December 2000

Mergers, Fusions and Take Overs

Consolidation of companies

The business world has been since many years experiencing a virtual wave of mergers, fusions and take overs, friendly or hostile. Companies are consolidating into a few large players to get the assumed necessary mass to survive in an ever more hostile environment of high quality, lower prices and foreign competition..

Consolidation should deliver more room and opportunities to survive. New and more advanced products from increased research capabilities, lower costs through cheaper production methods and a larger and more efficient capacity, a larger market share, e.g. more customers, and because of the combined sales power. The consolidation should deliver many advantages which would benefit everybody, except the people who lost their positions because of the inevitable duplication of functions and the excess capacity.

Increasing shareholders value and market share are the main movers of the merger mania. The wizard word synergy also played an important role in every decision to take over or merge with another company.

All reasons how good they might have sounded before the merger did not deliver what they promised to do. On the short term some of the desired results could be met but on the longer term the vast majority looked worser after the merger.

Mergers and take overs are delicate processes which easily can go wrong as different corporate cultures clash. The two employees of each company are mostly suspicious towards eachother and sometimes even hostile. How good a proposal might have looked on paper if the people working in the company frustrate it,the new endeavor has only a small chance to succeed. The merging or fusion process has therefore to be clearly guided to reach at least some of the results which were so much desired. If a merger is succesful is largely dependent on the people management in the new company.

Guiding the process

To have all people positively supporting the new developments in a corporation they should be informed as much as possible. Only clarity will build trust in and support for the management team which is necessary to do such a demanding job.

A merger, fusion or take over will demand much from every company. It will mean big changes to the company, not only financially but also the structure will change as two have to become one. The people working for the company are likely to be most affected by the changes.

It is therefore very important to define an approach to inform the people and create some stability in the workforce. Dissatisfied employees full of rumors, working below their normal capabilities or even want to go on strike is the last thing needed in a fusion/merging process.

Divisions and units who will continue to operate in the new company in the same manner as before the fusion/merger will not be directly affected but the parts of the company which are to be fysically merged are the ones who need extra attention.

Merging and fusing is for a large part a peoples case, the size of the companies involved does not matter that much, but a new co-operation in the company will have to be created. The rules of conduct of one company can become dominant but there is always the question how the rules are used and this should be of premium concern. An environment in which the best of both is integrated and which is acceptable to the employees is what is needed. A good working environment is after all a condition to keep your best employees at the company

The fusion/merger has been started after the management, after several financial, economical and market analysis, decided what would be the new direction of the company. The new merged company should according the management deliver the best opporunities for the company. If the judicial and financial fusion/merger is completed, the actual merger of the companies will begin.

This is mostly the most difficult part as two entities will have to be melted into one.

The foundation of the restructuring is the strategy, the desired structure, defined by the management based on the analysis before and during the fusion/merging process.

To do this with as little as friction and problems as possible the following approach could be helpful to manage your employees and keep them happy.

The approach is build on the principles of doing what is necessary and on a healthy and productive co-operation between all concerned parties.

To proceed there are three steps necessary. Firstly, all existng and future positions in the company have to be identified and described in a job list. Secondly, a social contract has to be created with support of the management and the employees, e.g. their representatives. And thirdly, a placement, replacement, list has to be created about which function would be the most preferable to every person.

The job list should include all positions in the two old companies and all future positions in the new company. This to have a clear look at the old and new organisation structures and to make all positions visible to all employees. The old and new position descriptions should be made to a common standard but should include the tasks, competences, responsibilities and an indication of the wages.

The social contract should be created with the help of the management and the employees to make clear that the merger/fusion is for the good of the company and all will be responsible for the success. Another advantage is that all concerning groups can influence the structure of the new company. The main function of the social contract is to arrange who will get what position, The social contract should therefore include the goals, policies and the arbitration of the matching of employees with their new position in the company. All staff in the company should be involved in the creation of the new company. The people will not feel betrayed or left alone with a social contract. On the contrary they will feel part of the company and will do their utmost to make the merger/fusion succeed.

And finally, the placement, replacement, list. The placement list should be made by an independent commission with members from the management and employees and under the guidance of an independent chairman.

To improve the acceptance of the placement list it should work according the following four conditions. The placement list should not use the merger/fusion as an assesment instrument. As many as possible positions should be done by people who did the same thing in the old structure/company. And to be certain about a fair treatment the placement should be completed in a siuation where all assesment criteria are all known in advance. The criteria should be about suitability, quality and the wage group of each position. As many as possible employees should be placed following this procedure. One of the most important elements of the merger/fusion is to be certain that all are treatened honestly.And finally the placement, replacement, list should after completion be circled around ones or twice and evaluate to reactions and possible remarks on what could be done better of diffferent. This to put the right people at the right place and to make the people feel involved.

If the people believe in a merger/fusion and support it whole hearthely the chances for success are much larger than if they would be hesitant or even worser against the new direction. It should always be remembered a merger/fusion is more then just numbers, opportunites and capabilities, it is also about managing people and motivate them to do, to reach, just a little bit more. In the end the people are responsible for the good numbers and those great inventions and products.