0115 966 7955 Today's Opening Times 10:00 - 20:00 (BST)

Do Mergers and Acquisitions Fulfil Desired Objective?

Disclaimer: This dissertation has been submitted by a student. This is not an example of the work written by our professional dissertation writers. You can view samples of our professional work here.

Any opinions, findings, conclusions or recommendations expressed in this material are those of the authors and do not necessarily reflect the views of UK Essays.

Do Mergers And Acquisitions Fulfil Their Desired Objective? And How People Are Affected By the Result of These Mergers?

Dissertation

Table of Contents

CHAPTER ONE: INTRODUCTION

1.1 BACKGROUND

Restructuring of a firm has become a major area in the financial and economic environment all over the world. A company may grow internally, or externally. The aim of the management is to maximize the profit. Most firms grow through internally which take place when firm’s existing divisions grow through normal capital budgeting activities.(S.Vanitha 2007) The industrial restructuring has raised important issues both for the business and for public moreover merger and acquisitions may be critical to the strong expansion of business firms as they evolve through successive stages of growth and development and most important for new product markets by a firm may require M and As at some stages in the firm’s development . The successful competition in international markets may depend on capabilities obtained in a timely and competent fashion through M & As. (M Selvam 2007)

Merger and acquisitions continues to experience dramatic growth. Record breaking mega mergers have become popular in the world. In the last ten years and onwards some of the largest mergers and acquisitions took place in Europe. This was underscore by the fact that the largest deal of all time was a hostile acquisition of a German company by a British firm.(Beena P.L 2000)

Since the start of twenty first century the nature of merger and acquisition even more common in the economical growth. It becomes even more global especially in Asia, Latin and South America. Over the past quarter of the century we have noticed that merger waves have become longer and more frequent in between shrunken as well when these trends combined with the fact that M&A has rapidly spread across the modern world, we see that the field is increasingly becoming as ever more important part of the worlds of corporate finance and corporate strategy. (Canagavally , R.2000)

Merger and acquisitions are plays very important part in corporate strategy. They are the interesting and controversial tools if the firm do not want to grow internally by capital investment and it can affect the shareholders wealth of both the firms (Legare.1998). The management of the target companies is worried about their jobs that can be affected; the cost reduction strategies consists of reduction in labour force (Gould, 1998) the strategies at both local and national levels are important and concerned at transactions in their industries. e.g (defence utilities etc.) Customers and suppliers are interested , as they want to know who they will be dealing with in the future (Buono. 2003). All the big deals are therefore reported in the media, receive a large coverage, and get the attention of the public as well.

People are very important part of any organization but due to the increasing numbers of mergers between the companies they are largely affected and most of them get caught up in a merger or acquisition-by chance, Many of the people after working four –to five years period are losing their jobs and facing severe reductions in status and responsibility and, in general, being confronted with major questions about their careers, As a result , at times we are unsure whether our own feelings about what is happening to these individuals are biasing our interpretation of what is going on. In this project the writer going to research on mergers between the professional services firms.

According to Steven et al (2000) mergers and acquisitions decisions that are undertaken based on financial analysis, influence and legal positions , However , it has been proved by a number of researchers that factors like informal power, low productivity , poor quality , reduced commitment , hidden costs and voluntary turnover prevent the combined banks from reaching expected performance levels (Legare 1998). This is the reason that many companies face difficulties then they pass through their post-integration processes (Buono 2003)

According to Catwright & Cary (1995) that mergers and acquisitions should be seen like marriages where both parties will is very important for the success of new entity. At the time two different companies decide to come together as a result of M&A activity, then the levels of instability in the macro and micro environment of both companies is challenged. So it is therefore been recommended that companies should chose the most appropriate merger and acquisition process and strategy. However Buono (2003) has suggest that each possibility has its own strengths and weaknesses and therefore context of M&S and its main objectives play important role.

Cartwright and Cooper has pointed out that M&A depends upon combination of related functions like integration of people, systems, practices and culture. The critical review of the literature has recommended that most of research has been focused at studying single characteristics of M&A in isolation. Moreover the dynamics of M&A variables that impact on success and failures ratio has not been undertaken in the literature and there is a gap for research.

This study will be focus to explore the major drivers and variables and their effect on the success of merger and acquisitions across industries from a corporate strategic perspective.

1.2 Rationale behind Research:

Mergers and acquisitions is one of the common strategies in today’s business world. Gould (1998) has conducted a survey involving 12000 managers from different countries and according to the result of his survey more then 1000 companies were involved in acquisitions or a merger in two years between 1995 and 1997.moreover merger and acquisitions has become the leading strategic options. However, the performance of the combined companies has been lower than expected. According to Buono (2003) the basic drivers of M&A only involved in financial, operational and strategic aims and objectives. So therefore my main area of focus of this research is to explore the major drivers and variables and their effect on the success of merger and acquisitions across industries from a corporate strategic perspective.

1.3 Aims and Objectives:

The basic aim of this project is to understand whether mergers and acquisitions always fulfil desired objective. The aims specific areas are as follows.

  • To explore the major variables that impact on the success of merger and acquisition different industries from a corporate strategic perspective
  • To explore the corporate strategy in achieving desired results from M&A activities
  • To evaluate the impact of the mergers on an employees and examining the programmes for dealing with separation anxiety for employees.

1.4 Dissertation Structure:

The official Structure of the dissertations is being applied which is provided by the university and analysis has been done which suit the theme and the objectives of the research. The structure of this report is summarized as follows:

Chapter 1 Introduction of the research topic and lays the basis for the rationale of selection of the theme under scrutiny. It introduces the effect of M&A on business and effects that they expected. The chapter also summarizes the rationale for selection of topic and states the aim and objectives of this research.

