Mergers and Acquisitions

An entrepreneur may grow its business either by internal expansion or by external expansion. In the case of internal expansion, a firm grows gradually over time in the normal course of the business, through acquisition of new assets, replacement of the technologically obsolete equipments and the establishment of new lines of products. But in external expansion, a firm acquires a running business and grows overnight through corporate combinations. These combinations are in the form of mergers, acquisitions, amalgamations and takeovers and have now become important features of corporate restructuring. They have been playing an important role in the external growth of a number of leading companies the world over. They have become popular because of the enhanced competition, breaking of trade barriers, free flow of capital across countries and globalisation of businesses. In the wake of economic reforms, Indian industries have also started restructuring their operations around their core business activities through acquisition and takeovers because of their increasing exposure to competition both domestically and internationally.

Mergers and acquisitions are strategic decisions taken for maximisation of a company's growth by enhancing its production and marketing operations. They are being used in a wide array of fields such as information technology, telecommunications, and business process outsourcing as well as in traditional businesses in order to gain strength, expand the customer base, cut competition or enter into a new market or product segment.

Mergers or Amalgamations

A merger is a combination of two or more businesses into one business. Laws in India use the term 'amalgamation' for merger. The Income Tax Act,1961 [Section 2(1A)] defines amalgamation as the merger of one or more companies with another or the merger of two or more companies to form a new company, in such a way that all assets and liabilities of the amalgamating companies become assets and liabilities of the amalgamated company and shareholders not less than nine-tenths in value of the shares in the amalgamating company or companies become shareholders of the amalgamated company.

Thus, mergers or amalgamations may take two forms:-

Merger through Absorption:- An absorption is a combination of two or more companies into an 'existing company'. All companies except one lose their identity in such a merger. For example, absorption of Tata Fertilisers Ltd (TFL) by Tata Chemicals Ltd. (TCL). TCL, an acquiring company (a buyer), survived after merger while TFL, an acquired company (a seller), ceased to exist. TFL transferred its assets, liabilities and shares to TCL.

Merger through Consolidation:- A consolidation is a combination of two or more companies into a 'new company'. In this form of merger, all companies are legally dissolved and a new entity is created. Here, the acquired company

transfers its assets, liabilities and shares to the acquiring company for cash or exchange of shares. For example, merger of Hindustan Computers Ltd, Hindustan Instruments Ltd, Indian Software Company Ltd and Indian Reprographics Ltd into an entirely new company called HCL Ltd.

A fundamental characteristic of merger (either through absorption or consolidation) is that the acquiring company (existing or new) takes over the ownership of other companies and combines their operations with its own operations.

Besides, there are three major types of mergers:-

Horizontal merger:- is a combination of two or more firms in the same area of business. For example, combining of two book publishers or two luggage manufacturing companies to gain dominant market share.

Vertical merger:- is a combination of two or more firms involved in different stages of production or distribution of the same product. For example, joining of a TV manufacturing(assembling) company and a TV marketing company or joining of a spinning company and a weaving company. Vertical merger may take the form of forward or backward merger. When a company combines with the supplier of material, it is called backward merger and when it combines with the customer, it is known as forward merger.

Conglomerate merger:- is a combination of firms engaged in unrelated lines of business activity. For example, merging of different businesses like manufacturing of cement products, fertilizer products, electronic products, insurance investment and advertising agencies. L&T and Voltas Ltd are examples of such mergers.

Acquisitions and Takeovers

An acquisition may be defined as an act of acquiring effective control by one company over assets or management of another company without any combination of companies. Thus, in an acquisition two or more companies may remain independent, separate legal entities, but there may be a change in control of the companies. When an acquisition is 'forced' or 'unwilling', it is called a takeover. In an unwilling acquisition, the management of 'target' company would oppose a move of being taken over. But, when managements of acquiring and target companies mutually and willingly agree for the takeover, it is called acquisition or friendly takeover.

Under the Monopolies and Restrictive Practices Act, takeover meant acquisition of not less than 25 percent of the voting power in a company. While in the Companies Act (Section 372), a company's investment in the shares of another company in excess of 10 percent of the subscribed capital can result in takeovers. An acquisition or takeover does not necessarily entail full legal control. A company can also have effective control over another company by holding a minority ownership.

Advantages of Mergers & Acquisitions

The most common motives and advantages of mergers and acquisitions are:-

Accelerating a company's growth, particularly when its internal growth is constrained due to paucity of resources. Internal growth requires that a company should develop its operating facilities- manufacturing, research, marketing, etc. But, lack or inadequacy of resources and time needed for internal development may constrain a company's pace of growth. Hence, a company can acquire production facilities as well as other resources from outside through mergers and acquisitions. Specially, for entering in new products/markets, the company may lack technical skills and may require special marketing skills and a wide distribution network to access different segments of markets. The company can acquire existing company or companies with requisite infrastructure and skills and grow quickly.

Enhancing profitability because a combination of two or more companies may result in more than average profitability due to cost reduction and efficient utilization of resources. This may happen because of:-

Economies of scale:- arise when increase in the volume of production leads to a reduction in the cost of production per unit. This is because, with merger, fixed costs are distributed over a large volume of production causing the unit cost of production to decline. Economies of scale may also arise from other indivisibilities such as production facilities, management functions and management resources and systems. This is because a given function, facility or resource is utilized for a large scale of operations by the combined firm.

Operating economies:- arise because, a combination of two or more firms may result in cost reduction due to operating economies. In other words, a combined firm may avoid or reduce over-lapping functions and consolidate its management functions such as manufacturing, marketing, R&D and thus reduce operating costs. For example, a combined firm may eliminate duplicate channels of distribution, or crate a centralized training center, or introduce an integrated planning and control system.

Synergy:- implies a situation where the combined firm is more valuable than the sum of the individual combining firms. It refers to benefits other than those related to economies of scale. Operating economies are one form of synergy benefits. But apart from operating economies, synergy may also arise from enhanced managerial capabilities, creativity, innovativeness, R&D and market coverage capacity due to the complementarity of resources and skills and a widened horizon of opportunities.

Diversifying the risks of the company, particularly when it acquires those businesses whose income streams are not correlated. Diversification implies growth through the combination of firms in unrelated businesses. It results in

reduction of total risks through substantial reduction of cyclicality of operations. The combination of management and other systems strengthen the capacity of the combined firm to withstand the severity of the unforeseen economic factors which could otherwise endanger the survival of the individual companies.

A merger may result in financial synergy and benefits for the firm in many ways:- By eliminating financial constraints By enhancing debt capacity. This is because a merger of two companies

can bring stability of cash flows which in turn reduces the risk of insolvency and enhances the capacity of the new entity to service a larger amount of debt

By lowering the financial costs. This is because due to financial stability, the merged firm is able to borrow at a lower rate of interest.

Limiting the severity of competition by increasing the company's market power. A merger can increase the market share of the merged firm. This improves the profitability of the firm due to economies of scale. The bargaining power of the firm vis-à-vis labour, suppliers and buyers is also enhanced. The merged firm can exploit technological breakthroughs against obsolescence and price wars.

