Chapter 12 Mergers and Aquisitions

Question 1

What are the 3 reasons that people merge?

Answer 1

1. Strategic benefits
2. Financial benefits
3. Needs of the CEO or managing team (EGO)

Question 2

What are 3 strategic benefits to mergers and acquisitions:

Answer 2

1. Operating synergy
2. Vertical integration
3. Horizontal integration

Question 3

What is Operating synergy?

Answer 3

The cost reduction achieved by economies of scale produced by a merger or acquisition

Question 4

What is Vertical integration?

Answer 4

The merger or acquisition of two organizations that gave a buyer-seller relationship (upstream or downstream)

Question 5

What is Horizontal integration?

Answer 5

The merger or acquisition of rivals

Question 6

The winner’s curse

Answer 6

The winner is the highest bid, but the curse is that they are paying too much.
*informational asymmetry: not everyone receives the same information so it affects the bids

Question 7

Merger definition

Answer 7

The consolidation of two organizations into a single organization

Question 8

Horizontal merger definition

Answer 8

The merging of two competitors

Question 9

Vertical merger definition

Answer 9

The merger of a buyer and seller or supplier

Question 10

Conglomerate merger

Answer 10

popular in the 70’s

-the merger of two organizations competing in different markets

Question 11

Acquisition definition

Answer 11

the purchase of an entire company or a controlling interest in a company

Question 12

consolidation

Answer 12

two or more organizations join and form a new organization

Question 13

takeover

Answer 13

one company acquiring another company

Question 14

Compaq and HP had what advantage when they merged?

Answer 14

Economies of scale - operating synergy

Question 15

What is the poison pill method?

Answer 15

Refers to the right of key players to purchase shares in the company at a discount making the takeover extremely expensive - response to avoid hostile takeover

Question 16

What is the white nights method?

Answer 16

They are buyers who will be more acceptable to a targeted company * swoops in at the last minute with a better offer

Question 17

Pac man

Answer 17

Is a defensive maneuver where the targeted company makes a counteroffer for the bidding

Question 18

What is the success rate for mergers?

Answer 18

20% are successful, 60% are disappointments, 20% are complete failures

• best successes are with similar businesses
• best when a large firm absorbs a small firm
• mergers less successful in service industries compared to manufacturing, due to greater risk

Question 19

What is culture?

Answer 19

The set of important beliefs that members of an organization share

Question 20

Assimilation

Answer 20

Occurs when one organization willingly gives up its culture and is absorbed by the culture of the acquirer or the dominant partner

Question 21

Integration

Answer 21

Refers to the fusion of two cultures, resulting in an evolving new culture representing the best of both cultures
*this form rarely occurs because the marriage is rarely two equals, and one partner usually dominates

Question 22

Deculturation

Answer 22

sometimes the acquired organization does not value the culture of the dominant partner and is left in a confused, alienated, marginalized state known as deculturation.
*this is a temporary state, existing until some integration or separation occurs.

Question 23

separation

Answer 23

in some instances, the two cultures resist merging, and either the merged company operates as two separate companies or a divorce occurs.

Question 24

What is the contingency plan?

Answer 24

The what is plan!!

• plan should identify the contact person and tje merger coordinator
• contact person should develop a plan
• plan should outline the chain of demand, communication methods, procedures, and negotiation skills training.

Question 25

Due diligence

Answer 25

It is the process through which a potential acquirer evaluates a target firm for acquisition including the review of: collective agreements, employment contracts, policies etc

Question 26

What is the transition team?

Answer 26

``` Who is going to do what, when, where? Deals with: 1. urgency 2.information gaps 3.stress ```

Question 27

Mergers affect the following functions (5):

Answer 27

1. Selection 2. compensation 3. perf appraisal 4. T & D 5. LR

Question 28

What happens with selections with mergers?

Answer 28

* the 2 most critical issues for HR are related to: 1. retention 2. reduction - HR managers must terminate duplicate positions and redundant employees - Lean and mean cuts to the workforce results in greater work overload and stress

Question 29

Post-Merger changes in status

Answer 29

1. demotion 2. competition for the same job 3. termination

Question 30

Post-merger changes in compensation - what happens?

Answer 30

1. Merge compensation systems? 2. Adopt one compensation system? 4. create a new one?

Question 31

Post-merger performance appraisal

Answer 31

Employee behaviour and performance is usually not typical after a merger or acquisition. 3 behaviours: 1.not knowing: remedied by more communication 2.not able:the solution is training 3.not willing: a strong case for perf. man. through feedback and incentives

Question 32

Post-merger Training and development

Answer 32

Managers will probably need training on coaching and -counseling to deal with post merger behaviours -employees need training for stress reduction and relaxation techniques

Question 33

Post-merger LR

Answer 33

important to interpret the collective agreement for relevant issues. Early union participation is a good idea.