Introduction Of Merger And Acquisition Management Essay
Acquisition- In this purchases of one company by another in which no new company is formed. The acquisition process is very complex and various studies shows that only 50% acquisition is successful.
Governing low- The company act 1956 thus not define the term merger or amalgamation. It deals with schemes of merger or which acquisition are gives in s. 390.394′ A,395 , 396 and 396 ‘A’.
Classification of merger :-
Market extension merger
Product extension merger
HP AND COMPAC MERGER
Introduction of HP :- It all began in the year 1928 when two electrical engeerning gradutate from standard university called willam Hewlett and David Packard strated their business in a garage in palo alto. In a year time the Hewlett – Packard was made and by the year 1947, HP was incorporated.
Hp enterprise business formly called TSG is the largest business segment of HP, according for 36% of HP’s 2007 revenue , providind service, storage, software and information technology services that enables. The product and services from this organization serve HP”business of all sizes in more than 170 countries.
Organizational Structure :- HP’s operations are organized into seven business segment
Enterprise storage and server’s (ESS)
HP software and solutions
Personal systems group (PSG)
Imaging and printing Group(PSG)
HP financial services (HPFS)
The three business segment ESS , HPS and HP software solution are structured beneath the broader Enterprise Business (EB) group in order to capitalize selling & cross selling opportunities and give a solution sale approach across the HP enterprises offering.
INTRODUCTION OF COMPAQ
Copaq computer corporation is the world’s largest supplier of personal computers and as a result of its acquisition of Digital Equipment Corporation in 1998, is the second largest computer firm in the world . The company was formed by two senior manager’s at Taxes Instrument. The company had come from “Compatibility & Quality”.
Position Of HP before Merger.
Stocks gradually rase a peak of $74.48 after Fiorina was hired from their value of $ 54.43 the day before she had joined HP, meeting growth targets proved difficult as both the company and industry stabled As a result HP was forced to cut the jobs to ask employees to take unpaid leave. By September 2001, stock value had fallen to less than half of its level when fiorina was hired . so she decided to merge with Compaq. At that time Compaq in a stock transaction is net worth was 2 millio. And positon of Compaq is too good revenue increase. They do merge only for expansion the company.
Main reason of Merger
To compete with IBM and other companies
The combined service business will have 65000 service professionals is 100000 plus for IBM
Main aim of merger
The main aim of the merger was to enhance the market competition.
The newly formed company would be bigger than HP
The combined effort would result in a big computer and software services business.
The new company would definitely help the management to increase the number of customer in IT sector.
HP wanted to enhance their market of computer hardware product.
Problem of Merger
The merger totally opposed by both the companies.
The investment and the other stakeholders though at the company would never be able to have the loyalty of the Compaq customers, if products are sold with HP logo on it.
Synchorization of organization’s member with each other.
Change in the organization which are not accepted by the employees.
These are the main problem which come first after merger.
The CEO of HP , Fiorina justified that merger by following point:
Merger would remove serious competitor in the over supplied PC market of those days
The market share of the company is bound to increase with merge.
The working unit would double
These points helps to unfreezing the employee.
Advantages of merger
Large the market share in the market and units of production also double.
Both the companies would decrease as the internal costs on promotion, marketing and shipping would come down with the merger.
New techniques or technology develop
Company requires being consistent with creativity, improvement and modification.
Advantages to the shareholder are as follow
Ability to execute
Structure stock for stock merger
Exchange ratio 0.6325 of HP share per Compaq share
Current value approx $25 billion
Ownership HP share holder 64% Compaq shareholder 36%
Expected closing First half of 2002
Burke – Litwin Model.
BURKE LITWIN MODLE
This is second order change. It’s a big change for the companies.
And all the features of second order change are used in this merger
Transformation :- this merger is done on discounting bases. Both the company combine and form a new vision, new name , polices, culture procedure all changes.
Redical overhaul :- Everything is change in one time so it si redical overhaul.
Revalutionery :- Fiorna CEO of HP come with massive change she is one who ask about merger so, she come with massive cahnge
So all features are cover under this merger so, according to me its second order change.
