Role of HR in M and A

WELCOME TO THE PRESENTATION ON MERGERS AND ACQUISITIONS

Important Aspects

M&A

Some definitions

M and A

A merger is a strategy through which two firms agree to integrate their operations on a relatively co-equal basis because they have resources and capabilities that together may create a stronger competitive advantage. HUL and TOMCO merged to serve as a counter thrust to the P & G-Godrej tie-up

A merger is said to occur when two or more companies combine into one company. One or more companies may merge with an existing company or they may merge to form a new company. Daimler-Benz and Chrysler ceased to exist when the two firms merged and a new company ,Daimler-Chrysler was created.

M and A

In a merger there is complete amalgamation of the assets and liabilities as well as shareholders’ interests and businesses of the merging companies.

The fundamental characteristic of merger is that the acquiring company takes over the ownership of the other company and combines its operations with its own operations.

M and A

An acquisition is a strategy through which one firm buys a controlling stake or 100 percent interest in another firm with the intent of using a core competence more effectively by making the acquired firm a subsidiary business within its portfolio.

Most mergers are friendly transactions, where as acquisitions include unfriendly take overs.

M and A

Acquisitions may be defined as an act of acquiring effective control over assets or management of a company by another company without any combinations of businesses or companies. In an acquisition two or more companies may remain independent but there may be change in the control of the target company.

A takeover is a type of an acquisition strategy wherein the target firm does not/did not solicit the acquiring firm. Thus when an acquisition is a “forced” or “unwilling” acquisition it is called a take-over.

Classifications of mergers

Horizontal mergers: take place where two merging companies produce similar product in the same industry

Vertical mergers occur when two firms, each working at different stages in the production of the same good, combine.

Congeneric mergers occur where two merging firms are in the same industry, but have no mutual buyer/customer or supplier relationship

Conglomerate mergers take place when two firms operate in different industries.

SUCCESSFUL M AND As

Arcelor MittalRenuka Sugar- EquipavTata- TetleyGoogle- MotorolaTata- JLR

FAILED M AND As

Reliance- Lyondell BasellDaimler ChryslerAirtel- MTN

M&A

Pros and Cons

Advantages of M and A

Increased market power-market power is usually derived from the size of the firm and its resources and capabilities to compete in the market place

Overcoming entry barriers-especially when a new entrant faces differentiated products and economies of scale.

Cost of new product development-compared to internal product development process, acquisitions provide more predictable returns as well as faster market entry.

Advantages……….

Increased speed to market-acquisitions result in more rapid market entries

Lower risks compared to developing new products-internal product development process can be risky. Managers view acquisitions as carrying lower risks.

Increased diversification-it is difficult for companies to develop products for new markets/new customers

Avoid excessive competition

Problems….

Inability to achieve synergy: synergy exists when the value created by units working together exceeds the value those units could create working independently.

Too much diversification: in general, firms using related diversification strategies outperform those employing unrelated diversification strategies. However, regardless of the type of diversification strategy implemented, declines in performance usually result from over-diversification. Another problem resulting from too much diversification is the tendency for acquisitions to become substitutes for innovation.

Problems….

Too large: evidence suggests that a larger size creates efficiencies in various organizational functions only when the new firm is not too large.

Managers overtly focused on acquisitions: too much time spent searching for viable acquisition candidates, completing effective due-diligence processes and preparing for negotiations

M&A

Cultural Factors

Cultural factors

Prior to the 1980s most research on M&A focused strategic, financial and operational consequences of M&A. Current thinking is that cultural clashes are seen to be the main reason for M&A failures.

Cultural factors in mergers and acquisitions

Cultural factors in IM and A s can be studied at organizational and national levels.

Hofstede used six dimensions of organizational culture and four (five) dimensions of national culture.

Hofstede’s national cultural dimensions include power distance, uncertainty avoidance individualism/collectivism and masculinity/femininity.

His organizational cultural dimensions are process oriented/result oriented, employee oriented/job oriented, parochial/professional, open/closed system, loose/tight control and normative/pragmatic.

Organizational culture

National culture=values. It is normative Organizational culture=practices. It is

descriptive Process orientation vs. Results orientation.

How things are done vs. what gets done Concern for employee vs. concern for the job. Parochial (narrow minded) vs. professional.

Identity taken from the organizational vs. identity from the outside.

Organizational…….

Open vs. closed. Easy to join and work vs. difficult to join (only specific kinds of people can work in such organizations)

Loose vs. tight.Casual/improvization vs. serious/great emphasis on punctuality

Normative vs. pragmatic. Ideological vs. market driven.

Human resource implications: the merger-emotion syndrome

Denial--------news of the merger Fear Anger Sadness Acceptance Relief Interest Liking Enjoyment-----commitment to the situation

HR ASPECTS IN MERGERS AND ACQUISITIONS

ROLE OF HR

HR IMPERATIVES

RETENTION OF KEY EMPLOYEESCOMPLIANCE WITH APPLICABLE

LAWSALIGNMENT WITH COMPENSATION

AND BENEFIT PLANSCULTURE FITEMPLOYEE COMMUNICATIONS

ISSUES IN M AND A

LACK OF COMMUNICATIONSLACK OF TRAININGLOSS OF KEY PEOPLEPOWER AND POLITICSCULTURE CLASHEMPLOYEE RESISTANCE

What should be communicated?

If leadership cannot stand up in front of the company and say the following, resistance will worsen:

“We’re doing this because we must.” “We’re doing this because we are failing and if we

don’t, we all stand to lose our jobs.” “We’re doing this because it is going to help us. It is

going to allow us to grow. We’re all going to be better off during and after this transitional period.”

“We MUST make this change or we may not be in existence 2 years from now.”

WHERE HR COMES IN---

TRAIN MANAGERS ON THE NATURE OF CHANGE

TECHNICAL RE- TRAINING FAMILY ASSISTANCE PROGRAMMES STRESS REDUCTION PROGRAMMES EXPLAINING NEW ROLES HELPING PEOPLE WHO LOST THEIR JOBS POST MERGER TEAM BUILDING

HR ROLES---

PRE- M AND A PHASEAssessment of differencesRole clarityManagement stylesPOST M AND A PHASEDesignation for employeesCompensation and PMSIR

Five top mistakes HR make

Not being involved early enoughNot understanding employee needs and

concernsNot understanding and empowering

leadership teamNot working with receiving business unitNot understanding the time, work that

acquisitions and integrations require.

THANK YOU

QUESTIONS?