Procedure for evaluating the decision for mergers and acquisitions

The three important steps involved in the analysis of mergers and acquisitions are:-

Planning:- of acquisition will require the analysis of industry-specific and firm-specific information. The acquiring firm should review its objective of acquisition in the context of its strengths and weaknesses and corporate goals. It will need industry data on market growth, nature of competition, ease of entry, capital and labour intensity, degree of regulation, etc. This will help in indicating the product-market strategies that are appropriate for the company. It will also help the firm in identifying the business units that should be dropped or added. On the other hand, the target firm will need information about quality of management, market share and size, capital structure, profitability, production and marketing capabilities, etc.

Search and Screening:- Search focuses on how and where to look for suitable candidates for acquisition. Screening process short-lists a few candidates from many available and obtains detailed information about each of them.

Financial Evaluation:- of a merger is needed to determine the earnings and cash flows, areas of risk, the maximum price payable to the target company and the best way to finance the merger. In a competitive market situation, the current market value is the correct and fair value of the share of the target firm. The target firm will not accept any offer below the current market value of its share. The target firm may, in fact, expect the offer price to be more than the current market value of its share since it may expect that merger benefits will accrue to the acquiring firm.

A merger is said to be at a premium when the offer price is higher than the target firm's pre-merger market value. The acquiring firm may have to pay premium as an incentive to target firm's shareholders to induce them to sell their shares so that it (acquiring firm) is able to obtain the control of the target firm.

Regulations for Mergers & Acquisitions

Mergers and acquisitions are regulated under various laws in India. The objective of the laws is to make these deals transparent and protect the interest of all shareholders. They are regulated through the provisions of :-

The Companies Act, 1956

The Act lays down the legal procedures for mergers or acquisitions :-

Permission for merger:- Two or more companies can amalgamate only when the amalgamation is permitted under their memorandum of association. Also, the acquiring company should have the permission in its object clause to carry on the business of the acquired company. In the absence of these provisions in the memorandum of association, it is necessary to seek the permission of the shareholders, board of directors and the Company Law Board before affecting the merger.

Information to the stock exchange:- The acquiring and the acquired companies should inform the stock exchanges (where they are listed) about the merger.

Approval of board of directors:- The board of directors of the individual companies should approve the draft proposal for amalgamation and authorise the managements of the companies to further pursue the proposal.

Application in the High Court:- An application for approving the draft amalgamation proposal duly approved by the board of directors of the individual companies should be made to the High Court.

Shareholders' and creators' meetings:- The individual companies should hold separate meetings of their shareholders and creditors for approving the amalgamation scheme. At least, 75 percent of shareholders and creditors in separate meeting, voting in person or by proxy, must accord their approval to the scheme.

Sanction by the High Court:- After the approval of the shareholders and creditors, on the petitions of the companies, the High Court will pass an order, sanctioning the amalgamation scheme after it is satisfied that the scheme is fair and reasonable. The date of the court's hearing will be published in two newspapers, and also, the regional director of the Company Law Board will be intimated.

Filing of the Court order:- After the Court order, its certified true copies will be filed with the Registrar of Companies.

Transfer of assets and liabilities:- The assets and liabilities of the acquired company will be transferred to the acquiring company in accordance with the approved scheme, with effect from the specified date.

Payment by cash or securities:- As per the proposal, the acquiring company will exchange shares and debentures and/or cash for the shares and debentures of the acquired company. These securities will be listed on the stock exchange.

The Competition Act, 2002

The Act regulates the various forms of business combinations through Competition Commission of India. Under the Act, no person or enterprise shall enter into a combination, in the form of an acquisition, merger or amalgamation, which causes or is likely to cause an appreciable adverse effect on competition in the relevant market and such a combination shall be void. Enterprises intending to enter into a combination may give notice to the Commission, but this notification is voluntary. But, all combinations do not call for scrutiny unless the resulting combination exceeds the threshold limits in terms of assets or turnover as specified by the Competition Commission of India. The Commission while regulating a 'combination' shall consider the following factors :-

Actual and potential competition through imports; Extent of entry barriers into the market; Level of combination in the market; Degree of countervailing power in the market; Possibility of the combination to significantly and substantially increase

prices or profits; Extent of effective competition likely to sustain in a market; Availability of substitutes before and after the combination; Market share of the parties to the combination individually and as a

combination; Possibility of the combination to remove the vigorous and effective

competitor or competition in the market; Nature and extent of vertical integration in the market; Nature and extent of innovation; Whether the benefits of the combinations outweigh the adverse impact of

the combination.

Thus, the Competition Act does not seek to eliminate combinations and only aims to eliminate their harmful effects.

Sun Executive Vice President of Corporate Development and Alliances Brian Sutphin shares his views on inorganic growth strategies, including mergers, acquisitions, and

strategic partnerships. With the one-year anniversary of two of Sun's biggest acquisitions just passed, Sutphin offers his view from the trenches.

Q: Why do companies pursue mergers and acquisitions?

Sutphin: Primarily for growth. Some companies rely almost exclusively on acquisitions for growth and others not at all. Sun is somewhere in between. For decades, Sun has invested heavily in R&D and technology innovation — creating a broad and deep product portfolio that includes technologies such as Java, Solaris, and SPARC. Internal development is important, but it's not enough.

Acquisitions are one means of bringing to a company the innovation that, in the words of a Sun co-founder, "happens elsewhere." But it's important to emphasize that acquisitions complement Sun's organic efforts, they are not a substitute for them. They are also a great way of adding new talent to the company.

Q: How do you determine if a merger or acquisition is in line with your company strategy?

Sutphin: At Sun we follow a corporate operating system — an ongoing, regular, planning cycle that produces the strategic plan by which we run the company. For the most part, our inorganic growth activities, including acquisitions, are directed by the output of that planning process.

Q: What criteria do you use for the companies you look at?

Sutphin: That depends on the underlying rationale for the acquisition. For example, if we're looking to round out our product line, we'll focus on the quality of the development team and the fit and completeness of their products. If our goal is the expansion of our business into new markets, we'll emphasize the company's sales, services and overall go-to-market capabilities. One criterion that applies to every acquisition, however, is the quality of the people.

Q: 2005 was a big year for Sun in terms of acquisitions. What was the impetus behind the activity? What have these companies brought to Sun?

Sutphin: We did two big acquisitions in 2005 — StorageTek (STK) and SeeBeyond. Both acquisitions were important for us, and filled significant gaps in our storage and software businesses.

STK was transformative for our storage business. It gave us the industry-leading product line in tape automation — the product of 35 years of R&D investment. STK was an intensely customer-focused company, which is readily apparent in the long-standing blue chip customer base they brought to Sun. Equally important was STK's strength in storage sales and services, both in number and expertise. In fact, given their scale, we did a reverse integration of sorts by integrating the Sun storage sales and services people into

the STK team, creating in the process a global storage sales practice now headed by a former STK executive.

Another benefit of the acquisition was the ability it gives us to integrate technologies and practices across our entire product line. For example, we can now combine STK's strong capabilities in data archiving with our identity management products to better address the regulatory compliance market opportunity.

The other big acquisition we did last year was SeeBeyond, which gives us a much-needed capability to integrate disparate business processes and information into one common framework — our Java Enterprise System. SeeBeyond had developed its products using open, J2EE standards, which made for a very smooth technical integration with the existing Sun product line. They gave us a talented, experienced development team, and, as with StorageTek, they brought strong software sales expertise. We've combined the SeeBeyond and existing Sun software sales teams into one global practice headed by a former SeeBeyond executive.