Chapter 2 Consists of review of the literature that has been produced in the domain of mergers and acquisitions and their desired effects for companies. It has highlighted some of the highly respected literature in the field of aims and objectives of this research.

Chapter 3 Provide the methodology and strategy adopted by the researcher to undertake this research. It points out the strength and weaknesses of using different data collection mechanisms and has shown how they fit in the larger context of aims and objectives of this research.

Chapter 4 very important chapter consists of analysis and findings regarding the importance of strategic alignment within a merger or an acquisition activity with the help of a range of case studies. The chapter developed recommendations for companies under the light of macro indicators, theories and qualitative data gathered through this research.

Chapter 5 provides a comprehensive conclusion from this research and gives a list of recommendations for companies that can be drawn from this focused research.

Chapter 2: Literature Review

In this chapter an attempt has been made to briefly review the research already undertaken and methodology employed moreover the study has been produced in the domain of aims and objective of the project and it has been divided into number of different sections so that reader understand with ease.

2.1 Overview:

Concept of Merger and Acquisition:

Over the last few years different companies have engaged in domestic and international mergers and acquisitions to match the macroeconomic trends operating on a worldwide scale in the market place. Up till now the ultimate success of a company’s global strategy may depend on how well it manages the dangerous human resource “fit” issue associated with strategic customer cantered decisions and strategies. The literature presents the understanding and resolving interpersonal management issues that result from organization, team, and individual misalignments. An actual merger and acquisition integration project is used to discuss the application of this approach (Thomas L. Legare in his paper “Understanding and Managing Human Resource Integration Issue”) M & A defined by Arnold (2002) as “combination of two firms of roughly equal size on roughly equal terms and in which the shareholders remain as joint owners”

M & A activities in late 20th century:

In 1960’s Mergers and acquisitions first became an important topic within the organization management meetings. It is usual to consider merger and acquisition in terms of the extent to which the activities of the acquired organization are related to those of the acquirer. The most common classification proposes four main types (Walter 1985; Hovers, 1973; Kitching ,1967). These being:

1- Vertical

The process in which two organizations combined within the same industry.

2- Horizontal

The process in which two similar organizations combined within the same industry

3- Conglomerate

In this process acquired organization is in completely different field of business activity

4 Concentric

In this process the acquired organization is in a different but related field in to which the acquiring company merge its business.

According to Schweiger and Ivancevice, 1987 mergers and acquisitions can be considered to differ in terms of

  • Motive and transactional type
  • The envisaged degree of integration

Common objectives behind M& Activity

According to Napier (1989), in a review of the literature, draws the distinction between financial or value maximizing motives, and managerial or non value maximizing motives. Mergers known as financial or value maximizing motives when the main objective is to increase the profit and decrease the risk involved in business moreover non value maximizing motives relate to merges which occur primarily for other strategic reasons ( Halpern, 1983). Moreover according to handy (1993) creation of shareholder’s value is the underlying aim behind any M&A activity. However , there is a range of strategies involve to improve financial performances and consequently increase shareholder’s value.

According to Marks, (1988b). There is lots of risk involved in activity like Mergers and acquisitions involving the collective annual investment of billions of pounds and affecting the working lives of millions of employees. It has been recommended in future that 50 to 80 percent of all mergers are considered to be financially unsuccessful (Marks 1988b), most probably in financial return, represent ‘at best an each way bet’

(Lorenz, 1986)

The popularity of Merger and acquisitions is still strong despite of the fact that it has been frequently fail to achieve the financial growth (Hovers 1973 & Farrent 1970; Jemison and Sitkin, 1986). Indeed there is lots of evidence that Britain and the USA are currently experiencing an unprecedented wave of merger activity (Morgan, 1988; Hughes, 1989). In the last 10 years , there have been over 23000 registered acquisitions in the USA , and before the end of this decade one in four of the Us workforce will have been affected by merger activity ( Fulmer, 1986) with the approach of 1992 , a similar trend is predicted for Europe.

The Merger and acquisition is facilitated by number of factors.

Market Conditions

Market conditions are changing day by day and in this environment there is a need to consolidate or capture new market so strategic mergers and acquisitions become more attractive and expedient alternative response to the setting up new outlets, and at the same time provide a tool to finish the competition ( Meeks , 1977)

Increasing Availability of Capital

Mergers and acquisitions activities has been increased because the organization and financial institution may need of capital from outside countries because of low interest rate.

More companies for sale.

There are lots of companies come in to the market because of number of reasons like successful entrepreneurs of the post war years reach retirement age , because of families issues and there is not natural successor within the family.

The Easing of Regulations.

According to McManus & Hergert, 1988. Gartrell & Yantek suggested that acquisition activity is related to political climate in that right of centre administration stimulate activity.

The Need to share Risk

Mergers and acquisitions is very important if u need to share risk like new product development often results in the formation of joint ventures , mergers and other types of strategic alliance.

The existence of complex Indivisible Problems

All of these can be considered to be logical economic and marketing factors, which make possible the decisions to acquire, These conditions , particularly the need to share risk and problems solving, have also contributing to the increasing trend towards the formation of joint ventures and Mergers (Harrigan, 1988)

(vii) Unrecognized Psychological Motives

According to Levinson (1970) suggests one such motive to be fear of risk McManus and Hergest (1988) suggest that the decisions happens when ‘CEO is bored and wants to find a new game to play’ or to create some excitement amongst senior managers (Hunt, 1988)

2.2 Impact of Mergers and Acquisitions

Merger and Acquisitions have the prime aim to maximise the firm’s profit and shareholders wealth like any other strategic growth option, but there has been a risk of failure so the debate in the literature among theorists and practitioners as to the real strength of the strategy in creating shareholder’s value worth the risk of failure. The review literature that surrounds different prospects like shareholders, acquirer , targets has been studied on short , medium and long term value creation through the M&A activity . The following different categories of studies can be highlighted.

