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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. ergers 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. "aws 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 t roug A!sor"tion#$ 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. %or example, absorption of Tata %ertilisers "td &T%"' by Tata (hemicals "td. &T("'. T(", an acquiring company &a buyer', survived after merger while T%", an acquired company &a seller', ceased to exist. T%" transferred its assets, liabilities and shares to T(". Merger t roug %onsolidation#$ 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. )ere, the acquired company

transfers its assets, liabilities and shares to the acquiring company for cash or exchange of shares. %or example, merger of )industan (omputers "td, )industan Instruments "td, Indian *oftware (ompany "td and Indian +eprographics "td into an entirely new company called )(" "td. 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 ma,or types of mergers$#

&ori'ontal merger#$ is a combination of two or more firms in the same area of business. %or example, combining of two book publishers or two luggage manufacturing companies to gain dominant market share. (ertical merger#$ is a combination of two or more firms involved in different stages of production or distribution of the same product. %or example, ,oining of a T- manufacturing&assembling' company and a T- marketing company or ,oining of a spinning company and a weaving company. -ertical merger may take the form of forward or backward merger. .hen 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. %onglomerate merger#$ is a combination of firms engaged in unrelated lines of business activity. %or example, merging of different businesses like manufacturing of cement products, fertili/er products, electronic products, insurance investment and advertising agencies. "0T and -oltas "td are examples of such mergers.

Acquisitions and Ta)eo*ers 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. .hen 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. 1nder t e Mono"olies and +estricti*e ,ractices Act, takeover meant acquisition of not less than 23 percent of the voting power in a company. .hile in t e %om"anies Act (Section -.2), a company!s investment in the shares of another company in excess of 45 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.

Ad*antages o/ Mergers 0 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. )ence, a company can acquire production facilities as well as other resources from outside through mergers and acquisitions. *pecially, for entering in new products6markets, 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. 7nhancing profitability because a combination of two or more companies may result in more than average profitability due to cost reduction and efficient utili/ation of resources. This may happen because of$# 1conomies o/ scale#$ 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. 7conomies 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 utili/ed for a large scale of operations by the combined firm. 2"erating 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, +08 and thus reduce operating costs. %or example, a combined firm may eliminate duplicate channels of distribution, or crate a centrali/ed training center, or introduce an integrated planning and control system. S3nerg3#$ 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. 9perating economies are one form of synergy benefits. But apart from operating economies, synergy may also arise from enhanced managerial capabilities, creativity, innovativeness, +08 and market coverage capacity due to the complementarity of resources and skills and a widened hori/on of opportunities. 8iversifying the risks of the company, particularly when it acquires those businesses whose income streams are not correlated. 8iversification 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.

"imiting 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#:#vis labour, suppliers and buyers is also enhanced. The merged firm can exploit technological breakthroughs against obsolescence and price wars.

,rocedure /or e*aluating t e decision /or mergers and acquisitions The three important steps involved in the analysis of mergers and acquisitions are$#

,lanning#$ of acquisition will require the analysis of industry#specific and firm# specific information. The acquiring firm should review its ob,ective 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. 9n the other hand, the target firm will need information about quality of management, market share and si/e, capital structure, profitability, production and marketing capabilities, etc. Searc and Screening#$ *earch focuses on how and where to look for suitable candidates for acquisition. *creening process short#lists a few candidates from many available and obtains detailed information about each of them. 4inancial 1*aluation#$ 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. +egulations /or Mergers 0 Acquisitions ergers and acquisitions are regulated under various laws in India. The ob,ective of the laws is to make these deals transparent and protect the interest of all shareholders. They are regulated through the provisions of $#

T e %om"anies Act, 1956 The Act lays down the legal procedures for mergers or acquisitions $#

,ermission /or 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 ob,ect 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 (ompany "aw Board before affecting the merger. In/ormation to t e stoc) exc ange#$ The acquiring and the acquired companies should inform the stock exchanges &where they are listed' about the merger. A""ro*al o/ !oard o/ 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. A""lication in t e &ig %ourt#$ An application for approving the draft amalgamation proposal duly approved by the board of directors of the individual companies should be made to the )igh (ourt. S are olders6 and creators6 meetings#$ The individual companies should hold separate meetings of their shareholders and creditors for approving the amalgamation scheme. At least, ;3 percent of shareholders and creditors in separate meeting, voting in person or by proxy, must accord their approval to the scheme. Sanction !3 t e &ig %ourt#$ After the approval of the shareholders and creditors, on the petitions of the companies, the )igh (ourt 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 (ompany "aw Board will be intimated. 4iling o/ t e %ourt order#$ After the (ourt order, its certified true copies will be filed with the +egistrar of (ompanies.

Trans/er o/ assets and lia!ilities#$ 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. ,a3ment !3 cas or securities#$ As per the proposal, the acquiring company will exchange shares and debentures and6or cash for the shares and debentures of the acquired company. These securities will be listed on the stock exchange.

