PM0018 SLM Unit 15

Contracts Management in Projects Unit 15
Sikkim Manipal University Page No. 289

Unit 15 Mergers and Acquisitions
Structure:
15.1 Introduction
Objectives
15.2 Mergers and Acquisition
15.3 History of Mergers and Acquisition
15.4 Acquisition Motives
15.5 Aligning Mergers and Acquisitions with Corporate Strategy
15.6 Constraints to Successful Merger Integration
15.7 Acquisition Planning and Strategy
15.8 Advantages and Disadvantages of Mergers and Acquisition
15.9 Summary
15.10 Glossary
15.11 Terminal Questions
15.12 Answers
15.13 Caselet

15.1 Introduction
In the previous units, you have learnt about contracts and contract
management. In this unit you will learn a new concept i.e., mergers and
acquisitions that takes place in the cooperate world.
Times are tough today in the business world. Corporate restructuring is a
big part of the corporate finance world. One of the aspects of corporate
restructuring is mergers and acquisitions. Mergers and acquisition refers to
two or more companies coming together or one company taking over the
other. In this unit you will learn about various characteristics of mergers and
acquisitions.
Learning objectives
After studying this unit, you should be able to:
define merger and acquisition.
explain the history behind the merger and acquisition.
explain the acquisition motives and its planning and strategy.
define the merger process and the constraints to successful merger
integration.
state the advantages and disadvantages of mergers and acquisitions.
15.2 Mergers and Acquisition
Mergers and acquisitions (M and A) is a corporate finance strategy that
helps companies to attain their objectives and financial goals. It involves
selling or combining two diverse companies, usually with different value
system and culture. Merger and acquisitions assists, or helps a rising
company in a given industry to grow faster without having to create new
business entity. Merger refers to companies that come together to combine
and share their resources, be it human, capital or infrastructure, to achieve
common objectives. Acquisition is a process where one company takes the
controlling interest in another company. This is considered as takeover.
Mergers
Merger happens when two companies, mostly of the same size, agree to go
forward as a single new company in the best interest of both. The
shareholders of the involved companies often remain as joint proprietors.
Both companys stocks are surrendered and a new company stock is issued
in its place. For example, both Daimler-Benz and Chrysler ceased to exist
when the two firms merged, and a new company, DaimlerChrysler, was
created. A merger can bear a resemblance to takeover, but results in a new
company name and a new branding.
There are different mergers based business structures. Here are a few
types:
Horizontal merger: This happens when two or more companies who
are in direct competition and share the same product lines and markets
merge.
Vertical merger: This happens between a customer and company or a
supplier and company. For example, a laptop company merge with the
processor company.
Market-extension merger: This happens between companies that sell
the same products in different markets.
Product-extension merger: This happens between companies selling
different but related products in the same market.
Conglomeration: This happens between companies that have no
common business areas.

Finance based mergers
There are two types of mergers based on the financing. Each has certain
implications for the investors:
Purchase mergers: This occurs when one company takes on another.
The purchase is made with cash or through the issue of some kind of
debt instrument.
Consolidation mergers: This occurs when two or more companies join
to become a completely new company.
Acquisition
An acquisition is slightly different from a merger. Unlike all mergers, all
acquisitions involve one company purchasing another - there is no
exchange of stock or consolidation as a new company. One company can
buy another company with cash, stock or a combination of the two.
Acquisition is likely to be friendly or hostile. In a hostile acquisition, the
company, which is to be bought has no information about the acquisition
and is taken by surprise. Usually, a company acquires another company
against the wishes of the company being acquired. In a friendly acquisition,
the companies cooperate with each other and go ahead with acquisitions. In
acquisition, normally a larger company buys a smaller company. In some
cases the minor company will acquire managing power of a larger company
and retain the larger companys name. This is also well-known as reverse
takeover.
Following are the types of acquisitions:
Asset deals: Under an asset deal, specific assets of a business are
acquired to either wrap up its affairs or continue with another business
opportunity.
Stock deals: Under a stock deal, instead of purchasing specific assets
of the selling company, the stock or equity of the selling company is
purchased at fair market value with all assets being acquired along with
all their liabilities. The acquired company usually survives as a legal
entity and continues to operate as subsidiary of the acquiring company.
The advantages of acquisition are as follows:
It provides a high speed access to resources.
It avoids barrier to entry.
It involves less reaction from competitors.
It can also block the competitor.
It provides an asset evaluation.
Self Assessment Questions
1. When a minor company acquires a larger company and retains the
larger companys name, it is known as _____________.
2. _______ merger happens between companies that have no common
business areas.