Affect of M&A Activities on People

The Human Side of Mergers and Acquisitions is about to impact that mergers and acquisitions have on people in the workplace: the psychological difficulties that people experience, the culture clashes that can emerge in organizations that can emerge in organizations during the post –merger integration period, and the ways in which these problems can manifest themselves –such as communication breakdowns a “We-they” mentality between the component organizations in a merger, lowered commitment , drops in productivity , organizational power struggles and office politicking , and loss of key organizational members. We adopt primarily and organization development (OD) perspective on mergers and acquisitions: given the myriad problems (Thomas L Legare)

The Existing evidence on the effects of mergers and acquisitions on efficiency or value comes from two basic types of large sample studies: event studies and performance studies

Event studies consider the returns to the shareholders of targets and acquirers in the days before and after an acquisition announcement .These studies consistently find that the combined returns to acquirer and target stockholders are unequivocally positive .These positive returns imply that the market anticipates that acquisitions on average will create value. These studies and reactions do not, however, provide insight into the sources of the value changes in mergers or whether the expectations of value changes are ultimately realized. Furthermore, the combined returns cover a broad range of responses from very positive to very negative.

Cross sectional analyses of event period returns provide some evidence that the broad range of combined announcement period returns reflects the market’s ability to forecast an acquisitions success. For example both Mitchell and Lehn (1990) and Kaplan and weisbach (1992) find the there is a relation between (1) acquirer and combined returns and (2) the ultimate outcome of the acquisition. Other studies examine a number of different determinants of the cross-sectional variation in returns associated with acquisitions. (see e.g Lang , Stulz, and Walkling 1991 . Maloney , McCormick , and Mitchell 1993; morock, Shliefer , and Vishny 1990)These Cross-Sectional analyses of event –period returns provide some understanding of the nature of the market reaction to acquisition announcements.They do not , however , examine whether the anticipated value creation or improved productivity materializes, Nor do they have a great deal to say about the organizational mechanisms and management practices that drive acquisition success or failure.

Studies of post merger performance attempt to measure the longer-term implications of mergers and acquisitions using both accounting and stock return data. Studies of accounting data fail to find consistent evidence of improved performance or productivity gains. (see e.g, Healy , Palepu, and Ruback 1992 and Ravenscraft and Scherer 1987) similarly , studies that focus on acquirers long term stock performance find mixed results abnormally negative stock returns after the acquisition ( agraqwal , Jaffe, and Mandelker 1992), no abnormal returns (franks , Harris , and Titman 1991) and negative abnormal returns only for stock mergers (Mitchell and Stafford 1996) Like the announcement period event studies, longer term performance and event studies document substantial cross sectional variation in performance , but do not study the sources of value changes in mergers and acquisitions.

In sum , there are a number of questions that the existing economics and finance literature on mergers and acquisitions leaves unanswered , Existing work provides mixed results on the average impact of mergers and acquisitions More importantly , existing work offers little insight into the determinants of an acquisitions success or failures.

Research on the basis of Capital Market

Capital market is one of the research category used as central information point. According to Healey (1992), the stock market data reflects the effects of M&A as it reflects future profits and dividends expected by the post integration entity moreover these researchers believe that the result has been found swayed by the researcher’s personal orientation an hypothesis. It is been analyse that majority among studies that have been covered lower then desired effects created through analyses based on capital market data.

Event Study Methodology

According to data et al (1992) have indicated that these studies are based on the hypothesis that markets across the industrialized world are highly well-organized and therefore soon after the M&An announcement moreover it depends on the future financial benefits or losses. The result of such studies have highlighted the majority of M&A activities do create affects that can range from significant to normal (Sudarsanam 2003) but the people working along with the field and many other critics have argued that the methodology is only affective for small projects to obtain the desired affects and does not represent long term desired affects in the medium to long term.

Short Run Objectives:

A large number of organizations plan for financial gains within a short period of time when the merger date is finalized they are looking to achieve this objective, 30% and 10% abnormal returns have been found for the target shareholders Sudarsanam et al (1996)

Long Run Objectives

According to Agarwar (1992) the organizations long term desired affect through M&A activity that has gained an increasing interests among researchers after the data is available for the last wave of M&A in the 1990’s. There has been a mixture of results as- 10% abnormal returns over 5 years M&A periods; Fama & French (1993) showed positive 9% abnormal returns for the acquired and negative -4% abnormal returns for the acquirer; and sudarsanam & Mahate 2003 showed a range of negative -18% to positive+1% abnormal returns in M&A situation. Although it has been found out that many of these studies have used different models, benchmarks and organizational data, but there is a general consensus that M&A abnormal desired affects in the long term.

Operational Planning Research:

The best way to analyse the affect of M&A activity is to study the operational performance of the firms involved. The operational data consists of accounting data like cash flow and profit and loss statement are used by such studies (Healey 1992) Herman and Lowenstein (1988) used these technique on data gathered during 1975 to 1983 and found that no significant improvements in the performance of post M&A entities. Healey et al (1992) found a meagre 3% operational performance among companies analyzed. However the same data was later analyzed under improved methods and found no operational performance. The results show large number of failures in creating substantial desired affects through operational analysis.