T e %om"etition Act, 2772 The Act regulates the various forms of !usiness com!inations through %om"etition %ommission o/ India. 1nder 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. 7nterprises intending to enter into a combination may give notice to the (ommission, 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 (ompetition (ommission of India. The (ommission while regulating a !combination! shall consider the following factors $#

Actual and potential competition through imports< 7xtent of entry barriers into the market< "evel of combination in the market< 8egree of countervailing power in the market< =ossibility of the combination to significantly and substantially increase prices or profits< 7xtent of effective competition likely to sustain in a market< Availability of substitutes before and after the combination< arket share of the parties to the combination individually and as a combination< =ossibility of the combination to remove the vigorous and effective competitor or competition in the market< >ature and extent of vertical integration in the market< >ature and extent of innovation< .hether the benefits of the combinations outweigh the adverse impact of the combination.

Thus, the (ompetition Act does not seek to eliminate combinations and only aims to eliminate their harmful effects. *un 7xecutive -ice =resident of (orporate 8evelopment and Alliances Brian *utphin shares his views on inorganic growth strategies, including mergers, acquisitions, and

strategic partnerships. .ith the one#year anniversary of two of *un!s biggest acquisitions ,ust passed, *utphin offers his view from the trenches. 8# 9 3 do com"anies "ursue mergers and acquisitions: Sut" in# =rimarily for growth. *ome companies rely almost exclusively on acquisitions for growth and others not at all. *un is somewhere in between. %or decades, *un has invested heavily in +08 and technology innovation ? creating a broad and deep product portfolio that includes technologies such as @ava, *olaris, and *=A+(. 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 *un co#founder, Ahappens elsewhere.A But it!s important to emphasi/e that acquisitions complement *un!s organic efforts, they are not a substitute for them. They are also a great way of adding new talent to the company. 8# &o; do 3ou determine i/ a merger or acquisition is in line ;it 3our com"an3 strateg3: Sut" in# At *un we follow a corporate operating system ? an ongoing, regular, planning cycle that produces the strategic plan by which we run the company. %or the most part, our inorganic growth activities, including acquisitions, are directed by the output of that planning process. 8# 9 at criteria do 3ou use /or t e com"anies 3ou loo) at: Sut" in# That depends on the underlying rationale for the acquisition. %or 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 emphasi/e the company!s sales, services and overall go# to#market capabilities. 9ne criterion that applies to every acquisition, however, is the quality of the people. 8# 2775 ;as a !ig 3ear /or Sun in terms o/ acquisitions< 9 at ;as t e im"etus !e ind t e acti*it3: 9 at a*e t ese com"anies !roug t to Sun: Sut" in# .e did two big acquisitions in 2553 ? *torageTek &*TB' and *eeBeyond. Both acquisitions were important for us, and filled significant gaps in our storage and software businesses. *TB was transformative for our storage business. It gave us the industry#leading product line in tape automation ? the product of C3 years of +08 investment. *TB was an intensely customer#focused company, which is readily apparent in the long#standing blue chip customer base they brought to *un. 7qually important was *TB!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 *un storage sales and services people into

the *TB team, creating in the process a global storage sales practice now headed by a former *TB executive. Another benefit of the acquisition was the ability it gives us to integrate technologies and practices across our entire product line. %or example, we can now combine *TB!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 *eeBeyond, which gives us a much#needed capability to integrate disparate business processes and information into one common framework ? our @ava 7nterprise *ystem. *eeBeyond had developed its products using open, @277 standards, which made for a very smooth technical integration with the existing *un product line. They gave us a talented, experienced development team, and, as with *torageTek, they brought strong software sales expertise. .e!ve combined the *eeBeyond and existing *un software sales teams into one global practice headed by a former *eeBeyond executive. 8# &o; does Sun manage t e integration "rocess: Sut" in# *uccessful integrations require strong leadership from the sponsoring business group. %or 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 organi/ations, such as )+, finance, sales, legal, ..9=s &worldwide operations', and marketing. .e assign integration roles early in the process in order to have integration leadership closely tied into both strategic and tactical ob,ectives. .e review integration status monthly, sometimes as frequently as weekly, at @onathan!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. 8# &o; quic)l3 s ould an acquisition "a3 o// to !e considered success/ul: Sut" in# It depends on the purpose and nature of the acquisition. %or example, over four years ago we acquired Afara .ebsystems, a company that was developing a multicore *=A+( microprocessor and which became the foundation of our >iagara product line. Diven 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 reali/ing returns has been several years. 9n the other hand, an acquisition of a more complete, existing business such as *torageTek carries an expectation of a much shorter#term financial return.