In this Merger Transformational Leader is Carly Fiorno CEO of HP company
Fiorno announced HP’S plan to aquire the Compaq in stock transaction valued at $ 25 billion idea for the merger with Compaq a Houston bas maker founded in 1982 had grow out of a phone conversion between Fiorina and Compaq chairman CEO Michal Capellas IN JUNE 2001. By the first week of September, the merger had been approved boards at both companies.
KURT- LEWIN MODEL
This model include three points:
Unfreezing:- for doing unfreezing both the companies firstly establish a sense of unrgency in the organization. Than analyze the organizational change need. So doing unfreezing CEO of HP explain that the need of change that what the company condition and its important for the company to make a change and also introduce what the aim behind the merger as I discusse above.. we can say what the desired state companies want the people of HP and Compaq see the gap what exists and what will exist. Than the people move to reduce the gap and achieved the desiered change. So that in this way both the companies do unfreezing.
Movement :- The second step is movement. HP and Compaq really helped their employees and other member for accepting the change and new culture which formed by those two companies. They ask all the advantage of merger to their employees. So that it is easy for employees to move from their position. Employees see the advantages and accept the change and move further.
Refreezing :- the third step but not the least is refreezing. So to give again same level of comfort to employees Fiorno arranged the meeting with investor or employee. Give more information regarding the merger. And also given more information to employees that now company will help in future. In meeting she said ” this company has never been about looking in the real view mirror .
But Fiorina strat are as fallow :
Tried to change the culture in HP
A centralized Approach
So, new CEO was Mark Huld come and he take following step.
Educating the HP employees and manager to make them for talented.
Exploting the possibilities of the merger
Took inintaitives to cut down cost and layoff employees.
According this merger is right and good for economy. Basically this merger is need of HP. Fiorina knows that without taking this merger HP faces so many problem. So a very good step and make it possible. In strating she faced problems but afterwards she solved all the problems. But some of their strategies are not good and she resigned in 2005 and new CEO come Mark Hurd taken good step for HP.
So in the end conclude this merger faces many up and down. But in the end it successful. And this merger is good for the world.
PROCTER & GAMBLE
P & G is American multinational corporation headquatered in downtown , in cin cinnan, quio U.S which manufacturs a wide range of consumer goods . P & G was founded by William procter and james ganble in 1837. It is 6th in fortune most advired companies 2010 list. Bob MC Donalds is current CEO and president for the same.
Vision of proctor & gamble- vision of P &G unifies them in common cause and growth strategy of improving more consumers lives in small but meaningful ways each day. It inspires P &G people to make posture contribution everyday.
Consumer products offered by P&G are in areas of pharmaceutical , cleaning supplies, personal care and pet supplies.
Gillette is a brand of proctor & gamble currently used for safety razors , among other peesaral hygiene products. Based in Boston. It was one od several brands originally owned by Gillette company, a various brands which was acquired by P &G in 2005. Their slogan is ” the best a man can get”. The original Gillette in 1995 as a safety razor manufactures.
Old Gillette products now Gillette products
Disposable blade razor (1902) – Trac ii (2 blade razor)
Super speed model TT design (1997) – trac plus (lubricating razor)
Adjustable razor (1958) – atra plus
– Sensored (spring locaded blaids
– sensor encec
– sensor 3
– On october 1st 2005 , portor gamble finaly purchased the Gillette which resulted merger between the 2 . this merger grateddue would largest personal care and household products campany.
– intially Gillette company assets were incarnated into a P & G linit known internally as global Gillette, in july 2007 Global gillete was discounted and incorporated into proctor & gamble’s
Other two main divisions, proctor & gamble beauty and procure care. Gillette brand and products were divided between the two accordingly.
Merger was financed by 60% of stock and 40% cash cash and P & G accured gittelles for US $ 57 billion in stock.
-after acquisition Gillette CEO James Kilts became vice -chairmar.
6000 employees were eliminated and given pinkslips which reduced overlapping management positions.
PROFILE (POSITION BEFORE MERGER)
gillette brand basically caters safety razors in the market. before due merger gillette products razors are not so technological savvy. And an comparatively enterprise with that of other companies. Due to companion company market declined to an intent. Which forced CEO of Gillette to merger with a high profile company like P&G to gain good market share in market.