15.3 History of Mergers and Acquisition
In the previous section, we had an overview of merger and acquisition. In
this section we will cover its history. The understanding of the history of
mergers and acquisition helps us to understand the importance of mergers
and acquisitions in the world. If we take into account the detailed history, we
find that merger and acquisition started to take place in the world from very
early years. The emergence of U.S merger and acquisition took place in the
early 20th century. After that it continued to take place in cycle or wave.
During the cycle or wave, maximum number of mergers had taken place as
discussed here under:
The start of first wave merger: The first wave merger started from
1897 to 1904. During this wave, merger had taken place involving
different companies enjoying domination in railroads and electricity. In
this period, horizontal mergers occurred between heavy manufacturing
industries.
The end of first wave merger: Due to the decreased efficiency,
majority of the mergers that had started during the first wave ended up
in failure. This resulted in the slowdown of economy in 1903 and also
the crash of stock market in 1904. There was no supporting base for the
legal framework.
The start of second wave merger: The commencement of second
wave merger took place from 1916 to 1940, giving importance to the
mergers between the oligopolies to a certain extent than the
monopolies. Major technical development like the railroads and
transportation motor vehicles came into existence. The government
policy was passed in 1920s encouraging firms to work in harmony. The
second wave merger that took place was horizontal in nature. The
producers of primary metals, food products, transportation equipment
and chemicals were some of the industries that went for merger during
this wave. A number of investment banks helped in the process of
merger and acquisition.
The end of second wave merger: In 1920, the second wave merger
faced a major failure with the stock market crash. Again in 1940s, the
tax exemption encouraged conglomerates to involve themselves in M
and A activities.
The start of third wave mergers: The conglomerate mergers
developed during the period 1965 to 1969. The stern enforcement of
antitrust laws, interest rates, high stock price took place during the third
wave merger. The bidders of the third wave merger were minor than the
target firm. The role of investment banks were replaced due to the
funding from equities.
The end of third wave merger: In 1968, the split of conglomerate took
place that marked the end the third wave merger. One of the reasons
was the poor performance of the horizontal mergers. The INCO-ESB
merger; United Technologies and OTIS Elevator Merger are the merger
between Colt Industries and Garlock Industries were the most prominent
ones that set precedence in the 1970s.
The start of fourth wave merger: The fourth wave merger began in
1981 and ended by 1989 and was characterised by acquisition targets.
The mergers between the oil and gas industries, pharmaceutical
industries and various banking and airline industries had taken place.
The foreign takeover became more prominent. The result of anti
takeover laws, financial institutions reform and the gulf reason marked
the end of fourth wave merger.
The start and end of fifth wave merger: The commencement of fifth
wave merger was triggered by globalisation, stock market rise and free
enterprises. The fifth wave merger took place mainly in the
telecommunication and banking sectors. The mergers were driven long
term rather than short term profit motives. The burst in the stock market
concluded the fifth wave merger.
Therefore, we can assume that the growth of merger and acquisitions has
been long drawn. The economic factors characterised its development. As
far as the economic units of production exist, merger and acquisition would
last for an ever expanding economy.
The lessons from the history about merger and acquisition will give the
acquirer an idea of the right and wrong strategies used by these companies.
He may then use this information for planning a good strategy.