8# &o; do 3ou andle t e negati*e im"act t at o/ten comes ;it M0A acti*ities, suc as la3o//s and declining morale, and still retain )e3 em"lo3ees: Sut" in# .e 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 organi/ational realignment or reductions might occur. )owever, 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. 8# 9 at a!out t e need to let "eo"le go and managing t e a""re ension leading u" to t at: A# =rior to announcing an acquisition, we meet with the management team of the acquired company, review positions that will be available, and ,ointly 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 sub,ect to the acquisition closing. 7ngaging 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. 8# 9 at as !een t e im"act o/ t ese acquisitions on Sun6s !ottom line and culture: Sut" in# -ery positive. .hen you look at the financial impact of a handful of past acquisitions, it!s quite staggering. The (ray acquisition became our high#end and midrange *=A+( server line. 9ur xEF server line is based on the Bealia acquisition that brought Andy Bechtolsheim back to *un. 9ur new ( T &chip multithreading' server line is based on microprocessor designs acquired from Afara .ebsystems. The addition of *torageTek has had a huge impact on our storage product line. =rocom gave us a highly competitive entry into the >A* &network attached storage' market. .aveset brought us industry leadership in identity management, *eeBeyond valuable business integration capability. >ot all acquisitions are successful, of course, but it!s difficult to imagine what *un would look like today had we not done even the half#do/en acquisitions ,ust mentioned. There are also huge indirect impacts from our acquisitions ? the talent they bring into the company. =robably few people remember a software acquisition we did years ago, "ighthouse 8esign, but that!s what brought @onathan *chwart/ to *un. There are many examples throughout the company of leaders, present and future, that came to *un via acquisitions.

8# 9 at a!out cultural im"acts: Sut" in# 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 *un values of innovation, collaboration, integrity, and customer focus, which reinforces our cultural norms. 9ften, 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 *TB as an example. 8ecision#making at *un welcomes, even encourages, vigorous debate. *TB was almost the opposite. 8ecisions tended to be made with little debate, passed down, and executed against. .hen we first put the *un and *TB teams together, there was a bit of a clash, with the *un employees wondering why the former *TB employees seemed to not want to voice an opinion and the *TB employees wondering when we would actually get to the task at handG )owever, over time we!re converging towards the middle, and it seems to be working better for everyone. *TB employees can weigh in on important decisions, and *un employees see decisions being made faster. 8# T e StorageTe) acquisition anni*ersar3 =ust "assed< >o 3ou a*e success milestones and a*e 3ou met t em: Sut" in# The primary milestones are financial, specifically revenue and cost synergies. .e!ve met those milestones, and the financial impact is incorporated into *un!s overall financials. 8# 9 at M0A trends do 3ou see in t e industr3: Sut" in# (onsolidation. About a year ago, I saw a report that listed standalone software companies with revenues over a billion dollars. +ecently, I saw an update of the same list, and about half of the companies were gone ? all acquired. 8# &o; a*e customers res"onded to Sun6s acquisitions: Sut" in# -ery 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. 7ven in the case of larger acquisitions like *TB, where we have common customers, customers tend to prefer consolidating their IT requirements with a smaller number of providers ? the Aone throat to chokeA principle. 8# 9 at6s next /or Sun in t e coming 3ear: Sut" in# .e!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.

A!out ?rian Sut" in Brian *utphin is *un!s executive vice president, (orporate 8evelopment and Alliances. In this position, *utphin heads *un!s overall inorganic growth efforts, focusing on mergers and acquisitions, strategic alliances and technology licensing. 1nder his leadership, the corporate development organi/ation has completed a number of key acquisitions that have brought world#class people and industry#leading products and technologies to *un including *torageTek, *ee Beyond, *even*pace, .aveset Technologies, Bealia, =irus >etworks and Afara .ebsystems. =rior to ,oining *un in 4HHF, *utphin was an attorney in private practice with expertise in business transactions, 0A and corporate law. )e received an undergraduate degree in economics from the 1niversity of .isconsin# adison and a law degree from *tanford 1niversity. )ow (ulture Affects ergers and Acquisitions. 7ven 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. anaging cultural change, the author argues, is critical to the success of a merger or acquisition. )e discusses what culture is, how to assess it, and how to integrate two different corporate cultures. ake 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# 0A blues. erging balance sheets, it turns out, is far easier than merging cultures. By some estimates, I3 percent of failed acquisitions are attributable to mismanagement of cultural issues. *mart companies know that cultural due diligence is every bit as important as careful financial analysis. They know that the values an organi/ation holds are imbedded in organi/ational strategy exercising a kind of gravitational pull on decision#making. .ithout 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 organi/ations and to create a new culture for supporting the new enterprises strategies. (larifying culture (ulture is the pattern of norms, values, beliefs, and attitudes that influence individual and group behavior within an organi/ation. 9riginating with the founders of the organi/ation, these norms, values, and beliefs are shaped and honed over time by senior executives and other stakeholders. These values filter down through the organi/ation, 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 organi/ation, reinforcing and refining the thinking of senior managers.

In short, culture is Athe way we do thingsA and includes factors such as$ J )ow we treat our customers, suppliers, and each other J The type and level of participation in decision#making J The level, speed, and process of decision#making J The level of formality and controls J =erformance rewards J +isk tolerance J Kuality and cost orientation (orporate culture is not an independent variable in the business equation. +ather, 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. (ulture, to borrow 9bi .on!s description of Athe force,A is the power that binds us together. 9rgani/ationally, it provides a common thread for day#to#day activities and offers consistency in a turbulent environment. Assessing the culture .hile organi/ational culture is unquestionably the soft side of business reality, we know it can be a real 0A buster. To ensure that the force is always with you in your 0A efforts, it is critical to understand and assess the current culture of both companies involved in the 0A process. Let too often the issues of culture take a back seat to financial issues as accountants and lawyers do their ,obs. 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$ J .hat is the corporate historyM )ow far is the company removed from its founderM )ow skilled is the organi/ation at changeM )ow well does the organi/ation adapt to and adopt new processesM .hen was the last time the company was involved in 0A activity and what lessons were learnedM J .hat is the company!s management style$ centrali/ed or decentrali/edM 7ntrepreneurial, authoritative, or management by ob,ectiveM J .hat is the culture of the competitorsM )ow effectively does each serve the marketM J .hat is the reason for the success of the company$ exceptional management, marketing prowess, industry growth, new product innovations, etc.M J .hat is the work environment of the company$ laid back and casual or high energyM