Recent Merger and Acquisitions trends

In the above table shows the recent trends in the field, let us being with our full dissertation of the subject of M&A. This will be begin with a discussion of the basic terminology used in the field.

2.3 MAJOR STRATEGIC ISSUES:

According to Cartwright and Cooper (1995) in order to get the desired objective during the M&A activity the internal environment of firms should be synchronized. It can therefore recommend that integration of people, their systems, procedures, practice and organizational culture is extremely important in order to get the desired objective.

Mr David (2007) suggest that the internal aspects of firms that are going to merge can be divided into two core competencies that can help to minimize the factors involved the failure of M&A strategies.

These core competencies lie in the field of corporate strategy which usually lack coordination during M&A activities. The main limiting aspects of M&A in terms of strategic importance that can play a vital role by using their core competencies have been highlighted as follows

Organizational culture

The cultural differences is the single largest cause of lack of proposed performance, achieving the desired target and objective and time consuming issues in the running of successful business ( Bijilsma frankema , 2001) according to him culture plays a important part in employees motivation in the development to new business he says that cultural clash is the most dangerous factors when two companies decide to combine moreover the things like styles , values and missions is the part of factor influencing the M&A.

According to (Covin et al, 1997) the employees required five to seven years after the merger to feel truly incorporated. Due to the multitude of these changes many problems arises like loss of job, also financial debt and fears of jobless.(Mirvis and Marks 1992) moreover he says that after merger the new team is also distressing and anxiety for the people other fear include the loss of effective and close team members,

as well as the uncertainty about the new team members and supervisors to be inherited the employees when forced to deal with new team members and managers they may develop fears of taking risks and raising sensitive subject. This may adopt us verses them thinking, where trust for the new team members will be minimal (Mirvis and Marks, 1992).Management facing this kind of behaviour may have to pay the high price of loss of coordination and initiative among the employees of the new business combination. Moreover the issues and disagreement will be more difficult to resolve, so the time after the merger is the most difficult time for the management and new team members to move forward as a whole. Appelbaum etal, (2000)

Stress

According to (Datta et al , 1992) the process of merger and acquisitions consists of biggest change at the individual and organizational level in the history of organizations because of this the process is stressful. When one culture combines with another the employees feel as through they have lost control over important aspects of their loves, and in an attempt to regain control, they often withdraw. So it creates stress within individual , i.e reduced performance and job satisfaction . ( Berger and Ofec 1996)

According to Schweiger & Denisi (1991) the employees after the M&A go through a time of increased anxiety uncertainty and stress. They are concerned about their new position it will create more stress in them so communication plays the vital role during the merger so that employees know what is going on and how they might be affected during and after the post integration period. Thus it can be suggested that while negotiations have been compared to flirting before marriages , and the closing of the deals to forming a new family , employees reaction can be associated with “bereavement” (Katinka , 2004)

Organizational change and resistance

Changes after merger announcement like stress, symptoms, work related factors, health status, and lifestyle. Personal characteristics were composed of age, sex, height, weight, and marital status in both surveys. Moreover stress related symptoms like anxiety, impatience and depression were dichotomized by either having a complaint or not so following a M&A , a complex set of organizational , managerial and personal changes or inevitable.

Jensen & Rubock (1983) claim that in order to cope with the changes and resist with the changes there is a way to select a strategy and a set of specific approaches for implementing an organizational change effort. It is very important for managers to implement changes successfully in order to cope with the changes. The researchers have introduced six different strategies in order resist the changes after the merger and four major reasons why peoples resist changes.

Image, Identity and confidence

According to (Ravenscraft and Scherer 1988) image , identity and confidence of the human resource may reduced after the combination process it has been send that most of the employees will feel uncertain and will need some relaxation environment .

It can be recommended that the peoples effected by this process can prove dangerous for the management they can change the ownership moreover the employees who are affected by the process tend to protect their identity and confidence through tolerance and humble and hence they try to maintain their status and confidence with experience that they are the part of new entity, if the cultural factor is not adequately taken into account at this stage of the merger , there will be so less time to contain it after the merger.

Weston et al (2001) discuss the fear and stress associated with a merger. Schwert (1996) argue that when the objectives after the merger are not met , the managing teams of both companies are the employees of the acquired company enter a “cycle of escalating and distrust”. In other words, managers of the acquiring company press for increased control, while employees of the acquired company resist and demand their autonomy. Others view mergers and acquisitions as power games , which create some excitement fro bored CEOs.

Communication

Tompkins (1984) defined organizational communication as “the study of sending and receiving messages that create and maintain a system of deliberately corresponding activities or forces of two or more persons”

Organizational communication is the exchange of messages through collective creation maintenance and transformation of organizational meaning. Members develop commonly understood patterns of expectations of organizational action through communication. Moreover communication with the employees is a very important factor throughout the entire M&A process and creates a positive effect on employees through the trying time.

According to John et al (1999) that communication plays a vital role in the combination of different and various cultures. The cultures can be at conflicting ends and therefore should be understood by the top management during integration period moreover according to Richard et al (1999) the human resource department should plan for the change in organization and they should know before this process that what going to happen with the company when two cultures combine as the result of merger. So in the process of merger only decision is not enough but the proper communication of these decisions among the company is very important moreover management works horizontally and vertically through leadership, control and organization.(Sudarsanam and Mahate, 2003)

FLOW OF CASH

Despite of the fact that many people loss their job in the process but the same time high rate of voluntary turnover linked with the process moreover it includes substantial outflow of talent and expertise. According to Ravenscraft and scherer, 1988) report executive turnover rates as high as 75% in the first three years of post acquisition period. Unplanned personnel losses are not necessarily confined to the more senior levels of the organization. Typically, acquired or merged organizations experience on overall rate of staff turnover of at lest 30% in the first two years post merger period (Cartwright and Cooper 1995)

2.4 Success and Failures

A large number of mergers and acquisitions are unsuccessful .Over the last fifteen years, 23% of all merged firms worldwide reported lower profits than comparable non-merged firms (Gugler et al.(13)) Daimler Chrysler, the effect of the largest industrial merger ever, for example , has only posted low or negative profits since its birth in 1998-including the biggest loss in German business history in 2001. The disappointing results of mergers have been puzzling commentators and academics alike.

