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Lecture 12

HRM 3430 Lecture 12: Chapter 12

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York University
Human Resources Management
HRM 3430
Leigh Lampert

Chapter 12 Mergers in a Post-Global Economic Crisis -M&A action “peaked” ~ 2007. -Buyers are typically focused on M&As to support growth strategies. -Sellers have become more reluctant to sell due to issues with valuations of organizations and the economic climate. Definitions -Merger: the consolidation of two organizations into a single organization -Horizontal merger: the merging of two competitors (e.g. if McDonald's were to merge with Burger King) -Vertical merger: the merger of a buyer and seller or supplier (e.g. if a jewelry retailer purchased a company that manufactures jewelry) • Real-world example: late 2016: proposed AT&T (telecommunications company providing cell phones, data plans, tablets, etc.) and Time Warner Inc., a major cable operation -Conglomerate merger: the merger of two organizations competing in different markets (e.g. if Costco were to buy Wendy’s) -Acquisition: the purchase of an entire company or a controlling interest in a company (e.g. Youtube acquired by Google in 2006 for US$1.65 billion, and now operates as a subsidiary of Google or 2013: $15.1 billion acquisition of Canada's Nexen by China National Offshore Oil Corporation) -Consolidation: two or more organizations join and form a new organization The Urge to Merge -Three main reasons why companies merge: 1. Strategic Benefits -M&As = growth strategy  quick method of growth -Competitive positions can be strengthened; -Operating synergies cost reductions achieved by economies of scales produced by a merger or acquisition (e.g. HP and Compaq can renegotiate contracts with suppliers for memory chips and hard drives to save billions annually) -Merge to gain access to new markets (e.g. merging of Air Canada and other aircraft carriers) -Diversification may occur to reduce reliance on one market (e.g. GE acquiring insurance businesses, television stations, plastics, etc.) -Companies may redefine their businesses through acquisitions (e.g. Nortel Networks) - Operating synergy - the cost reduction achieved by economies of scale produced by a merger or acquisition 2. Financial Benefits -Reduce the variability and risk of cash flow -Organizations often use “cash cows” to fund “star” operations -All growth strategies have different tax implications -Developing new products and entering new markets is expensive -Financial statement analysis often reveals undervalued organizations -Goal is to increase shareholders’ wealth 3. Needs of the CEO or managing team -Managers may pursue their personal interests at the expense of stockholders -Often the motives of executives are sub-conscious -Some managers make decisions only to prove their capabilities -Other studies link personality factors – such as the need for power – to management decisions Merger Methods -The management of one company contacts the management of another company – sometimes an intermediary is used like an investment banker -The Boards of Directors are kept informed of the talks and ultimately approve the merger -Friendly deals can be completed quickly The Succession Rate of Mergers -Only about 15% of all mergers / acquisitions successfully achieve the financial goals. -Best success rates are with similar businesses rather than dissimilar ones -Mergers take so much time that the original business is often neglected -Mergers are more successful when a large firm absorbs a small firm -Mergers are less successful in service industries (compared to manufacturing) due to greater risk -Major challenges face the merging of companies include: • integrating computer systems • eliminating duplications • re-evaluating supplier relationships • reassuring clients • advising employees • reconfiguring work routines Financial Impact -Estimated financial returns are rarely realized -Many mergers fail because the buyer overextends itself financially with high debt loads and then must apply cost cutting measures to service the debt -Some forecasted economies of scale are never achieved Impact on Human Resources -Mergers affect the displacement of human beings -Reduced morale may lead to lower productivity, sabotage, stress, anxiety, survival tactics, higher turnover and lower efficiency, all of which have financial consequences to an organization Cultural Issued in Mergers -Culture: the set of important beliefs th
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