J Are organi/ational structures and controls responsive to the company!s customers, partners, employees, and suppliersM J .hat is the policy toward budgetary control$ lax, adequate, or stiflingM J .hat are the standards of performanceM J Is there a plan to grow the talent poolM That is, are there programs in place to attract, retain, and train good peopleM J Are there effective processes, policies, and procedures in placeM .ho sets the policiesM .hat drives new process developmentM J Are authority and responsibility of functions and personnel defined and understoodM J )as there been any drastic change in management approachM If so, have employees adaptedM ore specifically, attention must also be paid to the following issues during the due diligence process$ J anagement approach

J Budget and pro,ections conventions and strategies for long#range planning J anagement reports and reporting procedures

J 9rgani/ational and human resource structures J anufacturing and procurement processes

J 7ngineering and research and development infrastructure These, and the balance among these factors, will also help define and assess the culture of an organi/ation. 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. >or is the purpose to find a perfect fit between two organi/ations. 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 organi/ation. Ideally, these discussions are well underway before the merger occurs. 1nderstanding values -alues ## those that are both explicitly stated as well as those that are implicitly held ## are a key element in assessing culture in an organi/ation. In an 0A situation it is key that both types are examined and intimately understood. The strategy of an organi/ation is a gold mine for the discovery of explicit values within an organi/ation. %or example, what does the mission statement say about the organi/ation and its goalsM .hat values are manifest in strategic statements dealing with future

markets, future products, capabilities, and financial expectationsM .hat does the annual report emphasi/eM *uch statements speak volumes about the culture of the organi/ation. -alues and beliefs should express the most fundamental underpinnings of how a business is to conduct itself when dealing with employees and the outside world. )ere are some examples of companies! stated values and beliefs$ J A.e believe in honesty and integrity in all of our personal and business dealings.A J A.e believe in being a leader in environmental stewardship through conservation practices and meeting or exceeding regulatory standards.A J A.e believe that long#term customer relationships are a key to stable and profitable revenue.A J A.e believe in fostering personal, responsible accountability to empower employees to meet company goals.A J A.e believe that earning an average 43 percent on equity per year will provide an increase in shareholder value sufficient to merit investment in our company.A J A.e believe in consistently producing quality products that comply with all safety guidelines.A J A.e believe that we should perform in the top 23 percent of our industry.A J A.e value a team spirit in our employees and suppliers that helps us compete successfully. .e will treat them fairly, with dignity and respect.A J A.e believe that it is in the best interests of our employees and stockholders to remain an independent company.A By no means is this list complete, but it is instructive. 7ach statement connotes specific values. 1ltimately the acid test of an organi/ation!s values is how well they are embedded in day#to#day decision#making and behavior. %or example, in 0A situations, take a close look at how each company interfaces with its customers. 8o employees maintain an external focus, linking all activities and efforts to delighting the customer and helping increase shareholder valueM 8oes the company value speed and agility in the marketplaceM Are employees alert and responsive to shifts in the marketplaceM Are individuals biased towards action and confident in their ability to respondM 7xamine how information flows and power is distributed. Are the companies decentrali/ed or centrali/ed in the decision#making processM Are individuals empowered to act, with decision#making pushed to the lowest practical levelM Is there an intensity throughout the organi/ationsM Is passion evidentM Is it supported by a willingness to go the extra mileM

