Ch 12: Mergers and aquisitions

Question 1

Mergers

Answer 1

Consolidation of two organizations into 1

Question 2

Types of Mergers

Answer 2

Horizontal: Merging of two competitors to increase market power

Vertical Merger: Buyer and seller merge- control the supply and production process; production to sale

Conglomerate: One company merges with another, but no competitive or buyer-seller relationship

Question 3

Acquisition

Answer 3

Purchase of an entire company, or controlling interest in it

Question 4

Consolidation

Answer 4

Two or more companies join together and form an entirely new company

Question 5

Takeover

Answer 5

company seeks to acquire another company

Question 6

Hostile Takeover

Answer 6

acquisition of a company against the wishes of its management

Question 7

Strategic means of expansion

Answer 7

• Leveraging current customers
• Opening new markets internationally
• corporate venturing

Question 8

Startegic benefits of M&A

Answer 8

• Quicker means of expansion
• Strengthening competitive position- Pfizer and Warner-Lambert
  -Complementaries

Question 9

Operational Synergy

Answer 9

Economies of scale

Question 10

Vertical Integration

Answer 10

Merger or acquisition of two organizations that have a buyer-seller relation

Question 11

Horizontal Integration

Answer 11

Merger/acquisition of rivals

Question 12

Financial benefits of M&A

Answer 12

• Reduce the variability of cash flow
• Use funds made from cash cow to fund growing business (risky in long run)
• Tax advantages (vary per country)

-Reduce cost of entering new markets and product development

Question 13

Management Needs

Answer 13

• theory: Acquisitions done for management personal interest
  -Unconcious motives linked to personality

Question 14

Merger Methods

Answer 14

• Company contacts target company management. Sometimes uses intermediaries
• Board of directors are kept informed of procedures and ultimately, approves the merger

Question 15

Poison Pills

Answer 15

The right of key players to purchase shares in the company at a discount- 50 %, making takeover expensive

Question 16

White Knights

Answer 16

Buyers who will be more acceptable to the targeted company

Question 17

Pac Man Manoeuvre

Answer 17

Targeted company makes makes counter offer for bidding firm

Question 18

Success rates of mergers

Answer 18

Around 15 %

Question 19

Financial Impact

Answer 19

• Target firms benefited from 25% increases
• O benefit for bidding firms: market changes, premium price

Question 20

Impact on Hr

Answer 20

• Displacement
• Anxiety-Voluntary Turnover
• Loss of productivity: Anxe=iety, survival tactics, resigned attitude(giving up)

Question 21

Culture

Answer 21

Set of belifes, norms, values of an organization

Question 22

Four options open to those involved in M&A

Answer 22

Cultural pluralism- partners co-exist
Cultural integration- Blending of cultures
Cultural assimilation- one company (usually the acquirer) absorbs the other

Cultural transformation- partner companies abandon previous culture and adopt new norms

Question 23

How to achieve cultural merging

Answer 23

Deploy role models

Provide meaningful incentives

Question 24

HR Issues in M&A

Answer 24

HR Planning

Selection

Compensation

Performance Appraisal

Training and Development

Labour Relations

Question 25

HR Planning: New dimensions

Answer 25

Contingency plan- used when deal is in play. Should identify contact person, merger coordinator; have specialist - HR Due Diligence: a process through which a potential acquirer evaluates a target firm for acquisition. - Collective agreements, employment contracts, compensation plans Transition Team- Appoint transition team- urgency, info gap, stress

Question 26

Review of Hr policies will likely reveal three types of situations:

Answer 26

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. 70

Question 27

Selection

Answer 27

Classificatin of wokrers: - Transition: not needed, need help to be transitioned out -Integration Keys: employees who have skills for the transition but not future company - Keepers- high performers - Long-term stars: key talent needed for the business

Question 28

Challenges those who stay with new company

Answer 28

* 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 by having to apply as new candidates for a position. * Termination: If not successful in the competition, employees are then let go. Sometimes, the acquiring firm waits until it can obtain its own appraisal of employee capabilities and has a chance to determine fit.

Question 29

Compensation

Answer 29

- do cost benefit anslysis of each package - employees won't like change, especially to lower packages - need to balance between cost and package able to motivate employees

Question 30

PERFORMANCE APPRAISAL

Answer 30

- performance will fall - focus on short-term goals behaviour: not knowing, not able, not willing - may need to redo performance appraisals manage stress- coaching, counselling

Question 31

TRAINING AND DEVELOPMENT

Answer 31

After the strategic plan has been developed, an inventory of the KSAOs needed to align with the strategy should be undertaken

Question 32

LABOUR RELATIONS

Answer 32

collective agreements must be read to determine what provisions exist for job security and what the notification periods are for layoffs and terminations. compliance

Question 33

Evaluation of process

Answer 33

Success can be measured through financial measures, customer service metrics, human capital metrics, and operational measures