Mergers and Acquisitions as Agents of Change in Companies

An acquisition, known as the buying of one company, which is the ‘target’ by another and it may be Friendly or hostile. In the case of friendly, the companies cooperate in negotiations; in the hostile case, the takeover target is unwilling to be bought or the target's board has no prior knowledge of the offer. It is also called a takeover or a buyout or "merger". WorldCom & Sprint as well as British Airways & KLM Royal Dutch Airlines are some of the examples of mergers or negotiations that have been in the news. In order to accomplish a merger with as much positive impact and as little damage as possible, we need to get legal help, communicate and synergize. Opportunity for process improvement is given after it such as Collaboration/ Synergy and Economics of scale. Lastly, conclusion is drawn. Change is frightening to people, and to companies. Mergers and acquisitions are agents of change, and are looked upon with a certain amount of fear and dread.

INTRODUCTION

An acquisition, known as the buying of one company, which is the ‘target’ by another and it, may be. Friendly or hostile. In the case of friendly, the companies cooperate in negotiations; in the hostile case, the takeover target is unwilling to be bought or the target's board has no prior knowledge of the offer. it is also called a takeover or a buyout or "merger", A purchase of a smaller firm by a larger one usually refers to Acquisition. and keep its name for the combined entity. This is known as a reverse takeover. Another type of acquisition is reverse merger, A reverse merger occurs when a private company that is eager to raise financing and buys publicly listed company, usually one with no business and limited assets.

Distinction between Mergers and Acquisitions

Although they are often used as though they are synonymous, the terms merger and acquisition mean somewhat different things.
When one company takes over another and completely establishes itself as the new owner of that company, the purchase is called an acquisition and the buyer company is cease to exist from legal point of view.
A merger happens when two firms, having same size, agree to go forward to form a single new company rather than remain separately owned.
.The five most common ways to valuate a business are
•    Valuation of assets,
•    Future maintainable earnings valuation,
•    Historical earnings valuation,
•    Comparable company & comparable transactions evaluation.
•    Discounted cash flow valuation.
The Opportunity

These are just a few of the mergers or negotiations that have been in the news:

•    WorldCom & Sprint
•    British Airways & KLM Royal Dutch Airlines
•    American & Delta Airlines
•    AOL & Time Warner
•    BP Amoco & Atlantic Richfield
•    Wells Fargo & Norwest Financial

Although most of the mergers and acquisitions that make headlines are very large companies, very small companies merge even more often. Small dot-coms are bought by larger ones that want their products or don’t want the competition. It’s nearly impossible to be in business these days without at least considering merging, acquiring or being acquired. In order to accomplish a merger with as much positive impact and as little damage as possible, we need to get legal help, communicate, and synergize.

Get Legal Help

One should be sure about what requests, reports and other information needs to be filed with the appropriate government agencies, and special agencies and groups governing the particular profession.

Communicate
Some people do better than others with change. Almost nobody deals well with uncertainty. The more information is available, the less potential damage our risk from rumors and misinformation. Concentrate our communication efforts

•    Between the companies merging
•    To our employees
•    To our customers
•    To our shareholders
•    To the public
•    Be Positive

•    Between Companies
This depends a great deal on where we stand with one another. Mergers of equals aren’t always friendly, and takeovers of tiny companies by huge ones aren’t always hostile. The level of respect and communication shown to each other, especially at the highest levels of leadership, tends to set the tone for the entire endeavor, so be very careful. Be positive about all parties concerned, especially when we have an audience. Spend as much time as possible getting to know the positive sides of the other company.

•    Employees
The attitudes of our employees will filter to the public, to customers, and to shareholders. They are probably the most powerful force we have, to either bring us through the merger with flying colors or to bring the company to its knees. Be as open as we legally can. Immediately set up “collection points” for employee questions and answer them as quickly, completely and honestly as we can. Even when the answers aren’t what they want to hear, getting things out quickly will eliminate the fear of the unknown, (which is often worse than fears of known specifics.) Layoffs or reductions in force (RIFs) can often be avoided with internal placement and retraining programs. Although this may seem expensive, it is much less so than negative publicity in the markets you do business in. It also helps us keep a loyal, dedicated staff that is committed to the success and growth of the new company, because they see the benefit of having other opportunities. If we have RIFs, handle them as respectfully as possible. Do notifications individually, in private. Offer whatever assistance we can to help them find outside employment. Our ex-employees and their families (who many also are customers and shareholders, or influential in the community) will appreciate it.