In every organi/ation, there are human, physical, and information systems that act as filters for values, through which strategic product, market, and capability action plans are implemented. 7xamining these systems can provide great insight into the value of the organi/ations. They include$ J @ob functions and performance reviews$ ob,ectives, standards, and accomplishments J Deneral systems$ management information, human resources, and customer records J Kuality and service standards J 9perational long# and short#range planning and annual budgeting J )uman resource development and training J %ormal and informal organi/ation structures Advertising and promotional literature J (ompany publications (ultural integration 9nce you develop an understanding of the current culture and have compared that with the goals of the merged organi/ation, it is time to think through what it will take to implement that strategy. This process requires consideration of a number of issues, including organi/ational structure, operating and decision#making apparatus, reward systems, and people#related issues. Integration of corporate cultures in an 0A environment is not easy. =ro,ect plans are extensive in scope. .hile each plan will be developed around unique needs, these plans do have a number of elements in common. anagers will need to$ 7stablish 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. %or example$ .hat should the integrated company look like in two or three yearsM .hat are the products and markets that will receive the highest emphasis and resourcesM .hat are the barriers to the success of this new enterpriseM .hat will cause us to succeedM .hat infrastructure and skills do we need to support our competitive advantageM .hat is the driving force &key strategic concept' that drives strategic decisions around products and marketsM 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. J (ommunicate to all constituencies, including employees, suppliers, customers, and shareholders. (oncepts 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. =rocesses, on the other hand, such as whether decision#making is to be pushed up or down in the organi/ation, might be a bit easier to communicate. But ease of communication is not the deciding factor. +ather, all values and beliefs as well as the processes having to do with culture must be communicated throughout the organi/ation. (ommunications is an important element for managing a company!s culture in preparation for 0A activities. But it is even more important in the period leading up to and following closure of a deal. %ortunately, the task is made easier by the fact that most people want to support and contribute to the goals of the organi/ation ## they simply need sufficient understanding of what the goals are and how they can behave to support them. anagement behavior ## the Abody languageA of an organi/ation ## is another form of communication that often gets overlooked in an 0A 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 0A situations. %or 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. 8uring the strategy formulation process of a recent engagement, the strategy team concluded that they needed the support of their unioni/ed workforce to implement their new strategy successfully. All agreed, including the (79. 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 (79 several days after these decisions were made, however, I learned that almost 35 percent of their revenue was spent with one single supplier. .ho was the supplierM The union. It was clear that while on one hand he wanted employees to think of the company first, the (79 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. 1tili/e 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. J Identify and resolve important cultural differences early. 8ifferences in culture and values often lie beneath the surface and are not identified until it is too late. %or 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 43 in 4HH5 to ,ust six in 4HHI. In a few cases, such as when Boeing acquired

c8onnell 8ouglas, 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. )owever, 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. >o matter how well thought#out the integration pro,ect plan might be, unforeseen problems may arise and pockets of resistance may materiali/e. These are not necessarily insurmountable obstacles, but without a clear procedure or policy, ad hoc approaches to problem#solving arise. J Identify leaders. .hen we discuss leadership, there are two distinct issues. %irst is the necessity of ensuring that the executive team is aligned with the new strategy during the integration process. *econd is the creation ## as quickly as possible ## of a new management team. 7ven 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. )ave a plan for cultural integration "ast year, (isco *ystems bought (erent (orp., a fiber#optics equipment maker, for N;.2 billion. According to the .all *treet @ournal, the secret to (isco!s merger success kicked in even before the deal was signed. 1nderstanding the importance of culture and of getting as many people as possible on board, the company mobili/ed a transition team to oversee every detail of the start#up!s assimilation. The team drew on its pool of three do/en (isco staffers who work full time shepherding newcomers into the fold. .hen (isco formally took control, every (erent employee had a title, boss, bonus plan, health plan, and direct link to (isco!s internal .eb site. Let, besides their new found stock wealth, most of them hardly noticed the changes. .eekly sales have more than doubled, and the acquisition, which looked surprisingly expensive when it was announced, now seems like a bargain. This is how (isco has built its empire, buying 34 companies in the past six years ## 24 in the past year alone. .hen (isco!s assimilation team sweeps into action, it hands out folders with basic information about (isco ## 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 ,obs. (isco nearly always tells employees that it wants everyone to stay. (isco 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. 9ther companies would do well to follow (isco!s example. (ulture does matter Those who have worked with top executive teams in the areas of strategy and culture are not surprised by the )arvard Business *chool study showing that firms that Aactively managedA their corporate cultures reali/ed a EI2 percent increase in revenue compared with a 4EE percent increase for firms that did not manage culture. >et income increased ;3; percent for the firms that attended to culture versus a 4 percent increase for those that did not. Also, stock prices soared H54 percent for firms that actively managed their cultures, while those that did not reali/ed only a ;F percent rise in stock price. (reating a cohesive culture from two distinct entities is a challenge. *ometimes, 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, characteri/ed 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. .ithout it, the urge to merge may prove to be a costly impulse. +oger iller is a senior consultant with the worldwide strategy group Bepner#Tregoe Inc. Bepner#Tregoe, headquartered in =rinceton, >.@., is a management consulting firm speciali/ing in strategic and operational decision#making.
Impact of Mergers & Acquisition on Employees & Working Conditions" INT !"#CTI!N 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. n ndia, the concept of mergers and acquisition was initiated by the government bodies. The ndian economic reform since !""! has opened up a whole lot of challenges both in the domestic and international spheres. The increased competition in the global mar#et has prompted the ndian companies to go for mergers and acquisitions as an important strategic choice. The trends of mergers and acquisitions in ndia have changed over the years. The immediate effects of the mergers and acquisitions have also been diverse across the various sectors of the ndian economy. MEANIN$ !% ME $E & & AC'#I&ITI!N 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. n a merger, two companies come together and create a new entity. There are mergers between equals and unequals. &ut, n general there are mergers of equals rather than mergers of unequals. E(amples of fe) mergers *et)een equals are+ !. Merger between Arcelor and Mittal 'teel forming Arcelor(Mittal. ). *iticorp and Travellers forming *itigroup. +. *iba and 'andoz forming ,ovartis. E(amples of fe) mergers *et)een unequals are+ !. *hase and -... Morgan creating -.Morgan n an acquisition, one company buys another one and manages it consistent with the acquirer/s needs. There are two ma0or types of acquisitions1 Those involving acquisition and integration such as made by *icso 'ystems, nfoedge 2 ndia3 .vt 4td5 and those involving acquisition and separation such as between 6nilever and &est 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. &C!,E !% ME $E & AC'#I&ITI!N M&A has become a daily transaction now(a( days. Mergers and acquisitions are an important area of capital mar#et 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 mar#et share to restructuring the corporation to meet global competition. 7ne of the largest and most difficult parts of a business merger is the successful integration of the enterprise networ#s of the merger partners. The main ob0ective of each firm is to gain profits. M&A has a great scope in sectors li#e steel, aluminium, cement, auto, ban#ing & finance, computer software, pharmaceuticals, consumer durable food products, textiles etc. t is an indispensable strategic tool for expanding product portfolio/s, entering into new mar#et, acquiring new technologies and building new generation organization with power & resources to compete on global basis. 8ith the increasing number of ndian companies opting for mergers and acquisitions, ndia is now one of the leading nations in the world in terms of mergers and acquisitions. Till few years ago, rarely did ndian companies bid for American(9uropean entities. Today, because of the buoyant ndian economy, supportive government policies and dynamic leadership of ndian organizations, the world has witnessed a new trend in acquisitions. ndian companies are now aggressively loo#ing at ,orth American and 9uropean mar#ets to spread their wings and become global players. Almost :; per cent of ndian firms are using Mergers and Acquisitions as a core growth strategy. The merger and acquisition business deals in ndia amounted to <=> billion during the initial ) months in the year )>>?. The total estimated value of mergers and acquisitions in ndia for )>>? was greater than <!>> billion. t is twice the amount of mergers and acquisitions in )>>@. Thus, we can say that M&A has become a day to