In the management literature, poor merger performance has often been connected to unsuccessful addition of different corporate cultures. Cultural differences, however, are not enough to explain failures. First, firms seem to be aware of organisational difficulties when taking merger decisions. DaimlerChrysler, for example, anticipated post –merger Challenges. Second, mergers between partners with closer corporate cultures sometimes perform worse ( Morosini et al. (22)) Cultural similarity does not prevent mergers from failing.

We build a theory that investigates the interaction between the pre-merger and the post merger processes. In the pre-merger period, firms collect information about the potential synergy gains. If they then agree to merge, each firm decides to which extent it exerts an integration effort in the post-merger period. A more integrated company leads to a higher realisation of the potential synergy gains.

We show that managers, although being rational and acting in the interest of their shareholders, can lead their firms into an unsuccessfully integrated entity. At the same time, we uncover some of the dangers of mergers among partners with close corporate cultures. Furthermore, according to our explanation, failures should be more frequent during economic booms, which is consistent with the empirical evidence (Harford (14) and Gugler et al. (12)

Our Theory builds on three ingredients .First, firms posses some private information about the potential synergy gains when making merger decisions. Indeed, the reaction of the competitors, the economic fundamentals or the unknown strategic fit of the partners makes these gains, and therefore merger profitability, uncertain. Before merging, however, prospective partners collect information. Although part of this information is shared, another part remains private. Potential partners do not want to give out all their information. In the merger does not materialise, for example, a firm could use this information against the other when competing.

Second at the time of merging firms have distinct cultures, but can move towards a common corporate culture during the post merger integration process. These organisational adjustments are costly. Managers and employees may prefer to maintain the old way of doing things-because of learning costs, inertia, etc and resist adopting some of the partners practices (Carrillo and Gromb and hermalin ) The degree of organisational integration determines the extent of synergy realisation (Larsson and Finkelstein (19) In particular , we assume that if the differences have not been reduced at all by the end of the post merger process, the opportunity costs of merging will not be compensated for.

And third, post-merger efforts show strategic uncertainty. In many circumstances it is intrinsically hard to describe the desired actions in sufficient detail to distinguish them from seemingly similar actions with very different consequences (Mailath et al.[20]. We thus argue that integration efforts are neither ex ante nor ex post contractible. Further, managers will not change behaviour after observing some of the partner’s actions and integration decisions are modelled as immediate.

During the 1980’s, mergers and acquisitions and other forms of strategic alliance, dominated the business and financial press, especially when they proved unsuccessful:

  • An Engagement is broken – The collapse of a Dutch –Blgian Banking Merger ( financial Times , 19 September 1989)
  • Marriage brings woe for Wedgwood _ broken dreams shares nose dive since the “Perfect” marriage in 1980 9 (The Mail , 25 March 1990)

This anxiety with the incidence and outcome of such organization marriages was hardly surprising for, in the 1980s, mergers and acquisitions (M&A) became a worldwide growth industry. The global value of (M &A) became a worldwide growth industry .The global value of M&A has risen rapidly from £60 billion in 1984 to £355 billion in 1990.thirty seven percent of the 1990 figure relates to cross border international M &As so because of high risks attached it is estimated that more than half of all mergers and acquisitions prove financially unsuccessful.

Merger and acquisition activity has increasingly become ‘people’ intensive’, and concerns cultural change or integration

It is true that mergers and acquisitions do fail for reasons of a rational financial and economic nature; but making a successful merger or acquisitions as many organizations have learnt to their cost, is more than just a matter of getting the sums right! Many have also come to recognize that a compatible and successful organizational marriage depends upon characteristics of the partner, which extend beyond the suitability of the strategic match. Financial advisors may guide merger managers in suggesting the broad areas in which economics of scale might be achieved, but they do not have to translate them into practice, and physically implement such decisions.

Many problems includes people involves non routine managerial decisions, e.g. who to lose and who to retain. As one manager speaking on the basis of this own experience, suggests: ‘those who underestimate or ignore the human factor do so at their peril! Although his particular organization, a large multi-national merged over three years ago, it is still considered to be experiencing human merger problems, and a rate of staff turnover in a difficult recruitment market compared to that pre-merger.

Merger and acquisition failure are increasingly being recognized, more progressive companies are coming to realize that what happens to the employees involved, and their organizational cultures, cannot be considered as separate and distinct from what happens to the organization.

There are, therefore, two important human factors to merger and acquisition success which determine the speed and effectiveness with which integration can be achieved. They are:

  • The culture compatibility of the combining organizations, and the resultant cultural dynamics.
  • The way in which the merger/acquisition addition process is managed.

The importance of organizational culture was well demonstrated in a now classic study of over forty highly successful American organizations carried out by Tom Peters and Bob Weterman 1982. The message of In Search of Excellence was loud and clear; consistently outstanding financial performance was the outcome, dominant culture. This link has subsequently been supported by research in the Uk Goldsmith and Clutterbuck 19840 organizational culture has also been linked to market strategy(Piercy and peattie, 1988) and managerial style 09Sathe, 1983) The experience of organizations operating in a highly mobile job market and changing external environment suggests that a strong coherent and unitary culture injects stability into the workforce and reduces labour turnover.