Q: How does Sun manage the integration process?

Sutphin: Successful integrations require strong leadership from the sponsoring business group. For each acquisition, we designate a lead integration executive from within the business. That executive is supported by a small, dedicated corporate team that develops and communicates integration best practices and executes the day-to-day integration activities. In addition, we staff our integration teams with representatives from all relevant functional organizations, such as HR, finance, sales, legal, WWOPs (worldwide operations), and marketing.

We assign integration roles early in the process in order to have integration leadership closely tied into both strategic and tactical objectives. We review integration status monthly, sometimes as frequently as weekly, at Jonathan's staff meeting. These discussions are extremely valuable in providing executive management visibility into the overall integration status, and have been the ideal forum for timely decision-making on important integration issues.

Q: How quickly should an acquisition pay off to be considered successful?

Sutphin: It depends on the purpose and nature of the acquisition. For example, over four years ago we acquired Afara Websystems, a company that was developing a multicore SPARC microprocessor and which became the foundation of our Niagara product line. Given the length of microprocessor product development cycles, it took over three years to bring the first products based on the Afara chip designs to market. The acquisition has been very successful, but the timeframe for realizing returns has been several years.

On the other hand, an acquisition of a more complete, existing business such as StorageTek carries an expectation of a much shorter-term financial return.

Q: How do you handle the negative impact that often comes with M&A activities, such as layoffs and declining morale, and still retain key employees?

Sutphin: We attempt to communicate our strategy for the acquisition up front and create a common vision with the acquired company of how the combined companies can be more successful in addressing defined market opportunities. If that common vision exists and there's a shared sense that both companies can be more successful working together than separately, that enthusiasm helps carry the effort through the stress of whatever post-closing organizational realignment or reductions might occur. However, if it doesn't appear that the people in the company we're looking at fundamentally believe in the combined company value proposition, the acquisition would have little chance of success, in which case we end discussions.

Q: What about the need to let people go and managing the apprehension leading up to that?

A: Prior to announcing an acquisition, we meet with the management team of the acquired company, review positions that will be available, and jointly decide on the best candidates for those positions — from both companies. Then, immediately after the announcement, we sit down with as many employees as possible to discuss their roles post-close and, in many cases, extend employment offers subject to the acquisition closing. Engaging openly and directly with employees early on brings them into the process and lets them know they have a fair shot at available positions. Above all, early and regular communication is the single most effective tool for managing uncertainty and apprehension.

Q: What has been the impact of these acquisitions on Sun's bottom line and culture?

Sutphin: Very positive. When you look at the financial impact of a handful of past acquisitions, it's quite staggering. The Cray acquisition became our high-end and midrange SPARC server line. Our x64 server line is based on the Kealia acquisition that brought Andy Bechtolsheim back to Sun. Our new CMT (chip multithreading) server line is based on microprocessor designs acquired from Afara Websystems. The addition of StorageTek has had a huge impact on our storage product line. Procom gave us a highly competitive entry into the NAS (network attached storage) market. Waveset brought us industry leadership in identity management, SeeBeyond valuable business integration capability. Not all acquisitions are successful, of course, but it's difficult to imagine what Sun would look like today had we not done even the half-dozen acquisitions just mentioned.

There are also huge indirect impacts from our acquisitions — the talent they bring into the company. Probably few people remember a software acquisition we did years ago, Lighthouse Design, but that's what brought Jonathan Schwartz to Sun. There are many examples throughout the company of leaders, present and future, that came to Sun via acquisitions.

Q: What about cultural impacts?

Sutphin: Acquisitions, through their employees, have a significant impact on corporate culture. As I mentioned, we set the quality bar high for the people in companies we acquire. These employees tend to share Sun values of innovation, collaboration, integrity, and customer focus, which reinforces our cultural norms. Often, however, they bring something new or different — a unique perspective on the market or an industry best practice — that helps refresh the values and practices that influence company culture.

Take STK as an example. Decision-making at Sun welcomes, even encourages, vigorous debate. STK was almost the opposite. Decisions tended to be made with little debate, passed down, and executed against. When we first put the Sun and STK teams together, there was a bit of a clash, with the Sun employees wondering why the former STK employees seemed to not want to voice an opinion and the STK employees wondering when we would actually get to the task at hand! However, over time we're converging towards the middle, and it seems to be working better for everyone. STK employees can weigh in on important decisions, and Sun employees see decisions being made faster.

Q: The StorageTek acquisition anniversary just passed. Do you have success milestones and have you met them?

Sutphin: The primary milestones are financial, specifically revenue and cost synergies. We've met those milestones, and the financial impact is incorporated into Sun's overall financials.

Q: What M&A trends do you see in the industry?

Sutphin: Consolidation. About a year ago, I saw a report that listed standalone software companies with revenues over a billion dollars. Recently, I saw an update of the same list, and about half of the companies were gone — all acquired.

Q: How have customers responded to Sun's acquisitions?

Sutphin: Very favorably. But this shouldn't be surprising, since one of the main reasons we acquire companies is to better serve customers.

Also, particularly in the case of smaller, private company acquisitions, their existing customers tend to feel more stability in working with a bigger, more established company. Even in the case of larger acquisitions like STK, where we have common customers, customers tend to prefer consolidating their IT requirements with a smaller number of providers — the "one throat to choke" principle.

Q: What's next for Sun in the coming year?

Sutphin: We'll continue to look at inorganic growth opportunities, both within and outside of our existing product and services footprint, in order to grow shareholder value.

About Brian SutphinBrian Sutphin is Sun's executive vice president, Corporate Development and Alliances. In this position, Sutphin heads Sun's overall inorganic growth efforts, focusing on mergers and acquisitions, strategic alliances and technology licensing. Under his leadership, the corporate development organization has completed a number of key acquisitions that have brought world-class people and industry-leading products and technologies to Sun including StorageTek, See Beyond, SevenSpace, Waveset Technologies, Kealia, Pirus Networks and Afara Websystems.

Prior to joining Sun in 1994, Sutphin was an attorney in private practice with expertise in business transactions, M&A and corporate law. He received an undergraduate degree in economics from the University of Wisconsin-Madison and a law degree from Stanford University.

How Culture Affects Mergers and Acquisitions.Even companies that appear to be very similar can have different corporate cultures --

and those cultures can be hard to integrate when companies merge or are acquired. Managing cultural change, the author argues, is critical to the success of a merger or acquisition. He discusses what culture is, how to assess it, and how to integrate two

different corporate cultures.

Make no mistake about it: These are the go-go years for mergers and acquisitions. But however adept top executives have been in working the art of the deal, many are now singing the post-M&A blues. Merging balance sheets, it turns out, is far easier than

merging cultures. By some estimates, 85 percent of failed acquisitions are attributable to mismanagement of cultural issues.

Smart companies know that cultural due diligence is every bit as important as careful financial analysis. They know that the values an organization holds are imbedded in organizational strategy exercising a kind of gravitational pull on decision-making.

Without understanding the often hidden and implied values that drive decision-making at every level, the chances are great that a merger or acquisition will quickly be awash in

misunderstanding, confusion, and conflict.