day transaction now(a( days. !-.ECTI/E& !% ME $E & AC'#I&ITI!N The main ob0ective of Merger & Acquisition transaction is as follows1 A A A A A A A .roper utilization of all available resources. To prevent exploitation of unutilized and underutilized assets and resources. Borming a strong human base. Ceducing tax burden. mproving profits. 9liminating or limiting the competition. Achieving savings in monitoring costs. EA&!N %! %AI0# E !% ME $E

A The main reason for failure of merger is non(integration of human resources of both the transferor and transferee company. A t is also not successful because the merger of two organizations is actually a merger of individual and groups wor#ing in company which had a great impact on individuals wor#ing in a company such as it creates ego clashes among individuals wor#ing in a company. A There is also failure of M&A when purchasers plans & strategies are not clear to the employees of the acquired firm. IM,ACT !% ME $E & & AC'#I&ITI!N !N EM,0!1EE& & W! 2IN$ C!N"ITI!N& Merger & Acquisition helps a *ompany to grow in a better way but it has a great impact on the employees wor#ing in a company & on wor#ing 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 brea# the mindset of people wor#ing 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 tas#. A 8hen ) 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 & ob0ectives 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 wor#ing in company & on wor# culture. A *ompany 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 ob0ectives it results in !. 4ost revenue ). *ustomer dissatisfaction +. 9mployers attrition issues A Many personnel issues such as salaries, benefits, pension of employees are also affected due to M&A. 'ince the organizational structures are different, differences in compensation pac#ages and designation can ta#e place normally.

A There are ego clashes between the top management and subsequently lac# of co( ordination among them may lead to collapse of company after merger. This problem is more prominent in cases of mergers between equals. A There is also a separation anxiety among the employees because they thin# some of their co(wor#ers 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. A The employees face great uncertainty which in turn produces stress .'uch stress ultimately affects their perception and 0udgments. Due to stress among employees by M&A ,the most common reactions displaced by them are as follows1 !. ). +. =. 4oss of identity. 4ac# of information & anxiety. Talent is lost. Bamily repercussions

A 9mployees are the main victims when M & A ta#es place. They may be hurting themselves by trying to cope with new changes. 8hen 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. A M&A affects the *97/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. A 9mployees 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. A 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. 4ocating 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 wor# culture during those days as it disturbs whole organization of the company. A n an acquisition the buyer assumes the dominant parent role and the acquired company assumes the subordinate role, acting in the role of stepchild. -ust as step parents may deny stepchildren certain family resources acquired company may also experience similar after an acquisition ta#es place. This situation is caused due to lac# of fit between the two organizations. 'uch lac# of fit is an issue and it has a great impact on the acquired company as it affects its wor# culture, organization and mainly on the employees wor#ing in the company. A The uncertainties of M&A/s shift the focus of employees from productive wor# to issues related to interpersonal conflicts, layoffs, career growth with the acquirer