PROCTOR & GNABLE is a highly profiled company and ranked 79th in fortune global 500 list of world largest compnies . ti basically involved in consumer good services and previsouly also acquired source of the companies.
Main reasons for merger-
To compete with other companies in the developing countries.
The combined companies introduced new innovative products and product line got increased.
To gain high market growth.
Complementary goods were introduced like P&G given their hand in sharing products to complement safety razors etc.
This merger is a friendly merger just to grow business.
MAIN AIM OF MERGER-
the always to enhance the market share of the company and to compete with the competitors. As 2 companies combine will be more satisfying than one alone.
PROBLEM FACED WITH MERGER
-basically less problem were faced during the merger taken place because the merger is friendly merger between two companies. But initially when the merger news where announced many employees were shocked as companies are good in profits. Some talented employees left their jobs as they not want to work in merged company and many worker were lay-offed . But still company is very cooperative with their employees and given them proper training for the merger.
– some employees were not adapted the new culture of organization for this proper counseling is imparted to them for easy adaption.
KURT -LEWIN MODEL APPLICATION
Kurt – lewin proposed three stage in change management programmer.
Unfreezing (preparing ourselves, other to change)
Movement (transition stage)
Refreezing (freezing the new change)
In case of P&G and Gillette merger following stage occurred as follows.
It was basically the decision of CEO of Gillette that two companies were will established and project making companies so it come as a shock to all the people when the merger of two companies was announced.
Unfreezing stage –
To carry out this merger successfully a term was made to carry smooth integration which contain employees from various financial areas experienced personnel. A thought due divergence was done before any step was taken for merger of these companies. This special term selected employees (talented) from different departments of Gillette which P&G wanted to retain. During this some employees were commenced with the idea of merger some left due job. To filldue gap due company does internal recruitment also based on enterprises of employees. Some valuable employees were not ready to join due merger company so several special packages were given to them. HR managers also worked very well in boosting due morale of employees. I this stage Gillette ensured that each stage the employees were kept informed , they were timely giving due updates and told them due steps clearly the organization is taking for future growth of employees as well as company.
Driving forces re-straining forces
Faster sales growth and cost saving
Several new packages
Opportunities for more innovation
Merger P&G Gillette
Leak of news by press and resulting stock fear
Difference in organizational structure
Job insecurity and layoffs
The driving force are so powerful that they overcome restarting force in this merger.
MOVEMENT STAGE- Most of the employees were counted as due employees trusted due management a lot. They are confident that management would keep the best interest of the employees in mind.
-Training programme- one day session was provided to existing employees from Gillette who joined the merged company.
CAREER PLANING-Gillette globally signed a contract with right management consultant to provide career transaction service. In India this project was handled by grow talent.
COUNCELING- The leaders born at corporate and institutional head provided tremendous help to their teams, Internal mentors were appointed to guide implies to make right career choice and in dealing with anxiety, handling new friends and family.
EMOTIONAL SUPPORT- By helping them to manage change of new job news of family and friends with new colleagues.
INTERACTUAL SUPPORT- Preparing employees for improving their marketability salary negotiation and interviews etc .
LANDING SUPPORT- By analyzing strengths and skills of employees to determine career decisions, interpersonal skills, time management skill, organizational skills this training is given to every employee of Gillette whether he stayed in the organization or laid off.
Due to this career transition supported and enabled employees to face the job market at least 90% of the employees who were being laid off got an offer even before they had left the company.
FREEZING:- the employees adapted this change as the company was very cooperative with them. Even people who lay off also got settled down. For this strategic transition Gillette got DMA Erewon innovation award in 2006 also. This deal created by the CEO’S created a win- win situation for all stake holders and set a fine example in today’s dynamic business environment preparing HR people for taking challenges.
BRUKE LEWIN MODEL APPLICATION:-
This merger between the two companies P &G and Gillette is a second order change with this merger the structure of two companies changed drastically as it is a radical change..
TRANSFORMATION:- due this merger P&G AND Gillette transformed as policy, culture and produced all change.