15.4 Acquisition Motives
In the previous unit you learnt about the history of M and A. All the
companies do not always have acquisition strategies, and not all companies
that have acquisition strategies will stick to them. In this section, we will
learn different motives for acquisitions.
Acquisition motives are mentioned hereunder:
Acquiring undervalued firms: An acquirer would want to buy a
company that is undervalued by financial markets. The difference
between the purchase valve and the true valve of the target company
give certain amount of profit to the acquirer. For this strategy to work,
three basic components are essential.
o A capacity to find company that is for sell than its true value:
This capacity would require either access to better information than
is available to other investors in the market, or better analytical tools
than those used by other market participants.
o Availability of funds needed for acquisition: The availability of the
required capital to carry out the acquisition when the company is
undervalued. Access to the capital depends on the size of the
acquirer.
o Skill in execution: The acquirer sometimes drives the stock price
up to and beyond the estimated value, where there will be no value
or profit from the acquisition.
Strategy of buying undervalued company always has a great deal of
spontaneous appeal, but it is daunting as well. Because, acquisition
happens publicly in efficient markets, where the premiums paid on market
prices very quickly eliminate the profit, when the market price goes up.
Diversifying to reduce risk: Another reason of acquisition is the belief
that buying companies and diversifying can reduce earnings volatility
and risks as well as increase potential value.
Diversification has its own benefits although the question is if it can be
accomplished efficiently by investors or the companies who acquire other
companies in the name of diversification.
Comparing the costs associated with investor with the cost associated by
the company getting into diversification, investors in most publicly traded
companies can diversify far more cheaply than acquirer.
Creating operating or financial synergy: Some companies operate
below their potential and become less efficient. Such companies are
likely to be acquired by another company. Synergy is the prospective
additional growth in terms of value obtained by combining two
companies. It is widely used and misused principle for mergers and
acquisitions.
o Sources of operating synergy: Operating synergies enable a
company to increase their operating income, increase growth or
both. The categorises for operating synergies are mentioned below:
Economies of scale arising from the merger, allows the
combined companies to become more cost-efficient and
profitable.
Greater pricing power arising from reduced competition and
increased market share, resulting in, higher margins and
operating income.
Combination of different functional strengths happens when
different skills set are merged. For example, a company with
strong marketing skills acquires one with a good product line thus
the marketing team upon merger will do the job essential to
promote the product with extra human resource.
Higher growth in new or existing markets arising from the
combination of the two firms of the same product line.
Operating synergies can affect margins and growth, which in turn affect the
value of the firms involved in the merger or acquisition.
o Sources of financial synergy: Financial synergies can happen
when the payoff takes the form of either higher cash flows or
discount rate. Below are mentioned few forms:
A combination of a company with extra cash but less projects
and a company with high-return projects but little cash can yield
a payoff in terms of higher value for the combined company.
Debt capacity will increase as two companies combine. Their
earning and cash flows will become more stable and predictable.
Tax benefits can be achieved from the acquisition by using tax
laws to reduce the taxes or by reducing operating cost to shelter
income.
3. An acquirer would want to buy a company that is undervalued by
financial markets for the _________
4. Strategy of buying under valued company always has a great deal of
_____________appeal.
Activity 1
Find out more details about M and A history on internet.
Hint:
http://ezinearticles.com/?Ten-Important-Lessons-From-the-History-of-
Mergers-and-Acquisitions&id=1486559