The good news is that while culture is usually not changed quickly, there are ways to understand the legacy cultures of merged and acquired organizations and to create a new

culture for supporting the new enterprises strategies.

Clarifying culture

Culture is the pattern of norms, values, beliefs, and attitudes that influence individual and group behavior within an organization. Originating with the founders of the organization, these norms, values, and beliefs are shaped and honed over time by senior executives and other stakeholders. These values filter down through the organization, further refined and modified in the day-to-day priorities and actions of all the managers and employees in the business. They then circle back up the organization, reinforcing and refining the thinking

of senior managers.

In short, culture is "the way we do things" and includes factors such as:

* How we treat our customers, suppliers, and each other

* The type and level of participation in decision-making

* The level, speed, and process of decision-making

* The level of formality and controls

* Performance rewards

* Risk tolerance

* Quality and cost orientation

Corporate culture is not an independent variable in the business equation. Rather, culture exists, or should exist, to support the business strategy. If culture is how we get things

done, strategy shows us what needs to be done.

Culture, to borrow Obi Won's description of "the force," is the power that binds us together. Organizationally, it provides a common thread for day-to-day activities and

offers consistency in a turbulent environment.

Assessing the culture

While organizational culture is unquestionably the soft side of business reality, we know it can be a real M&A buster. To ensure that the force is always with you in your M&A

efforts, it is critical to understand and assess the current culture of both companies involved in the M&A process.

Yet too often the issues of culture take a back seat to financial issues as accountants and lawyers do their jobs. In many cases, cultural due diligence is virtually ignored -- but

ignorance is perilous. The answers to the following questions will help to create a cultural valuation:

* What is the corporate history? How far is the company removed from its founder? How skilled is the organization at change? How well does the organization adapt to and adopt new processes? When was the last time the company was involved in M&A activity and

what lessons were learned?

* What is the company's management style: centralized or decentralized? Entrepreneurial, authoritative, or management by objective?

* What is the culture of the competitors? How effectively does each serve the market?

* What is the reason for the success of the company: exceptional management, marketing prowess, industry growth, new product innovations, etc.?

* What is the work environment of the company: laid back and casual or high energy?

* Are organizational structures and controls responsive to the company's customers, partners, employees, and suppliers?

* What is the policy toward budgetary control: lax, adequate, or stifling?

* What are the standards of performance?

* Is there a plan to grow the talent pool? That is, are there programs in place to attract, retain, and train good people?

* Are there effective processes, policies, and procedures in place? Who sets the policies? What drives new process development?

* Are authority and responsibility of functions and personnel defined and understood?

* Has there been any drastic change in management approach? If so, have employees adapted?

More specifically, attention must also be paid to the following issues during the due diligence process:

* Management approach

* Budget and projections conventions and strategies for long-range planning

* Management reports and reporting procedures

* Organizational and human resource structures

* Manufacturing and procurement processes

* Engineering and research and development infrastructure

These, and the balance among these factors, will also help define and assess the culture of an organization.

It is important to remember that the purpose of cultural due diligence is not to eliminate culture clash -- an unlikely event even in the best of circumstances. Nor is the purpose to find a perfect fit between two organizations. But, while a wide gap is unhealthy, the best mergers occur when a fair amount of culture differentiation prompts debate about what is best for the combined organization. Ideally, these discussions are well underway before

the merger occurs.

Understanding values

Values -- those that are both explicitly stated as well as those that are implicitly held -- are a key element in assessing culture in an organization. In an M&A situation it is key

that both types are examined and intimately understood.

The strategy of an organization is a gold mine for the discovery of explicit values within an organization. For example, what does the mission statement say about the organization

and its goals? What values are manifest in strategic statements dealing with future

markets, future products, capabilities, and financial expectations? What does the annual report emphasize? Such statements speak volumes about the culture of the organization.

Values and beliefs should express the most fundamental underpinnings of how a business is to conduct itself when dealing with employees and the outside world.

Here are some examples of companies' stated values and beliefs:

* "We believe in honesty and integrity in all of our personal and business dealings."

* "We believe in being a leader in environmental stewardship through conservation practices and meeting or exceeding regulatory standards."

* "We believe that long-term customer relationships are a key to stable and profitable revenue."

* "We believe in fostering personal, responsible accountability to empower employees to meet company goals."

* "We believe that earning an average 15 percent on equity per year will provide an increase in shareholder value sufficient to merit investment in our company."

* "We believe in consistently producing quality products that comply with all safety guidelines."

* "We believe that we should perform in the top 25 percent of our industry."

* "We value a team spirit in our employees and suppliers that helps us compete successfully. We will treat them fairly, with dignity and respect."

* "We believe that it is in the best interests of our employees and stockholders to remain an independent company."

By no means is this list complete, but it is instructive. Each statement connotes specific values. Ultimately the acid test of an organization's values is how well they are embedded

in day-to-day decision-making and behavior.

For example, in M&A situations, take a close look at how each company interfaces with its customers. Do employees maintain an external focus, linking all activities and efforts to delighting the customer and helping increase shareholder value? Does the company

value speed and agility in the marketplace? Are employees alert and responsive to shifts in the marketplace? Are individuals biased towards action and confident in their ability to

respond?

Examine how information flows and power is distributed. Are the companies decentralized or centralized in the decision-making process? Are individuals empowered

to act, with decision-making pushed to the lowest practical level? Is there an intensity throughout the organizations? Is passion evident? Is it supported by a willingness to go

the extra mile?

In every organization, there are human, physical, and information systems that act as filters for values, through which strategic product, market, and capability action plans are

implemented. Examining these systems can provide great insight into the value of the organizations. They include:

* Job functions and performance reviews: objectives, standards, and accomplishments

* General systems: management information, human resources, and customer records

* Quality and service standards

* Operational long- and short-range planning and annual budgeting

* Human resource development and training

* Formal and informal organization structures

Advertising and promotional literature

* Company publications

Cultural integration

Once you develop an understanding of the current culture and have compared that with the goals of the merged organization, it is time to think through what it will take to implement that strategy. This process requires consideration of a number of issues,

including organizational structure, operating and decision-making apparatus, reward systems, and people-related issues.

Integration of corporate cultures in an M&A environment is not easy. Project plans are extensive in scope. While each plan will be developed around unique needs, these plans

do have a number of elements in common. Managers will need to:

Establish the strategic context early on. The strategic context can be formulated by asking -- and answering -- some very basic questions about the strategic direction of the merged enterprise. For example: What should the integrated company look like in two or three years? What are the products and markets that will receive the highest emphasis and

resources? What are the barriers to the success of this new enterprise? What will cause us to succeed? What infrastructure and skills do we need to support our competitive advantage? What is the driving force (key strategic concept) that drives strategic

decisions around products and markets?

By addressing these issues, companies will be able to formulate the strategy of the new enterprise and ultimately return higher value to their customers and establish themselves

as a powerful competitor in their markets.

* Communicate to all constituencies, including employees, suppliers, customers, and shareholders. Concepts such as values and beliefs provide a description of acceptable

ways to interact with both internal and external constituencies. These are the foundations upon which business is conducted and, though difficult to explain, these sometimes

amorphous concepts must be clearly communicated. Processes, on the other hand, such as whether decision-making is to be pushed up or down in the organization, might be a bit easier to communicate. But ease of communication is not the deciding factor. Rather, all

values and beliefs as well as the processes having to do with culture must be communicated throughout the organization.

