Chapter 12 Mergers and Aquisitions Flashcards
What are the 3 reasons that people merge?
- Strategic benefits
- Financial benefits
- Needs of the CEO or managing team (EGO)
What are 3 strategic benefits to mergers and acquisitions:
- Operating synergy
- Vertical integration
- Horizontal integration
What is Operating synergy?
The cost reduction achieved by economies of scale produced by a merger or acquisition
What is Vertical integration?
The merger or acquisition of two organizations that gave a buyer-seller relationship (upstream or downstream)
What is Horizontal integration?
The merger or acquisition of rivals
The winner’s curse
The winner is the highest bid, but the curse is that they are paying too much.
*informational asymmetry: not everyone receives the same information so it affects the bids
Merger definition
The consolidation of two organizations into a single organization
Horizontal merger definition
The merging of two competitors
Vertical merger definition
The merger of a buyer and seller or supplier
Conglomerate merger
popular in the 70’s
-the merger of two organizations competing in different markets
Acquisition definition
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
Compaq and HP had what advantage when they merged?
Economies of scale - operating synergy
What is the poison pill method?
Refers to the right of key players to purchase shares in the company at a discount making the takeover extremely expensive - response to avoid hostile takeover
What is the white nights method?
They are buyers who will be more acceptable to a targeted company * swoops in at the last minute with a better offer
Pac man
Is a defensive maneuver where the targeted company makes a counteroffer for the bidding
What is the success rate for mergers?
20% are successful, 60% are disappointments, 20% are complete failures
- best successes are with similar businesses
- best when a large firm absorbs a small firm
- mergers less successful in service industries compared to manufacturing, due to greater risk
What is culture?
The set of important beliefs that members of an organization share
Assimilation
Occurs when one organization willingly gives up its culture and is absorbed by the culture of the acquirer or the dominant partner
Integration
Refers to the fusion of two cultures, resulting in an evolving new culture representing the best of both cultures
*this form rarely occurs because the marriage is rarely two equals, and one partner usually dominates
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.
separation
in some instances, the two cultures resist merging, and either the merged company operates as two separate companies or a divorce occurs.
What is the contingency plan?
The what is plan!!
- plan should identify the contact person and tje merger coordinator
- contact person should develop a plan
- plan should outline the chain of demand, communication methods, procedures, and negotiation skills training.
Due diligence
It is the process through which a potential acquirer evaluates a target firm for acquisition including the review of:
collective agreements, employment contracts, policies etc
What is the transition team?
Who is going to do what, when, where? Deals with: 1. urgency 2.information gaps 3.stress
Mergers affect the following functions (5):
- Selection
- compensation
- perf appraisal
- T & D
- LR
What happens with selections with mergers?
- the 2 most critical issues for HR are related to:
1. retention
2. reduction - HR managers must terminate duplicate positions and redundant employees
- Lean and mean cuts to the workforce results in greater work overload and stress
Post-Merger changes in status
- demotion
- competition for the same job
- termination
Post-merger changes in compensation - what happens?
- Merge compensation systems?
- Adopt one compensation system?
- create a new one?
Post-merger performance appraisal
Employee behaviour and performance is usually not typical after a merger or acquisition.
3 behaviours:
1.not knowing: remedied by more communication
2.not able:the solution is training
3.not willing: a strong case for perf. man. through feedback and incentives
Post-merger Training and development
Managers will probably need training on coaching and -counseling to deal with post merger behaviours
-employees need training for stress reduction and relaxation techniques
Post-merger LR
important to interpret the collective agreement for relevant issues. Early union participation is a good idea.