REVOLUTIONARY: – CEO of Gillette wanted this merger they took the just step of merger between the two for growth and developing country.
SUCCESS OR FAILURE OF MERGER: – this merger was a grand success because more than a merger it’s a friendly move by both companies. As it beneficiate both the company due market after the merger increased. In this merger basically innovation was focused rather than scale. It is unique case of acquisition where in innovative company expanded it product line by acquiring another innovative company. It was described as a perfect marriage by some analyst. CEO of P&G AG lafley thinks it necessary to overtake close companies especially in developing countries so he acquired Gillette and expanded its product line by adding some shaving products. After this merger the market share of both companies increased tremendously.
Merger of P&G and Gillette acted as a boom for Gillette as we can see from figure Gillette market share raised up by 71.1% the merger is a perfect marriage of companies which contributed growth, innovations in the product line of the same. Through initially the changes are structured distributed the companies employees but afterwards it benefitted the companies a lot. And market share increased highly after the merger took place.
HINDALCO INDUSTRIES LIMITED
Hindalco Industries Limited, a flagship company of the Aditya Birla Group, is structured into
two strategic businesses aluminium and copper with annual revenue of US $14 billion and a
market capitalization in excess of US $ 23 billion. Hindalco commenced its operations in 1962
with an aluminium facility at Renukoot in Uttar Pradesh. Birla Copper, Hindalco’s copper
division is situated in Dahej in the Bharuch district of Gujarat. Established in 1958, Hindalco
commissioned its aluminium facility at Renukoot in eastern U.P. in 1962 and has today grown to
become the country’s largest integrated aluminum producer and ranks among the top quartile of
low cost producers in the world. The aluminium division’s product range includes alumina
chemicals, primary aluminium ingots, billets, wire rods, rolled products, extrusions, foils and
alloy wheels. It enjoys a domestic market share of 42 per cent in primary aluminium, 63 per cent
in rolled products, 20 per cent in extrusions, 44 per cent in foils and 31 per cent in wheels.
Hindalco has launched several brands in recent years, namely Aura for alloy wheels, Freshwrapp
for kitchen foil and ever last for roofing sheets. The copper plant produces copper cathodes,
continuous cast copper rods and precious metals like gold, silver and platinum group metal mix.
sulphuric acid, phosphoric acid, di-ammonium phosphate, other phosphatic fertilisers and
phospho-gypsum are also produced at this plant. Hindalco Industries Limited has a 51.0%
shareholding in Aditya Birla Minerals which has mining and exploration activities focused in
Australia. The company has two R&D centres at Belgaum, Karnataka and Taloja, Maharashtra.
They have been recognized by the Government of India’s Department of Scientific and Industrial
Research (DSIR). [Exhibit 1] Year over year, Hindalco Industries Ltd. has been able to grow
revenues from 121.2B to 193.2B. Most impressively, the company has been able to reduce the
percentage of sales devoted to selling, general and administrative costs from 4.15% to 2.96%.
This was a driver that led to a bottom line growth from 15.8B to 26.9B.
Novelis is the world leader in aluminium rolling, producing an estimated 19 percent of the
world’s flat-rolled aluminium products. Novelis is the world leader in the recycling of
used aluminium beverage cans. The company recycles more than 35 billion used beverage
cans annually. The company is No. 1 rolled products producer in Europe, South America
and Asia, and the No. 2 producer in North America. With industry-leading assets and
technology, the company produces the highest-quality aluminium sheet and foil products
for customers in high -value markets including automotive, transportation, packaging,
construction and printing. Our customers include major brands such as Agfa -Gevaert,
Alcan, Anheuser-Busch, Ball, Coca-Cola, Crown Cork & Seal, Daching Holdings,
Ford, General Motors, Lotte Aluminium, Kodak, Pactiv, Rexam, Ryerson Tull, Tetra Pak,
ThyssenKrupp and others. Novelis represents a unique combination of the new and the
5 old. Novelis is a new company, formed in January 2005, with a new velocity, a new
philosophy and a new attitude. But Novelis is also a spin-off from Alcan and, as such,
draws on a rich 90-year history in the aluminium rolled product marketplace . Novelis has a
diversified product portfolio, which serves to the different set of industries vis-Ã -vis it
has a very strong geographical presences in four continents.