Communications is an important element for managing a company's culture in preparation for M&A activities. But it is even more important in the period leading up to and following closure of a deal. Fortunately, the task is made easier by the fact that most people want to support and contribute to the goals of the organization -- they simply need sufficient understanding of what the goals are and how they can behave to support them.

Management behavior -- the "body language" of an organization -- is another form of communication that often gets overlooked in an M&A situation. It is, however, a critical

element of managing culture. The literature is replete with examples of companies in which managers act in a manner completely contrary to written values and beliefs. This

sends a mixed signal that typically results in no change. Actions speak louder than words, especially in M&A situations.

For instance, I worked with a company in which it was clear that the employees held a stronger allegiance to the union than to the company, an attitude that permeated the entire

industry. During the strategy formulation process of a recent engagement, the strategy team concluded that they needed the support of their unionized workforce to implement their new strategy successfully. All agreed, including the CEO. A plan was developed

that included changing management behavior and educating employees with the goal of redirecting the culture of the company regarding its employees.

At dinner with the CEO several days after these decisions were made, however, I learned that almost 50 percent of their revenue was spent with one single supplier. Who was the

supplier? The union. It was clear that while on one hand he wanted employees to think of the company first, the CEO still viewed the union as a supplier of labor rather than viewing employees as a part of the company If his behavior reflected this attitude,

success was iffy.

In today's technologically advanced world, communicating strategy and supporting culture have become multi-media events. Utilize traditional media such as newsletters,

but also take advantage of new technologies such as corporate intranets, kiosks, and videos. By using all these resources, companies can increase the number of people they

reach, increase the repetition of the message, and enhance the likelihood that the message will be understood and accepted.

* Identify and resolve important cultural differences early. Differences in culture and values often lie beneath the surface and are not identified until it is too late. For example, the defense industry has experienced almost unprecedented consolidation during the past decade. The number of companies accounting for two-thirds of all defense sales shrank

from 15 in 1990 to just six in 1998. In a few cases, such as when Boeing acquired

McDonnell Douglas, the cultural upheaval was reduced. But many of these consolidations were not smooth.

In some cases, companies acquired a variety of defense operations in an effort to achieve critical mass and remain a defense player. However, despite what may be a defensible strategy investors have punished the top-tier defense companies. There is a long list of reasons why the investor community has turned on the defense industry, but one of the

most commonly cited reasons is that the companies failed to integrate the diverse cultures that existed in the industry before consolidation.

These were highly competitive companies that, although they looked similar, had very different operating systems, decision-making processes, and management styles. In many

cases, the combined operations were effectively non-functional.

No matter how well thought-out the integration project plan might be, unforeseen problems may arise and pockets of resistance may materialize. These are not necessarily insurmountable obstacles, but without a clear procedure or policy, ad hoc approaches to

problem-solving arise.

* Identify leaders. When we discuss leadership, there are two distinct issues. First is the necessity of ensuring that the executive team is aligned with the new strategy during the

integration process. Second is the creation -- as quickly as possible -- of a new management team. Even if an interim team is in place, employees will feel some

uncertainty until the final management team has coalesced. That uncertainty will be manifested first in high employee turnover. A mass exodus of customers moving to the

competition is usually next.

Have a plan for cultural integration

Last year, Cisco Systems bought Cerent Corp., a fiber-optics equipment maker, for $7.2 billion. According to the Wall Street Journal, the secret to Cisco's merger success kicked

in even before the deal was signed. Understanding the importance of culture and of getting as many people as possible on board, the company mobilized a transition team to

oversee every detail of the start-up's assimilation. The team drew on its pool of three dozen Cisco staffers who work full time shepherding newcomers into the fold.

When Cisco formally took control, every Cerent employee had a title, boss, bonus plan, health plan, and direct link to Cisco's internal Web site. Yet, besides their new found

stock wealth, most of them hardly noticed the changes.

Weekly sales have more than doubled, and the acquisition, which looked surprisingly expensive when it was announced, now seems like a bargain. This is how Cisco has built

its empire, buying 51 companies in the past six years -- 21 in the past year alone.

When Cisco's assimilation team sweeps into action, it hands out folders with basic information about Cisco -- e-mail addresses, phone numbers, charts comparing the

companies' vacation plans and benefits. Their aim is to reduce uncertainty so employees

at the acquired company can focus on their jobs. Cisco nearly always tells employees that it wants everyone to stay.

Cisco has repeatedly succeeded in using acquisitions to reshape itself and plug holes in its product line. In doing so, it has become a model in the high-tech sector. Other companies

would do well to follow Cisco's example.

Culture does matter

Those who have worked with top executive teams in the areas of strategy and culture are not surprised by the Harvard Business School study showing that firms that "actively

managed" their corporate cultures realized a 682 percent increase in revenue compared with a 166 percent increase for firms that did not manage culture. Net income increased

757 percent for the firms that attended to culture versus a 1 percent increase for those that did not. Also, stock prices soared 901 percent for firms that actively managed their

cultures, while those that did not realized only a 74 percent rise in stock price.

Creating a cohesive culture from two distinct entities is a challenge. Sometimes, the issues that appear outside the norm and in conflict with the prescribed culture ultimately

result in positive additions to the culture.

But in today's business environment, characterized by mega-deals that create a new category of behemoth enterprises, it is essential that companies take cultural issues as seriously as they do financial ones. Attention to culture has been proven to make the

difference between success and failure. Without it, the urge to merge may prove to be a costly impulse.

Roger Miller is a senior consultant with the worldwide strategy group Kepner-Tregoe Inc. Kepner-Tregoe, headquartered in Princeton, N.J., is a management consulting firm

specializing in strategic and operational decision-making.

“Impact of Mergers & Acquisition on Employees & Working Conditions"

INTRODUCTION Mergers & Acquisition have become very popular throughout the world in the recent times. This has become popular due to globalization, liberalization, technological developments & intensely competitive business environment. Mergers and acquisition are a big part of corporate finance world. This process is extensively used for restructuring the business organization. In India, the concept of mergers and acquisition was initiated by the government bodies. The Indian economic reform since 1991 has opened up a whole lot of challenges both in the domestic and international spheres. The increased competition in the global market has prompted the Indian companies to go for mergers and acquisitions as an important strategic choice. The trends of mergers and acquisitions in India have changed over the years. The immediate effects of the mergers and acquisitions have also been diverse across the various sectors of the Indian economy.

MEANING OF MERGERS & ACQUISITION The phrase “Mergers & Acquisition” refers to the aspect of corporate strategy, corporate finance and management dealing with the buying, selling and combination of different company that can aid, finance or help a growing company in a given industry, grow rapidly without having to create another business entity.

In a merger, two companies come together and create a new entity. There are mergers between equals and unequals. But, In general there are mergers of equals rather than mergers of unequals.

Examples of few mergers between equals are: 1. Merger between Arcelor and Mittal Steel forming Arcelor-Mittal. 2. Citicorp and Travellers forming Citigroup.3. Ciba and Sandoz forming Novartis.