15.5 Aligning Mergers and Acquisitions with Corporate Strategy
In the previous section we learnt about the motives for acquisition. In this
section, we will learn how to align Mergers and Acquisitions (M and A) with
corporate strategy.
A successful M and A execution and integration is achieved only when the
M and A strategy aligns with the companies corporate strategy. These
corporate strategies may be varied including companys growth, becoming
more competitive in market, product extension or risk reduction and so on.
Acquisition should satisfy the criteria or add valve to the corporate strategy.
Hence it should be aligned with the companys strategy.
M and A is a strong strategic tool for a company. Successful M and A
includes multiple steps in an elaborate process, which is quite similar to the
corporate strategic planning. Acquirer should always consider how to
optimise the M and A in the framework of an overall corporate strategy. Let
us now review how merger and acquisitions create value in particular:
The existing companys structure may be changed due to investment
structure. The investment structure usually gets altered by various
financing transaction in the event of acquisition with consequential
impact on the asset.
While making a horizontal or vertical acquisition, the existing companys
image will be modified in the market place. Hence, the communication
strategies desired should to be adapted to enhance public perception in
a positive way.
Also, there will be change in operational performance of shareholders
value, which is the most obvious change.
There are numerous reasons for a company to peruse M and A. Some of
them are listed below:
The M and A are undertaken to achieve specific financial, business and
strategic objectives to strengthen current operations and spread into
new markets. These transactions can substantially change a companys
income statement, balance sheet and public profile.
Executing on a set of corporate objectives is the most important
constituent of merger and acquisition whereas creating value with the
transaction is considered as additional gain. The key factor becomes the
pre and post merger integration.
Therefore, while individual considers mergers and acquisition as an
approach for growth, it is sensible to assess the potential transaction in the
perspective of the internal option. There are, however, a few typical M and A
drawbacks:
Many mergers failed due to an unclear or a wrong M and A strategy,
leading to over payment and time extension.
Due diligence is limited only to commercial financial data, which leads to
un-assumed problems.
Integration/separation environment are very uncertain after the deal is
closed.
The merger process
We learnt how to aligning M and A with corporate strategy. Now, let us study
how the merger process takes place. The merger process is carried out in
two ways. One is through the formation of a new company (NewCo). The
other one is the merging of one or many companies into another company,
with the effect that the acquiring companies keep hold of their uniqueness.
The principle of merger is of a financial or business nature. The merging of
two companies allows for the creation of cost synergies such as the
administration, production and listing costs. It also allows for a better
geological coverage with a positive impact on revenue and the likelihood of
additional development. The stages of the merger process are:
1. Planning.
2. Resolution.
3. Implementation.
Now let us go through in detail with the three stages of the merger process.
Planning: The most complex part of the merger process is planning which
involves analysis, action plan and negotiation with the parties involved in it.
The planning stage can take any amount of time, but after its completion,
the merger process is on the way. The planning stage also includes the
following:
The signing of the letter of intent that starts off the negotiation.
The appointment of advisors who take part in the role of consultants,
examining the strengths, weakness, opportunities and threats of the
merger.
The maintenance of deadline, conditions and type of transaction which
can be merger by integration or through the formation of a new
company.
The maintenance of export report based on the consistency of the share
exchange ratio, for the companies involved.
Resolution: The resolution stage needs the approval of the management
and the shareholders involved in the merger plan. The resolution stage also
includes the following:
The board of directors arrange meeting with extraordinary stakeholders
whose item on the agenda is the merger proposal.
The extraordinary shareholders meeting is called to overtake a
resolution on the item on the agenda.
The opposition to the merger that comes from the creditors or
bondholders must be limited to within 60 days of the resolution.
The evaluation of the impact of the merger is undertaken by the Italian
Antitrust Authority, which imposes any requirement as a precondition for
approving the merger.
Implementation: It is the concluding stage of the merger process. This
includes the enrolment of the merger act into the company register. The
period of time occupied by the medium size or big mergers is one year from
the start up of the negotiation to the finish of transaction. This is because,
the issue relating to the share exchange ratio among the merger companies
is hardly accepted by the parties with no drawn-out negotiation. The
shareholders possibly will deal without constraint the new shares and
benefit from all rights.
5. Acquisition should satisfy the criteria but may not add valve to the
corporate strategy. (True/False)
6. Limiting due diligence only to commercial financial data leads to un-
assumed problems. (True/False)
7. The most complex part of the merger process is planning which
involves finance. (True/False)
Activity 2
Find out the latest merger between HP and Compaq on internet.
Hint: www.awpagesociety.com
http://www.hp.com/hpinfo/newsroom/press/2001/010904a.html

