Copyright South-Western College Publishing Module 5 -1 Mergers, Acquisition & HR Objectives: –Understand what mergers and acquisitions are –Understand why they occur –Understand the key issues involved –Discuss the role of HR in integrating multiple organizations

Copyright South-Western College Publishing Module 5 -2 What are they? A merger is when one company is combined with and totally absorbs another An acquisition is the process used to transfer assets from one company to another

Copyright South-Western College Publishing Module 5 -3 What is the difference? Acquisition is a generic term to communicate transfer of ownership –You can do an acquisition followed by a merger –You can do an acquisition by means of a merger –You can do an acquisition in which no merger occurs

Copyright South-Western College Publishing Module 5 -4 Why merge or acquire? To create added value by: –Enhancing the strategic capability of both firms –Improving the competitive position of either or both –Leveraging existing capabilities, products, markets, and management practices

Copyright South-Western College Publishing Module 5 -5 Legal Environment Hart-Scott-Rodino Antitrust Improvement Act of 1976 U.S. Department of Justice Federal Trade Commission (FTC)

Copyright South-Western College Publishing Module 5 -6 Exercise 1: Market Segment Companies Within Market Segments Potential Combinations –Within market segments –Across market segments

Copyright South-Western College Publishing Module 5 -7 M&A Categories Rescue –Response to a raid or financial bail-out Partnership –Both parties actively desire the combination

Copyright South-Western College Publishing Module 5 -8 M&A Categories: cont. Adversarial –Only one firm has a strong interest in the deal Hostile Takeover –Acquisition target actively resists the take-over

Copyright South-Western College Publishing Module 5 -9 Rescue Usually a result of major weaknesses in operations or management of one company Cooperation tends to be high Completion of audits often rushed Significant issues not dealt with during the negotiations

Copyright South-Western College Publishing Module Partnership Goodwill and respect prevail Management retention packages and agreements to keep key talent is critical Surprises are rare Once the financial deal is done, management often ignores integration details

Copyright South-Western College Publishing Module Adversarial Negotiations are aggressive Resistance is extreme “Us versus them” atmosphere prevails Consolidations, layoffs and closures surface

Copyright South-Western College Publishing Module Hostile Takeover Animosity toward the raider is generated Substantial residue of ill-will remains during the integration Strong win-lose atmosphere prevails Talents leaves first Human resource failures most likely in this type of M&A

Copyright South-Western College Publishing Module Visible Costs of the Deal Profits Assets and stocks Customer and vendor base Facilities

Copyright South-Western College Publishing Module Hidden Costs of the Deal Cost of FTC compliance Replacement of key talent that leaves Productivity drop-off Loss of competitive position Customer attrition Power struggles and cultural differences

Copyright South-Western College Publishing Module Critical HR Tasks Integrate policies and programs from both companies Process retention, compensation and benefits packages Identify key talents and expertise Advise leadership on organization capability

Copyright South-Western College Publishing Module Critical HR Tasks: cont. Recognize customs, symbols, language and ceremonies needed for cultural assimilation Design new performance and reward systems Create communication strategies Educate organization on what to expect and on new skills

Copyright South-Western College Publishing Module Exercise 2: Success Case Study –Star-Excel Building Corp. Failure Case Study –Great Southern Railroad

Copyright South-Western College Publishing Module Process of Integration Five integration phases: –Due Diligence –Organize –Mobilize –Implement –Perform

Copyright South-Western College Publishing Module Predictable Dynamics of M&A Stages of Resistance –Betrayal –Denial –Identifying Crises –Search for Solutions

Copyright South-Western College Publishing Module Exercise 3: Planning the integration –Completed templates as examples of content you would expect to see –Blank templates to be completed using the information in the Success Case Study for input