Chapter 3: Methodology

It is important to properly introduce a research design it will define the research problem or issue, pointed out this issue within the literature, and hence targeting the research design to achieve the objective so that the research should be design to achieve the purpose.

The Purpose statement

It is very important before beginning the process of research is development of a sense of the overall writing structure and discuss the approaches that may arise during the research .The purpose statement establishes the direction for the research. In fact, the purpose statement is the most important statement in an entire research study.

According to Locke, spirduse, and Silverman(2000), the purpose statement indicates “Why you want to do the study what you intend to accomplish” Unfortunately , method –and proposal-writing texts give little attention to the purpose statement, and writers on method often incorporate the purpose statement into discussions about other topics, such as specifying research questions or hyposteses.Wilkonson (1991), for example, refers to it within the context of the research questions and objective. Other authors frame it as an aspect of the research problems ( Castetter & Heisler, 1977) the central controlling idea in the study is very important.

  • First , a theoretical problem is formulated;
  • Next , an suitable method are selected ;
  • Then , data are collected and analysed;
  • Finally, the objective with which the research was launched is either challenged or supported.

Research Design

The research would be all about to achieve the objective which is how do merger fulfil the desired objective and how people affected by the merger.

(The research will be based on qualitative and depend on the case studies of recently held mergers and acquisitions across industries)

The qualitative approaches to data collection, analysis, and report writing from the traditional, quantitative approaches. Use of decisive case, collection of open-ended data, analysis of text or pictures, representation of information in figures and tables, and personal interpretation of the findings all inform qualitative procedures. This chapter advances steps in designing qualitative procedures, and it illustrates these procedures with examples from phenomenology, grounded theory, ethnography, case studies, and narrative research.

3.1 Case studies:

For achieving the aim and objective of the research the qualitative approach method will design, the method consists of case studies which have been chosen to raise the credibility of the findings.

According to Saunders et al, (2003) research context means that the findings of a particular study to be equally applicable to other research settings, such as other organizations. This concern was kept into consideration while choosing different case studies because the aim of the research is to produce general findings for any merger and acquisition activity from a strategic view. The case studies chosen, their industries and their M&A activity years have been highlighted in the following table:

Case Studies

Industries

M&A Year

Aol and Timewarner

Online services

2000

BP and Amoco

Oil and Gas

1998

IBM and Lotus

Information technology

1995

Glaxo Wellcome and SmithKline Beecham

Research Based Pharmaceuticals

2000

HBOS and LloydsTsb

Mortgage Industry

2009

Banco Santander and Abbey

Consumer Finance

2004-05

Boots and Alliance Unichem

Retailing and Distribution

2006

The case written above most of them reported problem during merger and acquisitions activities across industries. These cases were faced with issues like systems integration, cultures differences, change resistance, management under differing macro and micro circumstances. Moreover, for each company’s research has been made with different amount of time to analyse the degree of success for each case so that the detailed strategic analysis can be made for future merger and acquisitions. Most of the people have also declared that these merger and acquisitions as some of the most difficult across industries while the successful merger and acquisitions used to be standard by other organizations during their change management activities.

3.2 Secondary Data Collection:

In order to get the results for analysis of the difficult and different style of merger and acquisitions secondary data from primary, secondary, tertiary sources was produced. According to Kumar (2005) secondary data is dependable in a difficult situation analysis like M&A as it brings in the advantage of audited information and is easy to access than primary data. Moreover the secondary data is used to analyse in different ways like views of different school of thoughts that increased the depth of the research analysis.

In order to get the secondary data from all the works that have been produced on the M&A case studies selected, a comprehensive use of strong tertiary sources was undertaken. The tertiary resources searched secondary data from a range of academic journals, trade publications, magazines and industry profiles. Journals like Human Relation Journal, Journal of Buyouts and Mergers, Harvard Business Review, Journal of organizational Change Management and Journal of Mergers and Acquisitions were some of the widely used for data collection for this project. Other than journals, the scope of the project was also analyzed with in house publications from case organizations, their press releases at different points in time regarding the mergers and acquisitions along with different websites for latest up to date information regarding the success of companies.

Chapter 4: Analysis and Findings

This section of the report highlights the analysis and findings of the research. The section has been divided into M&A analysis of each case study from a strategic perspective to understand whether M&A activity has brought the desired effects.

4.1 the aol and time WARNER:

The Company:

Time Warner and AOL is the third largest media company in the World In January 2000 AOL purchased Time Warner for $164 billion and this merger belongs to one of the largest merger in American history cleared by federal Trade Commission moreover AOL is the largest and dominant, firm in the aggregation and distribution of content and services over the internet. AOL is also the largest provider of internet access in the U.S overall, it is the most successful firm in the business of online services.(cook 2000)

Acquisition Strategy:

AOL would own 55 percent of the new company despite of the fact that Time Warner’s largest size (revenues of $14.6 billion versus AOL’s$4.8 billion). Its combined market cap was $350 billion and revenue exceeded $30 billion. AOL had 20 million subscribers. AOL and Time Warner had thrown each other a life preserver in the effort to grow rationally in the new millennium always growing potentially as increasing the products and services to increase the customer online as well as one the floor between them they could eventually offer fast , virtually instantaneous hook up to the internet over upgraded cable lines, and thus sell more of every thing than either could alone moreover they offer home base television , telephone , and internet services in one package with one handy monthly bill. Gerald Faulhaber (2000)

The merger between AOL and Time Warner will horizontally and vertically increase AOL’s power in the market for Internet online services. The anti-competitive effects of this merger will harm consumers.

