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Chapter 12
Mergers and Acquisitions
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Learning Outcomes
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
• Identify the financial and human impacts of mergers
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Learning Outcomes
After reading this chapter, you should be able to:
• Describe the issues involved in blending cultures
• Discuss how a merger affects HR planning, selection, compensation, performance appraisal, training and development, and labour relations
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Review Strategic Types (From Chapter 1)
Corporate strategy: Organizational-level decisions that focus on long-term survival 1. Restructuring: Includes turnaround, divestiture,
liquidation, and bankruptcies (Ch 10) 2. Growth: Includes incremental, international, and
mergers and acquisitions 3. Stability: Maintains status quo
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Mergers in a Post- Global Economic Crisis
• Mergers and acquisitions peaked in 2007. • Buyers are typically focused on M&As to
support growth strategies. • Sellers have become more reluctant to
sell due to issues with valuations of organizations and the economic climate.
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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
Conglomerate merger: The merger of two organizations competing in different markets
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Definitions
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
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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
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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.
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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.
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Merger Methods
Hostile takeovers: Are dramatic and complex when one company takes over control of another
Poison pills: Refers to the right of key players to purchase shares in the company at a discount, making the takeover extremely expensive
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Merger Methods
White knights: Buyers who will be more acceptable to a targeted company
Pac-Man: A defensive manoeuvre where the targeted company makes a counteroffer for the bidding firm
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The Success Rate of Mergers
• Only about 15 percent of all mergers (and acquisitions) successfully achieve the financial goals.
• Best success rates are with similar businesses rather than dissimilar ones
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Reasons for Failures of M&As
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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.
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Impact on Human Resources
Reduced employee/manager morale before, during, and after the merger may lead to: • Lower productivity • Sabotage • Stress and anxiety • Survival tactics • Higher turnover • Lower efficiency
→ Creates negative financial consequences
What Is Culture?
Culture: The set of important beliefs that members of an organization share
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Assimilation
Assimilation: Occurs when one organization willingly gives up its culture and is absorbed by the culture of the acquirer or the dominant partner
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Integration
Integration: Refers to the fusion of two cultures, resulting in the evolution 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.
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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.
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Separation
Separation: In some instances, the two cultures resist merging, and either the merged company operates as two separate companies or a divorce occurs.
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HR Planning in Mergers and Acquisitions
M&A planning moves beyond the traditional concepts of HR planning for several reasons: 1. The contingency plan 2. HR due diligence 3. Transition team
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The Contingency Plan
• Plan should identify the contact person and the merger coordinator
• Plan should outline the chain of command, communication methods, procedures, and negotiation skills training
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HR Due Diligence
Due diligence: 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
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HR Due Diligence
Due diligence includes the review of: • 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
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
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Transition Team
The goals of the transition team are to: • Retain talent • Maintain productivity (both quality and
quantity) • Select individuals for the new organizations • Integrate HR programs • Begin the process of integrating cultures
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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
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Selection
The two most critical issues for HR are related to: 1. Retention 2. Reduction
• How many employees does the merged company need?
• How many duplicate and redundant employees need to be eliminated?
• Caveat: Lean and mean cuts to the workforce result in greater work overload and stress.
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Post-Merger Changes in Employment 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.
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Compensation
Compensation decisions for merged company include: 1. Merge compensation systems? 2. Adopt a new compensation system? 3. Create a new compensation system? • All employee benefits will be subjected
to the same scrutiny.
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Performance Appraisal
• Employee behaviour and performance is usually not typical after a merger or acquisition.
• Employee behaviour post-merger can be modelled into three categories:
1. Not knowing: Remedied by more communication 2. Not able: Solution is training 3. Not willing: A strong case for performance
management through feedback and incentives
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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.
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Labour Relations
• At a minimum, the collective agreement must be read to determine what provisions exist for job security and what the notification periods are for layoffs and terminations.
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Labour Relations
• 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.