POSITION OF NOVELIS BEFORE AQUISITION
Novelis was always a problem child. It was born in early 2005 as a result of a ‘forced’ spin-off
from its parent, the $ 23.6-billion aluminium giant and Canada-based Alcan. In 2003, Alcan won
a hostile offer to wed French aluminium company Pechiney. But the marriage produced an
unwanted child – Novelis. Both Alcan and Pechiney had bauxite mines, facilities to produce
primary aluminium, and rolling mills to turn the raw metal into products such as stock for Pepsi
and Coke cans and automotive parts. But the US and European anti-trust proceedings ruled that
the rolled products business of either Alcan or Pechiney had to be divested from the merged
entity. Alcan cast out its rolled products business to form Novelis. It is now the world’s leading
producer of aluminium-rolled products with a 19 per cent global market share. But in the spin-off
process, Novelis ended up inheriting a debt mountain of almost $2.9 billion on a capital base of
less than $500 million. That was just the beginning of its troubles.The situation is worse now.
Though it marginally reduced debt, it made some losses too. On a net worth of $322 million,
Novelis has a debt of $2.33 billion (most of it high cost). That’s a debt-equity ratio of 7.23:1.
Soon, the unwanted child stumbled into another crisis. Novelis has a simple business model. It
buys primary aluminium, processes it into rolled products like stock for soft drink cans,
automotive parts, etc., and sells it to customers such as Coke and Ford. But the management took
a wrong call on aluminium prices. In a bid to win more business from soft drink manufacturers,
it promised four customers not to increase product prices even if raw material aluminium prices
went up beyond a point. A few months after Novelis signed those contracts, aluminium prices
shot up 39 per cent (between 30 September 2005 and 2006). To these four customers, Novelis
was forced to sell its products at prices that were lower than raw material costs. These four
account for 20 per cent of Novelis’s $9-billion revenues. But the management’s wrong
judgement led to losses of $350 million (in 2006). For long, Novelis’s former CFO Geoffrey P.
Batt, former controller Jo-Ann Longworth and the finance team didn’t quantify these losses.
After the complicated spin-off from Alcan this involved extensive operations in over 35
plants in 11 countries and four continents the finance team also struggled to file quarterly and
annual results on time. Many of the numbers it managed to file on time were wrong and were
later re-stated. The board stepped in. First, it replaced its CFO and controller (in December
2005). When that didn’t help much, it replaced CEO Brian W. Sturgell in August 2006. (It is still
looking for a full-time CEO.) There are many more reasons for the distress in Novelis.
NEED OF THE CHANGE
Post acquisitions, the company will get a strong global footprint.
After full integration, the joint entity will become insulated from the fluctuation of
LME Aluminium prices.
The deal will give Hindalco a strong presence in recycling of aluminium business because as per aluminium characteristic, aluminium is infinitely recyclable and recycling it requires only 5% of the energy needed to produce primary aluminium.
Novelis has a very strong technology for value added products and its latest technology ‘Novelis Fusion’ is very unique one and it would have taken a minimum 8-10 years to Hindalco for building these facilities, if Hindalco takes organically route.
As per company details, the replacement value of the Novelis is US $12 billion, so considering the time required and replacement value; the deal is worth for Hindalco.
SUCCESS OF MERGER
Hindalco has undertaken aggressive plans to increase its capacities through capacity expansion as well as by setting up greenfield plants. Hindalco increased its capacity at Hirakud plant by 35,000 tonnes to one lakh tonne. When Hindalco completes its entire project, smelting capacity has increase by about 10 lakh tonnes. Along with smelting capacities, the companies are expanding alumina capacities and setting up captive power plants. Domestic alumina capacity is set to increase by 9.5 million tonnes when all the outstanding projects are completed. In 2007 about 1.23 million tonnes of capacity has come on stream, catapulting aggregate capacity to 4.23 million tonnes. Large alumina capacities have not only feed captive aluminium smelters, but also leave surplus alumina to be exported to lucrative markets like China. Currently Hindalco’s production is tied up with clients. Also Novelis has similar contracts with its suppliers. But after 3-4 years it would start the operation of new plants. Then it can source excess capacity to the Novelis plants located in south East Asian countries. The merger looks not bad if the current financial valuations are ignored. Also we need to keep in mind that Hindalco is a very aggressively growing company, for it to build infrastructure that can match Novelis is very difficult.