Examples of few mergers between unequals are: 1. Chase and J.P. Morgan creating JPMorgan

In an acquisition, one company buys another one and manages it consistent with the acquirer’s needs. There are two major types of acquisitions: Those involving acquisition and integration such as made by Cicso Systems, Infoedge (India) Pvt Ltd; and those involving acquisition and separation such as between Unilever and Best foods.Thus, a merger or acquisition is a combination of two companies where one corporation is completely absorbed by another corporation. The less important company loses its identity and becomes part of the more important corporation, which retains its identity.

SCOPE OF MERGER & ACQUISITION M&A has become a daily transaction now-a-days. Mergers and acquisitions are an important area of capital market activity in restructuring a corporation and had lately become one of the favored routes for growth and consolidation. The reasons to merge, amalgamate and acquire are varied, ranging from acquiring market share to restructuring the corporation to meet global competition. One of the largest and most difficult parts of a business merger is the successful integration of the enterprise networks of the merger partners. The main objective of each firm is to gain profits. M&A has a great scope in sectors like steel, aluminium, cement, auto, banking & finance, computer software, pharmaceuticals, consumer durable food products, textiles etc.

It is an indispensable strategic tool for expanding product portfolio’s, entering into new market, acquiring new technologies and building new generation organization with power & resources to compete on global basis. With the increasing number of Indian companies opting for mergers and acquisitions, India is now one of the leading nations in the world in terms of mergers and acquisitions. Till few years ago, rarely did Indian companies bid for American-European entities. Today, because of the buoyant Indian economy, supportive government policies and dynamic leadership of Indian organizations, the world has witnessed a new trend in acquisitions. Indian companies are now aggressively looking at North American and European markets to spread their wings and become global players. Almost 85 per cent of Indian firms are using Mergers and Acquisitions as a core growth strategy.

The merger and acquisition business deals in India amounted to $40 billion during the initial 2 months in the year 2007. The total estimated value of mergers and acquisitions in India for 2007 was greater than $100 billion. It is twice the amount of mergers and acquisitions in 2006. Thus, we can say that M&A has become a day to day transaction now-a- days.

OBJECTIVES OF MERGER & ACQUISITION The main objective of Merger & Acquisition transaction is as follows:

• Proper utilization of all available resources.

• To prevent exploitation of unutilized and underutilized assets and resources.• Forming a strong human base.• Reducing tax burden.• Improving profits.• Eliminating or limiting the competition.• Achieving savings in monitoring costs.

REASON FOR FAILURE OF MERGER

• The main reason for failure of merger is non-integration of human resources of both the transferor and transferee company.

• It is also not successful because the merger of two organizations is actually a merger of individual and groups working in company which had a great impact on individuals working in a company such as it creates ego clashes among individuals working in a company.

• There is also failure of M&A when purchasers plans & strategies are not clear to the employees of the acquired firm.

IMPACT OF MERGERS & ACQUISITION ON EMPLOYEES & WORKING CONDITIONS

Merger & Acquisition helps a Company to grow in a better way but it has a great impact on the employees working in a company & on working conditions. The employees of the companies merging and acquiring are mostly affected by M&A. Due to this reason, there is mostly failure of M&A. To break the mindset of people working in companies undergoing M&A and to convince them that merger is for common good & will help them in their growth is normally an uphill task.

• When 2 companies who have different style of functioning merge, there is a clash between the companies which pulls them together into different direction apart from their aims & objectives and in the process endanger the advantages envisaged both in the real life as well as in the scheme of amalgamation. Thus M& A had a great impact on the individual or group working in company & on work culture.

• Company enters into M& A activity without recognizing the impact on the organization and the overall affect on the human element within the two merging company. when M&A activity do not meet corporate objectives it results in

1. Lost revenue2. Customer dissatisfaction3. Employers attrition issues

• Many personnel issues such as salaries, benefits, pension of employees are also affected due to M&A. Since the organizational structures are different, differences in compensation packages and designation can take place normally.

• There are ego clashes between the top management and subsequently lack of co-ordination among them may lead to collapse of company after merger. This problem is more prominent in cases of mergers between equals.

• There is also a separation anxiety among the employees because they think some of their co-workers will be leaving the company. The atmosphere of apprehensions leads to company wide rumours.The employees loose faith in their organization and

tend to become demotivated.

• The employees face great uncertainty which in turn produces stress .Such stress ultimately affects their perception and judgments. Due to stress among employees by M&A ,the most common reactions displaced by them are as follows:

1. Loss of identity.2. Lack of information & anxiety.3. Talent is lost.4. Family repercussions

• Employees are the main victims when M & A takes place. They may be hurting themselves by trying to cope with new changes. When they realize that their potential for future growth within the organization dwindles, they often become withdrawn and frustrated which can affect productivity of the company severely.

• M&A affects the CEO’s of the company because they are the most creative and talented people within the organization. The resultant loss of control devastates these individuals. The stress level experienced by these executives often travels through the chain of command, affecting subordinates as well.

• Employees of the company are mostly scared by M&A that they will be given step motherly treatment. This question is always in the minds of employees of the transferor company. This fear of transfer and retrenchment, the loss of position in the hierarchical level are some of the thoughts which always remain in the minds of employees of both the company.

• There is also lot of reorganization & restructuring in the company during the days when M&A process is going on .The process of M&A by which company is bought or sold can prove difficult, slow and expensive. This M&A transaction typically require six to nine months and involve many steps. Locating parties with whome to conduct transaction forms one step in the overall process and perhaps it is the most difficult step in the transaction. This process of M&A has a great impact on the work culture during those days as it disturbs whole organization of the company.

• In an acquisition the buyer assumes the dominant parent role and the acquired company assumes the subordinate role, acting in the role of stepchild. Just as step parents may deny stepchildren certain family resources acquired company may also experience similar after an acquisition takes place. This situation is caused due to lack of fit between the two organizations. Such lack of fit is an issue and it has a great impact on the acquired company as it affects its work culture, organization and mainly on the employees working in the company.

• The uncertainties of M&A’s shift the focus of employees from productive work to issues related to interpersonal conflicts, layoffs, career growth with the acquirer company, compensation etc .Moreover, employees are worried about how they will adjust with new colleagues. The merger involves downsizing, hence the first thing that comes to the mind of employees is related to their job security. Merger also leads to change in the well defined career paths of employees. Due to these reasons employees find themselves in completely different situation with change in job profiles and work teams. This may have negative impact on the performance of the employees.

• Each company has its own set of values which may conflict with those of acquired company. The employees may not be able to accommodate themselves in new

culture and thus may lead to cultural shock. Inability to adapt to new culture increases stress level among employees and results in low job performance. The need therefore is to follow structured approach in dealing with cultural differences.

WAYS TO OVERCOME IMPACT OF M&A ON EMPLOYEES & WORKING CONDITIONS

• Firstly organization must effectively develop and implement assistance program for displaced employees. Such program should include advance notification, severance pay extended benefits, retaining program and outplacement activities.

• Strong emphasis needs to be placed in determining whether the acquired firms personnel is a good fit for the acquiring organization and to whether the mass lay off can be avoided. Moreover communication from the executive team with employees in the pre-acquisition phase needs to be consistent so that anxiety levels among the personnel can be kept at low level.

