HRM ISSUES IN MERGERS & ACQUISITIONS

Presented by:

Sajed Hossain (ID#10364035) Md. Rahat Khan (ID#10364058) Bonny Adlina D' Cruze (ID#10364048) Md. Mostofa Mahamud Amin(ID#10364036)

Content

Merger & Acquisition. Why company Merge Success Rate of Merger Impact on Human Resource Cultural Issues of Merger HRM issues in Merger.

Mergers & Acquisitions

Merger: the combination of two organizations to create a third 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.

Mergers & Acquisitions

Acquisition: the purchase of a company. Consolidation: two or more organizations join and form a new organization (generally taken by a third company generally after the original companies are dissolved.) Takeover: one company acquires another company. Usually, a takeover refers to a hostile transaction against the wishes of its management.

Why Companies Merge?

Strategic benefits Financial benefits Needs of the CEO or Managing Team

Strategic Benefits of M&A

A quicker solution for companies with growth strategy.

- COMPAQ -> home offices - HP -> home entertainment

Strengthen competitive position by M&A - Pfizer took took over Warner-Lambert to obtain powerful drug Lipitor

Operating synergy (cost reduction through economies of scale) - by spreading the overhead, increased specialization of labour and management and efficient use of capital equipment.

Strategic Benefits of M&A

To gain access to new markets. - Airline companies operate under star alliance. Business diversification - A ski resort acquire a golf club to increase number of guest in summer. Companies may wish to redefine their business - Nortel from traditional voice network to internet technology.

Financial Benefits of M&A

Reduce variability of cash flow of their own business - putting eggs in different baskets vs eggs in similar baskets Mature cash cow business may acquire a star business and fund. - may be risky if star is not identified appropriately. - cash cow employees may not be happy to pour fund from their business. Tax advantage Acquisition of undervalued companies may increase shareholders wealth

Managerial Needs of M&A

Economic gain of the organization is not always the primary consideration to the CEO and management. They may love to play corporate game. Management may peruse their personal interest at the expense of shareholders. (Agency theory) Managers unconscious desire, personality (need for power), ego may also impact M&A decision.

Success Rate of Merger

Many studies have established that about 50% of M&A fail. Acquisition of related business is far better then of unrelated business to the parent company The novice M&A management team does as poorly as the experienced team. ( perhaps, each merger is different with different synergies and cultures) Not only the merged firm at risk but the subsidiaries may also be at risk Merger occupies so many management time - Executives of HP and COMPAQ spent more than one million person hours planning the integration.

Impact on Human Resources

The real cost of merger may be hidden not evident when analyzing financial records. Takeover results in human displacement (anxious best sales rep may not be willing to work for acquired firm) In large acquisition 50% senior executive leave within a year and 75% leave within 3 years. Thousands of jobs are lost due to downsizing and restructuring of the merged firms. An estimated productivity loss of 15% in 6-18 months of assimilation period of merger.

Impact on Human Resources

The loss of employee productivity stems from many sources: Employees go underground - afraid to make themselves visible. Overt sabotage by deeply affected people Self-interested survival tactics emerge (hiding information to accumulate degree of power) Resigned attitude. Employees spends valuable time dealing with rumors, misinformation, job search activities etc.

Cultural Issues in Mergers

Culture is a social glue that binds individuals together and creates organizational cohesiveness. Cultures grows slowly over time, are not easy to describe, and employees often aware of their corporate culture when they try to integrate with people from another organization that has a different culture. It is estimated that one third of all merger failures are caused by the faulty integration of diverse operations and culture.

Cultural Issues in Mergers

4 options of blending of cultures as per anthropologists:

Assimilation - One gives up its culture and is absorbed by the culture of the acquirer.

Integration - fusion of two cultures. Rarely occurs- usually one partner dominates.

Deculturation - Sometimes acquired org does not value the culture of dominant partner and is left in a confused, alienated, marginalized state temporary state until integration or separation occurs

Separation - two culture resist merging. Merged company operates as two separate companies or divorce occurs.

HR Issues in M&A

HR Planning Selection Compensation Performance Appraisal Training and Development Industrial Relatiions

HR Issues in M&A

HR Planning
The Contingency Plan Based on the expressed interest of BOD, a contingency plan should be prepared. The plan should identify the contact person and the merger coordinator (should have training on merger mgt) The plan should identify - chain of command - methods for communication - procedures to follow during takeover - negotiation skills training , media response training for the senior team - identify a transition team

HR Issues in M&A

HR Planning
HR Due Diligence From HR perspective, a due diligence review on the below: How the transaction is structured Collective agreement Employment contracts Executive compensation contracts Benefits plans and policies Incentive, commission, and bonus plans Pension plan and retirement policies Employment policies Any pending legal issues

HR Issues in M&A

HR Planning
Transition Team A transition team is required because of the following:

Urgency: staffing decisions (terminating, hiring, evaluating, training) become urgent. Planners do not have the luxury of planning in 3 years. Information Gap: Both the companies may have excellent plan for employees with huge documentations, these plans have to be adjusted to the merged needs.

HR Issues in M&A

HR Planning
Transition Team

Stress: Employees are stressed, the moment the news of merger is surfaced. - A transition team may be one of the most important determinant of merger success. - As the transition team handle the urgent matters, the HR planners may undertake the revisions necessary to prepare HR plans

HR Issues in M&A

Selection

Retention and reduction two critical areas must be addressed immediately Redundant employees must be separated while highly qualified employees must be motivated to stay. How many employees the merged company may need? (benchmarking statistics) Demotion Competition for the same job Termination (if not successful in the competition)

HR Issues in M&A

Compensation

Compensation systems of two companies either have to merge, adopt one or create a new one. Integration of benefit plans is another major issue. Benefit plan of terminated employees. Some companies provide extended plans for terminated employees.

HR Issues in M&A

Performance Appraisal

Stress of merger may effect the performance of the employees. Business is not as usual. Role of employee in a merged business may change. Manager or managerial role may also change. Employees need constant positive reinforcement during this period. More counseling and coaching may be required to reduce stress level

HR Issues in M&A

Training & Development

Once the strategic plan has been developed, an inventory of the KSAs needed to align with the strategy should be undertaken. Managers and peers may need additional training in the role of coach and counselor. Developmental programs such as overseas assignment or executive exchange, or long-term educational opportunities may be put on hold while the new organization establishes long term plans.

HR Issues in M&A

Labor Relations

Will the unionized employees continue with the existing collective agreement or will the contract be renegotiated? Provisions for job security, lay-off, terminations, notification period etc. should be closely examined. Merger experts say unions should be informed and involved form the beginning.

Summary

The financial and other results of mergers are not always as positive as expected and the effect on staff can be devastating. Culture is the most important predictor of merger success. The merger has an impact on each of the functional areas of HR.

Thank You