PROBLEM FACED BY THE ORGANISATION WHILE MANAGING THE CHANGE
Buy- in and commitment from stakeholder: It is not only the C-level management which has to buy-in to the globalization change but staff at all levels. In the aquisiton between Hindalco lmt. And Novelis the people were involved in the operation for off shoring that do not buy into the initiative and influence other team members, creating waves of resistance. It became critical to have a high degree of commitment from leaders and managers to effectively communicate the needs to the off shore.
Employee resistance: Any change is bound to attract resistance especially in merger between Hindalco and Novelis because of the politicized negative publicity and hence had a direct impact on the employee productivity.
Complacement workforce: The workforce of Hindalco lmt were comfortable and complacement about productivity and customer service cost and therefore resisted to change.
KURT LEWIN MODEL
The Unfreezing stage is probably one of the more important stages to understand in the world of change we live in today. This stage is about getting ready to change. It involves getting to a point of understanding that change is necessary and getting ready to move away from our current comfort zone.
In this case, both the companies were ready to merge with each other and hence a change was going to be held in both the organization. Novelis is the world leader in aluminium rolling, producing an estimated 19 percent of the world’s flat-rolled aluminium products. Novelis is the world leader in the recycling of used aluminium beverage cans. With industry-leading assets and technology, the company produces the highest-quality aluminium sheet and foil products for customers in high -value markets including automotive, transportation, packaging, construction and printing. But Novelis has always suffered a lot of losses. Hence it needed change its system otherwise it would have to pack up from the market.
Hindalco lmt.businesses aluminium and copper with annual revenue of US $14 billion and a
market capitalization in excess of US $ 23 billion. It was ready to aquire Novelis because it had a high quality aluminium sheets and even had high technology but the company was going into losses. Therefore, the company had an opportunity to acquire the company and was ready to change and therefore it was following the unfreezing step of kurt lewin model.
Kurt Lewin was aware that change is not an event, but rather a process. He called that process a transition. Transition is the inner movement or journey we make in reaction to a change. This second stage occurs as we make the changes that are needed. People are ‘unfrozen’ and moving towards a new way of being.
In this case as both the companies Hindalco and Novelis were merged together. While the process of Acquisition both the companies had faced a lot of problems. The employees of Novelis showed resistance towards change in the working condition as per the working model of Hindalco lmt.
In this process simply, when employees minds move from Novelis to Hindalco lmt. then in this case Novelis have done the refreeze procees with employees because this time 2 different people come in one organization for work together that is why Novelis will have to definitately give some compensations, growth plans to their existing employees for refreeze them.
BURKE LITWIN MODEL
According to me the merger of Hindalco and Novelis is a second order change.
Transformation: When both the companies merged together, Novelis has to change all its policy according to Hindalco. Hence, Novvelis was transformed into a new organization after the acquisition with Hindalco.
Revolutionary: As Novelis was a company with higher efficiency with skilled workforce, better technology, better quality alluminium. And Hindalco was a developed company with higher turnover, Acquisition between both the companies would lead to a tremendous growth of the new organization.
Managing change to globalization environment is almost disruptive. Nevertheless, it is the part of the organizational life and essential for progress. When approaching a change in an organization, many firms find that the change is all-consuming and often unproductive. It is easy to change the system and processes but difficult to change the people in the organization. Hence in the case of Hindalco and Novelis evolution seems slower because most of the time and effort in this case is spent on system and less time and effort is spend on managing the people expectation.
In this case the executives should anticipate the issue and assign project leaders with skill and credibility to communicate effectively, adapt the unforeseen changes and conform to the cultural gaps.
Acquisition and Merger is an evolution like any other development that should be embraced as an opportunity