• Moreover a company not only needs to select a right target, but also must have culture in place that accepts the acquisition as quickly as possible.

• There is need for developing and executing effective employee communication, particularly conveying the employees that how the transaction will impact organizational members. Communication between the members of transferor and transferee Company should be open, honest and strategic. Any information regarding the progress of the deal or integration should always be shared among the members because communication is very important throughout M&A process.

E.g.: Gillette India's acquisition by Procter & Gamble was effected on June 10, 2006. Both the companies P&G and Gillette were well established and profit making companies, so it came as a shock to all the people when the merger of the two companies was announced. This led to the laying off of close to 190employees. Acquisition created a sense of shock and fear in the minds of theemployees. The CEOs personally cleared all doubts in the minds of employeesthrough open communication which further helped in the smooth implementation of the integration process.

• The introduction of the new norms, culture and system has the potential of alienating the employees of the target organization and thereby decreasing their commitment to the change process. It is therefore necessary to involve the employees particularly the key personnel, in the formulation of the action plans, system building and execution of policies.

• Finance and the Legal departments are essential for the successful implementation of the integration plan. Therefore, the inputs from these departments should be taken into consideration while working on the plan.

CONCLUSION: Thus in nut shell we can say that M&A have become common in our country’s business set up. There is a tremendous need for people to grow and become global players expanding their business spheres.

If success is to be achieved in M&A cohesive, well integrated and motivated workforce is required who is willing to take on the challenges that arise in the process of M&A and their should be proper organization among employees and they should be provided with proper working conditions.

Employees:

Impact Of Mergers And Acquisitions on workers or employees:Aftermath of mergers and acquisitions impact the employees or the workers the most. It is a well known fact that whenever there is a merger or an acquisition, there are bound to be lay offs. In the event when a new resulting company is efficient business wise, it would require less number of people to perform the

same task. Under such circumstances, the company would attempt to downsize the labor force. If the employees who have been laid off possess sufficient skills, they may in fact benefit from the lay off and move on for greener pastures. But it is usually seen that the employees those who are laid off would not have played a

significant role under the new organizational set up. This accounts for their removal from the new organization set up. These workers in turn would look for re employment and may have to be satisfied with a much lesser pay package than the previous one. Even though this may not lead to drastic unemployment levels,

nevertheless, the workers will have to compromise for the same. If not drastically, the mild undulations created in the local economy cannot be ignored fully.

Management at the top:

Impact of mergers and acquisitions on top level management:Impact of mergers and acquisitions on top level management may actually

involve a "clash of the egos". There might be variations in the cultures of the two organizations. Under the new set up the manager may be asked to implement such

policies or strategies, which may not be quite approved by him. When such a situation arises, the main focus of the organization gets diverted and executives

become busy either settling matters among themselves or moving on. If however, the manager is well equipped with a degree or has sufficient qualification, the

migration to another company may not be troublesome at all.

Shareholders:

Impact of mergers and acquisitions on shareholders:We can further categorize the shareholders into two parts:

The Shareholders of the acquiring firm The shareholders of the target firm.

Shareholders of the acquired firm:

The shareholders of the acquired company benefit the most. The reason being, it is seen in majority of the cases that the acquiring company usually pays a little excess than it

what should. Unless a man lives in a house he has recently bought, he will not be able to know its drawbacks. So that the shareholders forgo their shares, the company has to offer

an amount more then the actual price, which is prevailing in the market. Buying a company at a higher price can actually prove to be beneficial for the local economy.

Shareholders of the acquiring firm:

They are most affected. If we measure the benefits enjoyed by the shareholders of the acquired company in degrees, the degree to which they were benefited, by the same

degree, these shareholders are harmed. This can be attributed to debt load, which accompanies an acquisition

The general conclusions deriving from the research analysis conducted by INE/GSEE on the impact of M&As on employment and labour relations are outlined under the following subheadings.

Company takeovers most common

During the last decade, company restructuring that is characterised by changes in ownership mostly assumes the form of a company takeover. Such developments refer to the economic control of enterprises by other financial circles and less often assume the form of mergers. However, the number of recorded M&As achieved higher rates after 2000, when economic competition grew stronger. This trend also coincided with the adoption of the euro in 2001, which further boosted the rate of M&As.

Changes in staffing

The M&As are generally accompanied by changes in the overall rate of employment of the enterprises involved (in seven out of 10 cases). The most usual development is a reduction in the total number of employees, followed by a period of stability and then an increase in employment.

Staff cuts mostly occur after a merger or acquisition occurs. Overall, the 12-month period preceding or following the restructuring is usually the decisive period during which the reduction in employment takes place.

The people most affected by the restructuring procedure belong to a wide range of occupational categories and specialisations, with clerical workers being particularly hard hit in this regard. Reducing the number of unskilled workers is not a priority; this category is dealt with in a similar way to that of skilled workers and middle management. The highest rate of job losses is recorded among older workers aged over 45 years, followed by employees aged 30–45 years.

Redundancies and more flexible recruitment

Voluntary redundancy is the most usual form of staff reduction. This practice tends to be followed by the non-replacement of the redundant employees when the staff reduction precedes a merger or acquisition and by dismissals when the staff reduction takes place after the event.

Dismissals are recorded in almost half of the cases involving an overall decrease in employment, while the majority of the relevant cases also involve personnel recruitment, which strengthens the presence of skilled personnel and young employees rather than unskilled labour and older workers. A third of new employment contracts pertain to flexible work.

The M&As characterised by stability in employment present the lowest recruitment and dismissal rates; they also appear to strengthen the number of skilled personnel. However, there is a high rate of unskilled labour among new recruits, and half of the newly hired employees work on the basis of flexible forms of employment. At the same time, young people of up to 30 years of age record the highest rates of new employment contracts, representing three quarters of recruitment.

As a development, the total increase in employment recorded the lowest rates, along with the greater use of recruitment and lower use of dismissals. However, this result is based mainly on the unskilled labour of young people, as well as on the relatively lower rates of recruitment of employees on a flexible form of employment contract.

Dismissals due to M&As have become more frequent than recruitment since 2000. This trend is connected mainly with an overall staff reduction, which concerns half of the related M&As and two thirds of the cases of dismissals. Nevertheless, it also occurs in instances of an increase in overall employment (20% of the M&As) and in cases in which the number of employees remains stable (nearly 10% of the M&As).

Personnel recruitment is usually connected with M&As that increase total employment, and is more frequent in the cases of staff reduction than in those in which the number of employees remains stable. M&As where recruitment is accompanied by dismissals record the highest rates of recruitment of young workers on flexible forms of employment, while at the same time older workers are dismissed.

M&As are usually characterised by stability or an increase in the number of middle and senior management, but this does not mean that the reduction of these personnel is not noticeable.

Information and consultation

Moreover, M&As are usually connected with information and consultation proceedings between the worker and employer representatives; however, these proceedings do not usually conclude with agreements regarding the terms of transition to the new ownership.

The resulting agreements, in most cases of an indefinite duration, mainly concern maintaining employment levels; however, dismissals and staff cuts are not averted as a result, despite the content of the agreements, which are not legally binding.

