Ch 12: Mergers and aquisitions Flashcards
Mergers
Consolidation of two organizations into 1
Types of Mergers
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
Acquisition
Purchase of an entire company, or controlling interest in it
Consolidation
Two or more companies join together and form an entirely new company
Takeover
company seeks to acquire another company
Hostile Takeover
acquisition of a company against the wishes of its management
Strategic means of expansion
- Leveraging current customers
- Opening new markets internationally
- corporate venturing
Startegic benefits of M&A
- Quicker means of expansion
- Strengthening competitive position- Pfizer and Warner-Lambert
-Complementaries
Operational Synergy
Economies of scale
Vertical Integration
Merger or acquisition of two organizations that have a buyer-seller relation
Horizontal Integration
Merger/acquisition of rivals
Financial benefits of M&A
- 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
Management Needs
- theory: Acquisitions done for management personal interest
-Unconcious motives linked to personality
Merger Methods
- Company contacts target company management. Sometimes uses intermediaries
- Board of directors are kept informed of procedures and ultimately, approves the merger
Poison Pills
The right of key players to purchase shares in the company at a discount- 50 %, making takeover expensive
White Knights
Buyers who will be more acceptable to the targeted company
Pac Man Manoeuvre
Targeted company makes makes counter offer for bidding firm
Success rates of mergers
Around 15 %
Financial Impact
- Target firms benefited from 25% increases
- O benefit for bidding firms: market changes, premium price
Impact on Hr
- Displacement
- Anxiety-Voluntary Turnover
- Loss of productivity: Anxe=iety, survival tactics, resigned attitude(giving up)
Culture
Set of belifes, norms, values of an organization
Four options open to those involved in M&A
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
How to achieve cultural merging
Deploy role models
Provide meaningful incentives
HR Issues in M&A
HR Planning
Selection
Compensation
Performance Appraisal
Training and Development
Labour Relations
HR Planning: New dimensions
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
Review of Hr policies will likely reveal three 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. 70
Selection
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
Challenges those who stay with new company
- 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.
Compensation
- 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
PERFORMANCE APPRAISAL
- 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
TRAINING AND DEVELOPMENT
After the strategic plan has been developed, an inventory of the KSAOs needed to align
with the strategy should be undertaken
LABOUR RELATIONS
collective agreements must be read to determine what provisions
exist for job security and what the notification periods are for layoffs and terminations.
compliance
Evaluation of process
Success can be measured through financial measures, customer
service metrics, human capital metrics, and operational measures