Strategic Point of View:

It is nearly impossible to developments in technology business or journalism without proper corporate strategies and planning in the early twenty first century so the main strategies of the merger is to develop in technologies (video on demand and interactive television) the second most important strategies is marketing efforts (partnerships between newspapers and TV stations to promote each other’s work) and other one is to job descriptions (backpack journalists , who return from the scene of a story with words, and video) Kevin Kawamoto (2004)

The company will see a number of key technology and developments

The creation and use of digital content management systems within media companies, which will store content in digital formats such as XML that allow it to be delivered relatively easily to different platforms.

Wireless technology either through cellular telephone systems or wireless network.

Desired Effect:

The strategic alignment of the main internal characteristics with external environment in the light of strategy adopted by HP can be summarized as follows:

Factors

AOL

TIME WARNER

Strategic Alignment

Comparative analysis

Growth in Stock per share

Growth in Stock per share

Yes

Financial Aspects

Higher growth in online computing segments

Low profitability and R&D output

Yes

Strategy

Diversification Strategy

Focused Strategy

Yes

Leadership

Positive towards Acquisition

Positive towards Acquisition

Yes

Culture

System integrator and entrepreneurial based

Process, management-by-objective and entity based

No

Desired effects

Long –term competitive advantage

Product delays and loss of market share

No

Human Resource

Positive Affect on People, employees

Satisfied by time passing

No

Success and Failures

After the merger, the profitability of the ISP division (America online) decreased. Moreover the market valuation of similar independent internet companies drastically fell. As a result, the value of the America online division dropped and goodwill write off causing AOL time Warner to report a loss of $99 billion in 2002- at the time , the largest loss ever reported by a company 2003,

AOL and Time Warner, The Company is Still Counting the Losses, first its share price has suffered a dramatic fall, Second its revenue has dropped AOL was down by 33% in the company third quarter 2003 results and is expected to fall further to as much as 45% when Warner full Year’s results are unveiled at the end of this month.

4.2 British Petroleum and Amoco – 1998:

Overview:

BP Amoco merger was formed in 1998; combination of competitive international energy and petrochemicals group operate globally. Drawing upon HRMID (2004), at the time of merger, it was one of the largest industrial mergers in the commercial organizational history. It has been written in the literature as one of the most successful mergers of two large international groups as it brought more benefits more quickly than either organization had forecasted. BP that has created on a strategy before the merger to minimize its risks in the oil and gas business and to compete its business partners. This can be seen from the fact that BP sold its IT business called Scicon in 1988, most of its mineral businesses in 1989, BP Coal in 1990, and its nutrition business in 1992 (Alzira wt al, 2003). This divesture strategy was coupled with acquisition of Standard Oil in 1987 creating BP America and acquisition of Britoil in 1988 (Alzira et al, 2003), therefore becoming a major player in the oil sector in the United States. Amoco, according to Healy & Griffin (2004), at the time of merger was one of the leading brands in the US and had many overlapping interests with BP the main objective of the merger is to increase the bargaining power and to introduce cost cutting.

Acquisition Strategy:

The basic objective of the companies is to develop its business in petrochemicals moreover history of the company shows major changes came when it merged with Amoco to make BP Amoco to combine its operations in a competitive international energy and petrochemicals market. The major benefit of the merger is to gain competitive advantage by using its sheer size to enjoy better barging power and economies of scale across its market. Drawing upon Healy & Griffin (2004), it can also be suggested that the enlarged group had a high bargaining power in the world of oil and gas, creating an effective and efficient supply chain management. It has been written that at the time of merger, it was considered the largest commercial merger across any industry. In 2001, the company changed its name to BP following a number of acquisitions of related businesses.

Strategic Point of View:

The preparation phase of the merger is the most important phase where all the planning and thinking has been developed. It has been found that the companies developed “pre-merger task force” that analyzed all the aspects of this mega merger with companies that have roots in two national cultures i.e. the US and the UK (Barrow, 2001). It has been highlighted that the strategic like learning from pas experience & understanding of the merger was to create synergies across the departments and remove repetition of tasks (Stonham, 2000). It can therefore be suggested that the merger was aimed at achieving economies of scale and scope, along with increased bargaining power with different players in the industry. The merger with Amoco was considered the largest of its type at that time and created a giant within oil & gas industry that through further acquisitions strengthened its position as a vertically integrated company.

Desired Effect:

The result of the merger is a success story in achieving the desired effects and the strategic alignment of the main internal characteristics with external environment in the light of strategy adopted by BP can be summarized as follows:

Factors

British Petroleum

Amoco

Strategic Alignment

External Environment

Rising oil and gas prices in international markets

To unite the global operations through merger

Yes

Instruments

Communities of practice Connect

High level of communication practices

Yes

Strategy

Employee networks

Communities of practice

Yes

Leadership

Positive towards Merger

Positive towards Merger

Yes

Culture

Hierarchal, inflexible, and procedural

Pragmatic, top-down, and power culture

Yes

Desired effects

Long term sustainability

Long term sustainability

Yes

Affects on employees

Positive by time passing from 28% to 49%

Satisfied as time processing but fear factor still exists

NO

The success Factors

  • Bp experience from the previous mergers and joint ventures
  • Use of communities of practice for knowledge sharing
  • Better knowledge identification due to Connect