Changes in corporate policies are extensive in at least 90% of the M&As, with emphasis being put on the manner of organisation, operation and management, on the nature of industrial relations and on the support of vocational training programmes.

Less emphasis on collective bargaining

Particular choices regarding the personnel refer mainly to the strengthening of managerial control and individual cooperation. This implies a shift towards the individualisation of labour relations, at the expense of collective bargaining.

In at least half of the M&As, the various levels of working rights that apply to the personnel of the companies involved under the previous ownership are maintained, without being equalised among the entire workforce.

The changes in the occupational regime, which relate to 80% of the M&As, refer mainly to the manner of wage formation, with the introduction of merit-based remuneration systems, alongside changes in staff regulations. Changes in the field of industrial relations are more extensive in relation to M&As leading to an overall reduction of the personnel employed.

A reduction in labour costs, which applies to 80% of the related M&As, is achieved mainly through work intensification and an increase in flexible forms of employment, particularly the use of temporary fixed-term employment contracts and subcontracting by means of outsourcing.

In 75% of cases, middle and senior management have more duties to perform.

Trading conditions and innovation

M&As are usually accompanied by an increase in the exports share, for companies that engage in exporting activity, and a significant increase in sales and investments during the first three years after the restructuring is announced.

At least half of the enterprises involved in the related restructuring procedure are listed on the stock exchange. The price of their stock usually records a downward trend before the announcement of the restructuring and an upward trend afterwards.

Innovation in corporate policies and strategies accompanying a merger or acquisition usually assumes the form of organisational change and investment in new products. It less often takes the form of new cooperation, the introduction of new technologies and the creation of new specialisations.

The category of M&As entailing an overall decrease in employment presents the highest rate of exports, investments, listings on the stock exchange and an increase in the stock price after the merger or acquisition is announced. However, this category reports low levels of innovation regarding the introduction of new technologies and the creation of new specialisations – unlike M&As entailing an overall increase in employment.

CommentaryDuring the last decade, Greece has experienced a surge of M&As, with a significant effect on employment and labour relations. Business restructuring poses a serious social deficit, especially due to the lack of a powerful institutional framework. As a consequence, any developments in this field are associated directly with trade unions’ ability to intervene regarding the new conditions of employment.

Helping Employees Through a Merger or Acquisition 

Corporate giants and smaller companies merge every day, and the teams doing the mergers and acquisitions tend to think in terms of “Big Picture.” They wonder such things as: “What’s going on with the deal?” “What’s happening with financing?” “Are there legal hurdles to jump?”

Rarely do those driving the process stop to think about the individuals within the company who make it run. Even when human resources departments are involved with the deal, they usually cease to think of the employees as individuals and look instead at the budget they’ve been given and think of people as numbers they have to place within the parameters of that budget: “We are going to have 25 people in marketing and 50 in accounting. Who will it be? Or who won’t it be?”

If your company is in the middle of a merger or acquisition deal, even though things might be going smoothly as far as you are concerned—the deal is being negotiated favorably and things are happening as you want them to—potentially dangerous things could be happening that you’re unaware of, not anticipating, or even ignoring on the employee level.

Often, when executives think the merger is going fine, the employees have an entirely different take on the situation. Employees who are aware a deal is taking place are naturally concerned about themselves and their futures when a merger or acquisition transpires. At this point, they have three primary questions: “Will I have a job?” “How much will I be paid?” “What benefits will I have?”

How executives on both the buyer’s and seller’s side choose to deal with employees can have a drastically negative or generally positive effect on employee productivity, morale, customer relationships, and ultimately the company’s bottom line. To ensure that your merger or acquisition goes smoothly for everyone in the organization, consider these tips.

1. Choose the right transition team: The transition team that reports to you needs to be made up of people who have the right temperament and personality to handle a transition. They need excellent people skills and the ability to “finesse” any situation to the benefit of the company. Make sure the transition team is appropriate for the area or department they talk to and can easily relate to people in various employee groups. For example, you probably wouldn’t want a team of

“suits” to talk to a group of housekeepers and maintenance people in a hospitality merger. Choose a trusted employee from among their ranks and you’re far more likely to see good communication as a result.

2. Be in constant, honest communication with employees: All employees want accurate information from management, and they want to know the truth, even if it’s difficult. No matter what the news is, good or bad, your employees want to hear it, so always be totally open and honest about what is to come. If your employees feel out of the loop, they’ll assume the worst, and you can expect a negative effect on productivity. Both merging entities, the purchaser and the seller, need to both consistently communicate with employees and ensure that whatever they’re communicating is 100% accurate.

For example, during a recent acquisition, the president of an acquiring company met with all of the employees about two months before the final deal was complete. The group was very well-paid and had a very high level of benefits. The acquiring organization would not provide that same level of benefits, he told the employees, but the loss would be made up in their salaries. At the end of the deal, they brought everybody in at the lower benefit level and at the same level of pay they had previously received. Now the president and his management team are starting off with low credibility because of his false attempt to reassure the employees.

To help ensure buy-in, schedule regular employee meetings or send out regular updates via e-mail or a weekly newsletter. You need to be upfront about everything that is happening from the beginning so you don’t lose credibility with your employees and, in turn, your customer base, who are in close, constant contact with your front line employees. If you don’t treat employees well in the course of a merger or acquisition, six to twelve months down the road, you may find erosion of your customer base. The cost in revenue loss of losing a key player with a great deal of customer contact can be huge.  It is not uncommon for revenue loss to reach a million dollars a year in a mid-sized organization. This, of course, would have a huge negative effect on any company and its ability to stay profitable. 

3. Provide resources for those who will be displaced:    Allow those employees who won’t be retained to exit gracefully. Offer career counseling, resume services, contacts with outplacement firms, or anything else you can provide to meet individual needs.

Of course, the most important resource you can provide is a severance package of some sort. For lower level employees, two to four weeks pay may be sufficient; for middle and senior management, six to twelve months pay may be appropriate to help them make the career transition. The severance package should carry the employee the approximate amount of time you would anticipate it will take him or her to find a new position. Many times those coordinating a merger or acquisition wrongly assume that unemployment benefits will carry the departing employee through their transition; however, rarely are those benefits enough to sustain people at their current financial level. By taking these extra steps, your departing employees are less likely to talk negatively about the company to others, and the people who are remaining on staff will feel that the company truly cares about all employees—even those leaving.

4. Give assurance about change: Once the deal is done, retained employees will still experience some fallout, and morale and productivity can take months or even years to return to pre-deal levels, especially if a residual lack of trust remains after a badly handled merger or acquisition. If there’s been perceived untruthfulness, management then has to establish a long history of standing by what they say they’re going to do. Even if you have a smooth acquisition, you’ll have to pay particular attention to assuring employees since change always brings apprehension.

Help your remaining employees to deal with change, even if that change seems minor to you. Maybe all that changes is who they report to, or the company president’s name, but people fear change. Executives need to do everything they can to help minimize the anxiety that people naturally have.

Help Your Employees Love Your New, Better Company: When you follow these four tips, the benefits to both your employees and your company will be tremendous. Everything about the deal will go more smoothly from the employee’s point of view, and therefore you’ll have greater productivity, higher employee morale, and better relationships between employees and customers. As a result, company profits will hopefully soar, before, during, and after the deal!