15.6 Constraints to Successful Merger Integration
Successful merger integration involves a number of constraints. Some of the
key constraints include maintaining vital managers and workforce,
resistance from key constituents including industry organisation, unions,
clients, suppliers, communities or regulators, set up a wrong benchmark for
achievement and varying the criteria for success once a transaction is
accomplished.
Some of the constraints that should be dealt in the process of M and A are:
People: The most fundamental limitation to M and A incorporation and
implementation is human resource. The support of people is very
necessary otherwise the buy-in transaction is destined to failure. The
input to each feature of a contract whether the preliminary valuation, the
due diligence or the integration should comprise of the management and
employees. Most of the time the companies are unaware of how the M
and A works can create a significant barrier to success. It is essential
that the key personnel be brought into position to guarantee their stay
during the transaction and are suitably recognised for their involvement
in the deal.
Other elements: suppliers, clients, unions and regulators: In
addition to people, there are other elements that can serve as a
constraint in a contract. These elements may range from the regulatory
agencies to clients, suppliers and to industry organisation as well as
unions. The maintenance of each entity should be handled with intense
care and brought into the information flow at the proper time. A
tremendous wisdom has to be used on paper and employees, during a
transaction. Acquirer and target company may buy into the transaction
logic, yet the transaction may alter in such a way that the justice
department intervenes. Therefore, it becomes essential to deal with
antitrust issues in the beginning. Also, employee union may get in the
way of a transaction providing some form of benefit to its union
members.
Providers of capital: The obstruction to transaction can also be raised
by the providers of capital finance in an acquisition. These constituents
may include commercial banks, public debts, equity holders and private
equity firms. It becomes necessary that the state of the capital market at
that time must be accomplished.
Competitors: A critical barrier to successful merger integration is
competition. The action by the competitors varies in a number of ways
ranging from objecting the deal to antitrust regulators or an attempt to
steal employees and customers. Thus, plan should be done accordingly
to pre-empt the behaviour of the competitors.
Ongoing review: Merger of two firms never ends on the closing of the
transaction nevertheless it ends when the firms are fully integrated. If
well planned and executed, the merging companies should be
supervised according to the targets and benchmarks recognised at the
start.
8. The support of people is very necessary otherwise the buy-in
transaction is destined to_______.
9. The ________ to transaction can also be raised by the providers of
capital finance in an acquisition.
10. A critical barrier to successful merger integration is __________.

15.7 Acquisition Planning and Strategy
In the previous section, we discussed about the constraints to successful
merger integration. In this section, we will learn how to plan a strategy for
acquisition. We have already learnt from the previous section that planning
is a key part of any successful acquisition.
Acquisition planning is the method of coordinating and integrating the efforts
of all those responsible for acquisition. The result of acquisition planning
normally leads to a comprehensive written plan. The overall strategy for
managing the acquisition is given in an acquisition planning that includes
administration of the contract.
The acquisition plan should be long enough to perform key business
consideration, attain competition, decrease price, administer the contract
and display the signatures of approving officials. It should be maintained by
the project officer. The responsibilities of the project officer include:
Coordinating acquisition plan with contracting officers, legal and finance.
Ensuring that plan captures key points of the business strategy.
Obtaining the required approval signatures.
Working with the concerned officer to maintain the acquisition plan,
including the milestone chart.
The acquisition approach used should be included in the acquisition plan.
The alternative acquisition approaches, budgeting and funding, contract
type, milestone and other technical information should also be considered.
The risk analysis of your acquisition should include:
Technical risks such as uncertain specifications.
Cost risks such as insufficiency of the funds.
Schedule risks which include untimely project completion.
In addition, the updates are necessary to the acquisition plan whenever the
circumstances change.