The Failures Factors

Problems with technical integration

4.3 IBM AND LOTUS 1995:

Companies Environment:

In the year 1995, Big Blue acquired a small software company Lotus, for $3.5 billion at that time it was one of the largest deal in software industry despite of the fact that Lotus CEO was against this acquisition in the software industry but the acquisition of the Lotus was very important for IBM, since the questions turned IBM’s old structure in order to become a software driven company who can compete with Microsoft and proved to be successful moreover IBM had to realize this acquisitions under difficult circumstances and strong possibility of loosing Lotus employees and paying 64$ per share moreover IBM could retain two Lotus executives, Mr Zisman and Mr papows and persuaded them to be the new confidants and leaders of Lotus. IBM managers knew that the right decision was to have Lotus executives run the post acquisition integration (Dr Andrea 2002)

Acquisition Strategy:

At the time of acquisition, IBM never did the step in strategy Lotus, instead it insured Lotus autonomy, and Lotus became a wholly owned subsidiary and remained a visible, viable brand. The employees continued to receive Lotus pay checks and benefits and IBM did not or would not impose its corporate regulations or culture moreover many of the employees get promotion because of their performance in the company and economic conditions.

IBM insured that Lotus culture would be protected moreover they kept all Lotus systems, such as benefits, compensation plans, stock options. Thompson assigned a person in his office to be the full time gatekeeper of all communications between the two companies for the first year and he saw no big difference between two companies culture and mentioned that culture difference between Lotus and IBM were not that big as they might have appeared, e.g IBM had no more the straight arrow image along with its infamous dress code of blue suits, white shirts and black wingtip shoes (Rifkin 1998)

In order to build confidence, IBM opened even its research and developments doors for Lotus engineers and answered every question moreover IBM’s openers caused an impressive technology transfer moreover IBM anticipation was not selfish Lotus acquisition caused an image change, IBM image changing from and old mainframe dinosaur to a cooler place to be associated with Mr Papaws said (Rifkin 1998)

Strategic Point of View:

At the time of acquisition, IBM and Lotus culture difference were not that big as they might have appeared so the management easily carry own the same process with less difficulties it is benefited a lot to the company and the employees moreover the main strategy of the company is to retain the key people for the knowledge will not loss the most important thing of implementing to this strategy is acceptance of the cultural differences and people learn from each other moreover the leadership from the same company benefited a lot.

Success and Failures

The result of the acquisition is a success story which is defined as:

  • Peaceful coexistence , when differences are not to overcome
  • Acceptance of the cultural differences and learning from each other
  • Sign of continuity with the brand “Lotus”
  • Leadership from the same company , no imposition and a sign of stability
  • Candid communication about employees future
  • Mutual transfer of knowledge , therefore building trust among the acquired company employees
  • Identification and preservation of the key people , therefore no loss of knowledge
  • Establishment of the gatekeeper between IBM and Lotus in according to uphold a flow of information between the companies.

Factors

IBM

LOTUS

Strategic Alignment

External Environment

Intense industry competition and fragmentation

Intense industry competition and fragmentation

Yes

Financial Aspects

Low costs and highly successful business model

Profits struggling and restructuring

Yes

Strategy

Cost cutting and synergies

Leverage on Brand

Yes

Leadership

Positive towards Acquisition

Resistant towards change

Yes

Culture

Innovative and forwards looking

Passive, orthodox and bureaucratic

Yes

Affect on people

Competition increases after the merger

Top people retains the jobs

NO

4.4 Glaxo Wellcome and SmithKline Beecham – 2000:

Over view of Company:

GlaxoSmithKline (GSK) is a world second largest pharmaceutical and health care products manufacturing group whose history goes as deep as 1859 when Beecham opens the world’s first factory built solely for making medicines at St Helens in England. The company incorporated on 6th December 1999 under English law on 27th December 2000 the company acquired Glaxo welcome plc and SmithKline Beecham plc, both English public limited companies, by way of a scheme of arrangement for the merger of the two companies. Both Glaxo Wellcoem and Smithkline beecham were major global healthcare businesses. Since that time the group has passed through many phases, but the turning point came while the merger of Glaxo Wellcome and SmithKline Beecham in 2000, it had also seen a merger of Glaxo and Wellcome in 1995 (Glaxo, 1998). At the time of merger, the pharmaceutical industry saw consolidation with more mergers in order to achieve further economies of scale barriers for new entrants in the field of research and new product development (Ho, 2003), which is at the heart of growth of pharmaceutical industry. Such trends of horizontal integration in the industry have posed entry barrier as the new entrant faces cost disadvantages.

Merger Strategy:

It has been noticed that the merger would create a strategy with a combination of R&D excellence, unmatched marketing strength, and financial power to lead the industry. GSK would provide great prospective for society and if successful, and end product to great significance moreover in order to improve the results of merged company and to gain shareholder’s value through synergies across different businesses, a federal ‘manufacturing’ capability was established (Heracleous & Murray, 2001). This development according to researchers has been through top-down co-ordination among employees of Glaxo Wellcome and Smithkline Beecham and like-to-like co-ordination between their managers. It has also disc


To export a reference to this article please select a referencing stye below:

Reference Copied to Clipboard.
Reference Copied to Clipboard.
Reference Copied to Clipboard.
Reference Copied to Clipboard.
Reference Copied to Clipboard.
Reference Copied to Clipboard.
Reference Copied to Clipboard.

Request Removal

If you are the original writer of this dissertation and no longer wish to have the dissertation published on the UK Essays website then please click on the link below to request removal:


More from UK Essays

Get help with your dissertation
Find out more
Build Time: 0.0138 Seconds