Ch12 PPT Handouts - Patrick Payne

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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.