The acquisition strategy
The most important strategic consideration is the size of the acquisition. The
completion of smaller series should be considered in the beginning than the
larger ones. This will help the acquirer to be trained from each of the
successive acquisition so that he develops a significant experience. If the
acquirer starts with a number of smaller firms, he can work on its acquisition
skills remarkably.
The more liable strategic issue faced by the acquirer is the reactions of the
competitors to an acquisition. This does not mean that the acquirer should
back away from the acquisition because of the fears of competitors. The
acquirer must be conscious of how the transaction will guide to a
reformation of the aggressive environment in this industry. There are some
cases where the buyer will intentionally back away from an acquisition,
thereby leaving the competitor to acquire.
The value of merger and acquisition transactions lies in the execution. It
requires real experience, comprehensible strategic objectives, technical M
and A expertise and capable people who act as a strong base for M and A
program. Successful strategic acquirers use process and discipline to avoid
an M and A breakdown that will certainly impair and devastate shareholder,
customer and employee value.
The approach of M and A focuses on supporting clients in developing
efficient structure and discipline which include:
Providing a framework for the target screening, transaction execution
and combination phases.
Communicating a compelling strategy to the employees, else they will
resist the change process required for effective combination.
Considering the people, process and technology into the target
screening phase.
Using a well-defined structure with a unique combination.
11. The more liable strategic issues faced by the acquirer is the reactions
of the seller to an acquisition. (True/False)
12. The overall strategy for managing the acquisition is given in an
acquisition planning that includes administration of the contract.
(True/False)

Activity 3
Find details about Indian Merger and Acquisition.
Hint: http://www.economywatch.com/mergers-acquisitions/india.html
http://trak.in/tags/business/2007/08/16/indian-mergers-acquisitions-
changing-indian-business/

15.8 Advantages and Disadvantages of Mergers and Acquisition
In the previous section, we have learnt about the acquisition planning and
strategies. In this section, let us analyse the advantages and disadvantages
of M and A provided in the business environment. The following describes
the advantages of mergers and acquisition:
Mergers and acquisitions are capable of generating long term
productivity for the joint company in the case of a merger, or the
purchasing company in the case of an acquisition.
A merger may be proficient tax-free for the parties involved.
M and A can help a developing company through its expansion and
development or generate a smoother production process or functioning
system.
A merger assigns the shareholders of minor entities to possess a
smaller part of a larger pie, raising their general net value.
A merger between a public sector company and a private company
gives the smaller private company the status of the public sector
company.
A merger allows the seller to pass numerous expensive and prolonged
aspects of asset purchases, such as the assignment of leases and bulk-
sales notice.
A merger is of substantial significance. If there are marginal or fewer
stockholders, obtaining the votes for merger is easier. .The transaction
becomes effectual and the disagreeing shareholders are appreciative to
go along.
Let us have a look on some of the disadvantages of mergers and
acquisition:
Higher cost will be incurred for excessively large business.
The monopoly concerns in merger can have a negative impact on the
market.
Conflict among the altered types of business can occur, reducing the
efficiency of the integration.
Necessity of workforce redundantly, particularly at management levels,
will have a consequence on motivation.
Decisions are harder to make and cause disturbance in the
management of the business when diverse business combine.
Success is not always definite in merger. Sometimes there can be net
loss of value because of issues related to technological
inappropriateness, needless employees or poor supervision.
Company acquisitions or takeovers contribute to several of the
equivalent risks, where a company that acquires another company has
to reconfigure the employee atmosphere and operations amongst other
things.
Risks concerned with the purchased company such as precedent and
present debt, trouble, asset or liabilities that must be addressed by the
new owners and organisation.

15.9 Summary
We learnt that Mergers and acquisition (M and A) refers to a company
strategy of buying a new or taking over a target company. Combining of
diverse companies can assist, economics, or aid a rising company to grow
quickly without having to create a new business entity.
We learnt about few types of mergers which are horizontal mergers, vertical
merger, conglomerate merger, market extension and product merger.
The principle to successful M and A implementation and integration is
aligning M and A strategy with the companies largely corporate strategy.
A good knowledge on the history of M and A helps us to achieve this.
We also learnt that the arrangement of business activities of a company as
a whole with an aim to achieve some of the predetermined objectives at the
corporate level is termed as corporate strategy.
We now know that merger process include planning, resolution and
implementation. Successful merger integration involves a number of
constraints. These consist of maintaining vital managers and workforce,
resistance from key constituents including industry organisation, unions,
clients, suppliers, communities or regulators, set up a wrong benchmark for
achievement and varying the going in criteria for success once a transaction
is accomplished.
We also discussed about acquisition planning, which is a method of
coordinating and integrating the efforts of all those responsible for
acquisition. Mutually, mergers and acquisitions are capable of generating
long term productivity for the joint company in the case of a merger, or the
purchasing company in the case of an acquisition.