company, compensation etc .Moreover, employees are worried about how they will ad0ust with new colleagues. The merger involves downsizing, hence the first thing that comes to the mind of employees is related to their 0ob 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 0ob profiles and wor# teams. This may have negative impact on the performance of the employees. A 9ach 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 shoc#. nability to adapt to new culture increases stress level among employees and results in low 0ob performance. The need therefore is to follow structured approach in dealing with cultural differences. WA1& T! !/E C!ME IM,ACT !% M&A !N EM,0!1EE& & W! 2IN$ C!N"ITI!N& A Birstly organization must effectively develop and implement assistance program for displaced employees. 'uch program should include advance notification, severance pay extended benefits, retaining program and outplacement activities. A 'trong 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 #ept at low level. A Moreover a company not only needs to select a right target, but also must have culture in place that accepts the acquisition as quic#ly as possible. A There is need for developing and executing effective employee communication, particularly conveying the employees that how the transaction will impact organizational members. *ommunication between the members of transferor and transferee *ompany 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. 9.g.1 Eillette ndiaFs acquisition by .rocter & Eamble was effected on -une !>, )>>@. &oth the companies .&E and Eillette were well established and profit ma#ing companies, so it came as a shoc# to all the people when the merger of the two companies was announced. This led to the laying off of close to !"> employees. Acquisition created a sense of shoc# and fear in the minds of the employees. The *97s personally cleared all doubts in the minds of employees through open communication which further helped in the smooth implementation of the integration process. A 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. t is therefore necessary to involve the employees particularly the #ey personnel, in the formulation of the action plans, system building and execution of policies. A Binance and the 4egal departments are essential for the successful implementation

of the integration plan. Therefore, the inputs from these departments should be ta#en into consideration while wor#ing on the plan. C!NC0#&I!N+ 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. f success is to be achieved in M&A cohesive, well integrated and motivated wor#force is required who is willing to ta#e 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 wor#ing conditions.

1m"lo3ees#
Im"act 2/ Mergers And Acquisitions on ;or)ers or em"lo3ees# 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. 1nder such circumstances, the company would attempt to downsi/e 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 organi/ational set up. This accounts for their removal from the new organi/ation 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. 7ven 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 t e to"#
Im"act o/ mergers and acquisitions on to" le*el management# Impact of mergers and acquisitions on top level management may actually involve a Aclash of the egosA. There might be variations in the cultures of the two organi/ations. 1nder the new set up the manager may be asked to implement such policies or strategies, which may not be quite approved by him. .hen such a situation arises, the main focus of the organi/ation 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.

S are olders#

Im"act o/ mergers and acquisitions on s are olders# .e can further categori/e the shareholders into two parts$ The *hareholders of the acquiring firm The shareholders of the target firm.

S are olders o/ t e acquired /irm# The shareholders of the acquired company benefit the most. The reason being, it is seen in ma,ority of the cases that the acquiring company usually pays a little excess than it what should. 1nless a man lives in a house he has recently bought, he will not be able to know its drawbacks. *o 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. S are olders o/ t e acquiring /irm# They are most affected. If we measure the benefits en,oyed 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 I>76D*77 on the impact of 0As on employment and labour relations are outlined under the following subheadings.

%om"an3 ta)eo*ers most common


8uring the last decade, company restructuring that is characterised by changes in ownership mostly assumes the form of a company takeover. *uch developments refer to the economic control of enterprises by other financial circles and less often assume the form of mergers. )owever, the number of recorded 0As achieved higher rates after 2555, when economic competition grew stronger. This trend also coincided with the adoption of the euro in 2554, which further boosted the rate of 0As.

% anges in sta//ing
The 0As are generally accompanied by changes in the overall rate of employment of the enterprises involved &in seven out of 45 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.

*taff cuts mostly occur after a merger or acquisition occurs. 9verall, the 42#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. +educing 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 ,ob losses is recorded among older workers aged over F3 years, followed by employees aged C5OF3 years.

+edundancies and more /lexi!le recruitment


-oluntary 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. 8ismissals are recorded in almost half of the cases involving an overall decrease in employment, while the ma,ority 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 0As characterised by stability in employment present the lowest recruitment and dismissal rates< they also appear to strengthen the number of skilled personnel. )owever, 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 C5 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. )owever, 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. 8ismissals due to 0As have become more frequent than recruitment since 2555. This trend is connected mainly with an overall staff reduction, which concerns half of the related 0As and two thirds of the cases of dismissals. >evertheless, it also occurs in instances of an increase in overall employment &25P of the 0As' and in cases in which the number of employees remains stable &nearly 45P of the 0As'. =ersonnel recruitment is usually connected with 0As 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. 0As 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. 0As 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.

In/ormation and consultation


oreover, 0As 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. (hanges in corporate policies are extensive in at least H5P of the 0As, 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.

@ess em" asis on collecti*e !argaining


=articular 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 0As, 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 I5P of the 0As, refer mainly to the manner of wage formation, with the introduction of merit#based remuneration systems, alongside changes in staff regulations. (hanges in the field of industrial relations are more extensive in relation to 0As leading to an overall reduction of the personnel employed. A reduction in labour costs, which applies to I5P of the related 0As, 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 ;3P of cases, middle and senior management have more duties to perform.

Trading conditions and inno*ation

0As 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 0As 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. )owever, this category reports low levels of innovation regarding the introduction of new technologies and the creation of new specialisations O unlike 0As entailing an overall increase in employment.

