instances, the two cultures resist merging, and either the merged company operates as two separate companies or a divorce occurs
What HR Planning can be done in Mergers and Acquisitions?
- The Contingency Plan
- HR Due Diligence
- Transition Team
What is 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
What types of Due Diligence should HR do? Define 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
What does the Transition Team deal with?
- Urgency (i.e. staffing decisions)
- Information gaps
- Stress (happens immediately when companies go “into play”)
- HR policy review might uncover complementary, duplicated or contradictory HR policies for the merger companies
What impact of the merger affects HR functions? (5)
- Selection
- Compensation
- Performance Appraisal
- Training and Development
- Labour Relations
What are the 2 most critical issues for HR to deal with in a merger?
- Retention
- 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
What are 3 Post-Merger Changes in Status?
- Demotion – under the new organizational structure, some employees are given less responsibility, less territory, or fewer lines due to amalgamation
- Competition for the same job – some companies force employees to compete for their old jobs
- Termination – some employees are let go strategically
What important compensation decisions do post-merger companies need to think about? (i.e. What questions need to be asked?)
An Merge compensation systems?
Adopt a totally new compensation system?
Create a new compensation system?
All employee benefits will be subjected to the same scrutiny
What are the 3 categories, post-merger, that can occur in relation to employee behaviour?
- Not knowing – remedied by more communication
- Not able – the solution is training
- Not willing – a strong case for performance management through feedback and incentives
True or False. Employee behaviour and performance is usually typical after a merger or acquisition
False.
Employee behaviour and performance is usually NOT typical after a merger or acquisition
What Training and Development needs to take place with post-mergers?
- 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
What Labour Relations tasks need to be looked at and changed after the merger?
- 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
What are the Strategic Benefits?
a) Leveraging current customers
b) Opening new markets internationally
c) Corporate venturing
d) M&As
e) Acquisitions of the companies in different regions or serving different markets are much quicker than internal expansion
f) Strengthening of competitive position
g) Complementarities
i) Operating synergy - the cost reduction achieved by economies of scale produced by a merger or acquisition
ii) Economy-of-scope advantage-the ability of a firm to use one set of inputs to produce a wider range of products and services
h) Diversifications-may wish to reduce its dependency on a market that is cyclical in nature to capitalize on excess plant or employee capacity
i) Refine their businesses (not always successful)
j) Vertical integration - the merger or acquisition of two organizations that have a buyer-seller relationship
k) Horizontal integration - the merger or acquisition of rivals
What is the goal of Publicly owned companies?
-to increase shareholder value
What is the goal of Private companies?
- to increase ROI (return on invested capital)
What percentage of companies achieve the financial goals that they envisioned?
15 %
What are the problems/challenges in joining 2 companies?
o Integrating computer systems o Eliminating duplication o Re-evaluating supplier relationships o Reassuring clients o Advising employees o Reconfiguring work routines
What are sources that cause financial failures?
o Integration difficulties
o Inadequate evaluation of target
o Large debt
o Inability to achieve synergy
o Too much diversification
o Managers overly focused on acquisitions
o Too large an acquisition
o Difficult to integrate different organization cultures
o Reduced employee morale due to layoffs and relocations
85% of merger failures is caused by?
Culture (that doesn’t integrate/blend well together)
What are suggestions to blend cultures? How long does blending cultures take?
- identify the differences and use a cultural assessment tool (Merging Cultures Evaluation Index)
- “seed” the company with experience managers who “walk the talk” and can facilitate the adoption of the new culture
- Deploy role models- those in highly visible positions of authority should exemplify the new and desired behaviours
- Provide meaningful incentives- shower the role models and employees who replicate the desired behaviours with quick and visible rewards.
- takes years
By involving which department early on in the process, can make a merger more likely to be successful?
HR
What is often the deal killers? (i.e. deal=merger/acquistion)
Pension Plan
How can you assess employee capabilities?
- Review all employee documentation and then conduct interviews with the managers at a minimum of 4 levels
- Determine contractual obligations with regard to early retirements, terminations, promised new jobs, and pre-merger levels of turnover
What are the goals of the Transition Team?
- Retain talent
- Maintain the productivity of employee performance
- Select individuals for the new organization
- Integrate HR programs
- Integrate cultures
What does the review of HR policies likely reveal? (3 types of situations)
- Complementary: one company might focus on career development, while the other focuses on benefits
- Duplicated: both companies have identical human resources information systems (HRIS)
- Contradictory: one organization uses the performance management system for career development while the other uses its system to support incentive pay programs, by measuring employee productivity to determine bonuses or merit pay