15.10 Glossary
Term Description
Benchmarks A standard by which something can be measured or judged.
Due diligence The process of investigation, performed by investors, into the
details of a potential investment.
Liable Used with reference to an unfavourable outcome.
Monopolies It is a market in which there are many buyers but only one seller.
Oligopoly A market that is dominated by a small number of participants
who have control over supply and market prices.

15.11 Terminal Questions
1. Give a brief introduction on mergers and acquisition.
2. Describe the merger process.
3. What are the necessary constraints for successful merger integration?
4. List the advantages and disadvantages of mergers and acquisition.
5. Explain the planning and strategy of acquisition.

15.12 Answers
1. Reverse take over
2. Conglomeration
3. Mis-pricing
4. Spontaneous
5. False
6. True
7. False
8. Failure
9. Obstruction
10. Competition
11. False
12. True
Terminal Questions
1. Refer section 15.2 Mergers and Acquisition
2. Refer section 15.6 The Merger Process
3. Refer section 15.7 Constraints to successful Merger Integration
4. Refer section 15.9 Advantages and Disadvantages of Mergers and
Acquisition
5. Refer section 15.8 Acquisition Planning and Strategy

15.13 Caselet
Merger of Arsis and Dwris
The merger between Arsis and Dwris took place in September 1989, and
the resultant company formed is Zodiac. Arsis founded in 1882 was
veteran in Russia. Dwris was established in 1891 in Switzerland. The
employ power of Arsis was likely around 6500 and that of Dwris was
8500. On the date of the merger it employed another 1500 people. The
operation of the newly formed company operated in 56 different
countries.
Before this large cross border merger, both the companies were major
competitors in the industry. Both the companies were equally competent
in power generation and distribution. Arsis had competencies mainly in
the power generation, varied products including steam turbines,
locomotives and application of electric power. The company had also
owned a Norwich company whose expertise used to be in air technology
and environment protection like electrostatic precipitators, industrial fans
and so on. Dwris had competence in power generation and distribution
and diverse production range from industrial electronics to industrial
robots. The objective of this merger for both was to become the single
most powerful leader in the power sector. After the merger between both
the companies in 1988, Zodiac acquired more then 32 companies all over
the world. The merger was done each holding fifty percent of the new
entity of Zodiac. The formation of a new parent and introduction of a
single class of shares was the ultimate step in fully integrating Zodiac.
After the merger the company faced a lot of confusions regarding the
managerial staff as who has to leave and remain in the organisation.
Over staffing had become a serious issue. The board of directors held a
meeting to overcome these problems. They distributed the staff members
in all the branches which they had acquired. The problem of over staffing
was solved in this way. There was a slow implementation of financial,
accounting within all the sectors. The mistakes that were faced by both
the companies in the past were analysed so that it would not repeat in
the future. The accountability of sales tax and excise duties were
undertaken. The employees of the merged company enjoyed equal rights
and benefits throughout.
Question:
1. Explain the merger process of Arsis and Dwris and the difficulties
faced.
References
Steven M. Bragg, Mergers and Acquisitions: A Condensed Practitioner's
Guide.
Edward P. Halibozek, Gerald L. Kovacich, Mergers and Acquisitions
Security: Corporate Restructuring and Security.
Jenny Davenport, Simon Barrow, Employee Communication during
Mergers and Acquisitions.
Robert E. Hoskisson, Michael A. Hitt, R. Duane, Ireland Competing for
Advantage.

PM0018 SLM Unit 15

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Contracts Management in Projects Unit 15

Sikkim Manipal University Page No. 289

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