%ommentar3
8uring the last decade, Dreece has experienced a surge of 0As, 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 unionsQ 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 !hat"s going on with the deal# !hat"s happening with financing# $re there legal hurdles to %ump# &arely do those driving the process stop to think a'out the individuals within the company who make it run. (ven when human resources departments are involved with the deal, they usually cease to think of the employees as individuals and look instead at the 'udget they"ve 'een given and think of people as num'ers they have to place within the parameters of that 'udget !e are going to have )* people in marketing and *+ in accounting. !ho will it 'e# ,r who won"t it 'e# -f your company is in the middle of a merger or acquisition deal, even though things might 'e going smoothly as far as you are concerned.the deal is 'eing negotiated favora'ly and things are happening as you want them to.potentially dangerous things could 'e happening that you"re unaware of, not anticipating, or even ignoring on the employee level.

,ften, when e/ecutives think the merger is going fine, the employees have an entirely different take on the situation. (mployees who are aware a deal is taking place are naturally concerned a'out themselves and their futures when a merger or acquisition transpires. $t this point, they have three primary questions !ill - have a %o'# 0ow much will - 'e paid# !hat 'enefits will - have# 0ow e/ecutives on 'oth the 'uyer"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 'ottom line. To ensure that your merger or acquisition goes smoothly for everyone in the organi1ation, consider these tips. 1. Choose the right transition team The transition team that reports to you needs to 'e made up of people who have the right temperament and personality to handle a transition. They need e/cellent people skills and the a'ility to finesse any situation to the 'enefit of the company. 2ake sure the transition team is appropriate for the area or department they talk to and can easily relate to people in various employee groups. 3or e/ample, you pro'a'ly 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 $ll employees want accurate information from management, and they want to know the truth, even if it"s difficult. 4o matter what the news is, good or 'ad, your employees want to hear it, so always 'e totally open and honest a'out what is to come. -f your employees feel out of the loop, they"ll assume the worst, and you can e/pect a negative effect on productivity. Both merging entities, the purchaser and the seller, need to 'oth consistently communicate with employees and ensure that whatever they"re communicating is 5++6 accurate. 3or e/ample, during a recent acquisition, the president of an acquiring company met with all of the employees a'out two months 'efore the final deal was complete. The group was very well7 paid and had a very high level of 'enefits. The acquiring organi1ation would not provide that same level of 'enefits, he told the employees, 'ut the loss would 'e made up in their salaries. $t the end of the deal, they 'rought every'ody in at the lower 'enefit level and at the same level of pay they had previously received. 4ow the president and his management team are starting off with low credi'ility 'ecause of his false attempt to reassure the employees. To help ensure 'uy7in, schedule regular employee meetings or send out regular updates via e7mail or a weekly newsletter. 8ou need to 'e upfront a'out everything that is happening from the 'eginning so you don"t lose credi'ility with your employees and, in turn, your customer 'ase, who are in close, constant contact with your front line employees. -f you don"t treat employees well in the course of a merger or acquisition, si/ to twelve months down the road, you may find erosion of your customer 'ase. The cost in revenue loss of losing a key player with a great deal of customer contact can 'e huge. -t is not uncommon for revenue loss to reach a million dollars a year in a mid7si1ed organi1ation. This, of course, would have a huge negative effect on any company and its a'ility to stay profita'le. 3. ro!i"e resources #or those who will $e "isplace" $llow those employees who won"t 'e retained to e/it gracefully. ,ffer career counseling, resume services, contacts with outplacement firms, or anything else you can provide to meet individual needs. ,f course, the most important resource you can provide is a severance package of some sort. 3or lower level employees, two to four weeks pay may 'e sufficient9 for middle and senior management, si/ to twelve months pay may 'e appropriate to help them make the career transition. The severance package should carry the employee the appro/imate amount of time

you would anticipate it will take him or her to find a new position. 2any times those coordinating a merger or acquisition wrongly assume that unemployment 'enefits will carry the departing employee through their transition9 however, rarely are those 'enefits enough to sustain people at their current financial level. By taking these e/tra steps, your departing employees are less likely to talk negatively a'out the company to others, and the people who are remaining on staff will feel that the company truly cares a'out all employees.even those leaving. %. &i!e assurance a$out change ,nce the deal is done, retained employees will still e/perience some fallout, and morale and productivity can take months or even years to return to pre7deal levels, especially if a residual lack of trust remains after a 'adly handled merger or acquisition. -f there"s 'een perceived untruthfulness, management then has to esta'lish a long history of standing 'y what they say they"re going to do. (ven if you have a smooth acquisition, you"ll have to pay particular attention to assuring employees since change always 'rings apprehension. 0elp your remaining employees to deal with change, even if that change seems minor to you. 2ay'e all that changes is who they report to, or the company president"s name, 'ut people fear change. (/ecutives need to do everything they can to help minimi1e the an/iety that people naturally have. Help 'our Employees (o!e 'our )ew, Better Company !hen you follow these four tips, the 'enefits to 'oth your employees and your company will 'e tremendous. (verything a'out the deal will go more smoothly from the employee"s point of view, and therefore you"ll have greater productivity, higher employee morale, and 'etter relationships 'etween employees and customers. $s a result, company profits will hopefully soar, 'efore, during, and after the deal:

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