•    Customers
Some of our customers will see this as a negative thing, no matter how many practical benefits we can show them. Show them anyway. Spend the time exploring the merger from the customers’ shoes. What benefits might they have had with the old entity that they might lose with the new? If any products or services are being lost, be able to demonstrate what they are being replaced with. Arm your customer service staff with the answers to customers’ questions, in the form of advertisements, brochures, scripts for the call centers, and personal meetings with our important clients. Be sure they understand the benefits of the merger, and be sure they know you’re as committed to them as ever.

•    Shareholders
Hold shareholder meetings as scheduled until the merger closes, even if we are being acquired. Communicate the reasons for the merger or acquisition as clearly as possible. It may be a good idea to get people from the acquiring or merging company to attend as guest speakers, or to have them available for questions. Show that they still control as much of the company as legally possible, and explain changes as they happen.

•    Public
Issue press releases on any important developments and status changes. The media will hear about it anyway, and we can control the “spin” if we get it out first (rather than making the media rely on the analysts to interpret things.) Continue customary advertisements and public relations campaigns. Don’t disappear in the middle of the merger- they can sometimes drag out for months and have people wondering whatever happened to you if you step out of the spotlight for too long. One of the things you bring as a strong partner in the relationship is your customer base. Don’t do anything now to compromise that.

•    Stay Positive
It can be easy to slip into the habit of blaming the merger for every complication that happens. People end up telling customers that statements are late because of the merger, telling suppliers that payment is delayed because of the merger, and telling other departments that internal processes are fowled up because of the merger. After hearing this for  few months, even the optimists will start wearing down. Be honest about the extra time and effort this requires, but keep the picture of the benefits of merging out there in front of people as well. Communicate the vision of updated computer systems, larger sales territories, more capital, or whatever benefits, we expect to realize.

•    Synergize

Department or unit managers tend to become territorial when threatened. Give them some incentive to be cooperative and open. Give whatever assurances we can of new opportunities for those who are open to them and helpful with the process.

•    Opportunity For Process Improvement

This is a great time to recognize and replace processes that “have always been done that way” but are outgrown or outdated. Since systems must be redesigned anyway to accommodate a new corporate structure, now is a good time to improve them at no (or little) additional cost. Assign task forces to investigate new technology and new ways of doing things while mapping out new workflows.

•    Collaboration/Synergy
When we run into a problem or new situation, ask the merger partner to collaborate with us. (Where legally permitted, of course.) Getting yur programmers, sales managers or accountants get together and brainstorm solutions to a common problem is a good way to get the problem solved, and to cement relationships.

•    Economies of Scale
Maintaining two separate empires, like maintaining two separate households, is expensive. Take advantage of opportunities wherever possible. We don’t need two HR departments, for example, and having two will create confusion and rivalry. Combine departments whenever possible (functionally, geographically or both) and redeploy the other resources on a new project or effort.


CONCLUSION

Change is frightening to people, and to companies. Mergers and acquisitions are agents of change, and are looked upon with a certain amount of fear and dread. Fortunately, they are also a good way to breathe new life into organizations at a time when there is much life to be had- unemployment is at an all-time low, so layoffs aren’t as dreaded as they once were. Technology has advanced to the point where replacing or redesigning old systems can be an excellent investment. Geography means less now than it ever has, thanks to advances in communication. Mergers and acquisitions can be done well, if we keep an open mind, stay flexible, and stay positive.

REFERENCES

•    BENET/moneywatch.com. Accessed on 12/12/2009
•    Business ethics, Manish Paiwal (New Age International Publishers).
•    Business ethics—C.S.V. Murthy, himalaya Publishing House.
•    Ethics in management—S.A. sherlekar.
•    Harvard Business School Bulletin, Blockbuster Deals, M&As Make a Comeback
•    Journal of Business Ethics, Springer Netherland, volume-7, january 1998
•    Merger & Acquisition, A Guide to create value for stockholders, Michael A. hitt,Jefferey S. Harrison, R. Duane Irelend .
•    theelearningcenter.com Accessed on 12/12/2009