Alcatel SA was a successful French company. It was a telecommunications company. Lucent Technologies was an American telecommunications company. The merger between the two companies was supposed to yield great success in their business model. The paper would discuss the resulting changes after the merger.
The merger would result in major challenges. The two companies originated from two distinct cultures. The American system and the French culture differed in their view of culture. America was an English speaking country while France’s national language was French. The merger seemed to indicate that both of them were equal entities. But they had to move the head office to Paris. The Chief Executive Officer, Patricia Russo came from America.
They had to realign their differences in the markets and form one formidable strategy (Pedersen 109). They had to do away with about 88,000 staffs and overlapping functions to save approximately $2 billion annually. Frances’s Alcatel was the larger of the two companies and had to lead the way. They listed the company on the stock exchange in Paris. There had been a history of Multinational mergers involving the USA companies that had failed. The French laws favored the French workers and dealing with the deduction of employees would prove to be a daunting task.
Differences in culture normally cause many cross-border mergers and transactions to fail (Vachon 250). It is not easy for corporate leadership to suddenly change their cultures just because of a merger with an international company. Cross-border mergers increase these differences when they appoint a leadership that is strange to the local employees. During the mergers, the top leadership sometimes make mistakes by making decisions based on their views in disregard of the employees. The employees then begin to resist the changes in the system because of lack of consultation (Hesselbein and Goldsmith 216).
Another reason is the differences in policies of the origin countries of the merging companies. For instance, in America companies can reduce the number of employees based on the company’s policy (DePamphilis 177). But in France, there is the need to put the labor unions into perspective. They are very powerful there. The market is competitive. Sometimes the mergers end up discouraging the customers. They start feeling that part of what was theirs is gone. They begin to shift their purchasing preferences to other local companies. Therefore, instead of gaining the market, the new company begins to lose the previous markets considerably.
The acquirer and the target companies normally have the concerns of the two markets they previously held before the mergers. They have to communicate to them in the language that would convince them that the reason for the mergers is to improve their service and product offerings. Therefore, their communication normally seeks to make the people think that the combination of the two companies is a merger of the equals. They also seem to want their markets to understand that they join to complement their weaknesses. For instance, Alcatel had not yet gained the USA market fully, while Lucent had gained the USA market except other markets. They had to gain the presence in all the markets. Another reason is to build confidence in the staffs of the target company. The mergers sometimes tend to do away with the staffs of the target company because the acquirer may boast of better staffs (Ibeh and Davies 510). The merger may also result in lowering salaries of the staffs of the acquiring company in the process of harmonizing the salaries and duties. By stating that it is a merger of equals the acquirer and the target encourages the current staffs. It is also supposed to build the trust of the company suppliers (O’Sullivan 398). They normally want to make it a smooth transition from the previous state to a higher state of affairs.
The merger between Alcatel and Lucent is a merger of equals because of the potential for growth that each company has. Alcatel has a sizeable market all over the world while Lucent has a bigger market in the USA market. Lucent provided the company’s Chief Executive Officer while Alcatel provided the company’s Board Chairman. They both agreed on the decisions to move forward. For instance, the decision to reduce the number of staffs was acceptable by both sides.
On the other hand, it seems that the communication strategists did not mean what they said. The merger seemed to put the French company at an advantage over the target. They moved the headquarters to France. They also listed the company on the stock exchange market in France and not USA. The merger also enabled Alcatel to appoint its staff to high ranking positions. For instance, the chief operating officer, the chief financial officer, the head of the key emerging markets units, and the director of human resources all came from Alcatel. The two independent directors hailed from the European countries. All these made the merger look biased towards the French company.
References
DePamphilis, Donald M. Mergers, Acquisitions, and Other Restructuring Activities, Amsterdam: Elservier/Academic Press, 2008. Print.
Hesselbein, Frances, and Marshall Goldsmith. The Organization of the Future 2, San Francisco, California: Jossey-Bass, 2009. Print.
Ibeh, Kevin, and Sheena Davies. Contemporary Challenges to International Business, Basingstoke,England: Palgrave Macmillan, 2009. Print.
O’Sullivan, Kevin. Strategic Knowledge Management in Multinational Organizations, Hershey, PA: Information Science Reference, 2008. Print.
Pedersen, Torben. Orchestration of the Global Network Organization, Bingley, United Kingdom: Emerald, 2014. Print.
Vachon, Dana. Mergers & Acquisitions, New York: Riverhead Books, 2007. Print.
Mergers and acquisitions (M&A) is a phrase that generally refers to companies that come together with the view of consolidating their assets or wealth. Cadbury is the world‘s second largest confectionery company that is fully owned by Mondelez International, which was previously known as Kraft Foods. Kraft was formed in 1903. Glencore is also an Anglo-Swiss company, which merged with another Anglo-Swiss firm, namely, Xstrata. Glencore is a mining and trading company. In 2010, Glencore was the world’s largest mining business in Switzerland. This paper compares the Kraft – Cadbury takeover and the Glencore-Xstrata merger. It will also address post-bid defenses and their level of success in the above M&A cases.
Kraft-Cadbury takeover and the Glencore-Xstrata Merger
Potential Motives- Similarities and Differences
Various mergers and acquisitions are associated with a rise in the market value of the merging companies. Such increase in value directly affects the shareholders positively. The Cadbury-Kraft acquisition resulted in an increase in the share price by 3.3% leaping to a trading price of 834.50p per share in the first week of trade in the London Stock Exchange. Kraft funded the bid increment to 771p per share with cash, which rose to 840p with a 10p special share dividend for the shareholders. This strategy changed the board’s earlier decision of rejecting Kraft’s initial bid. Appendix 1 shows Kraft investors’ successful returns in 2015. The deal valued Cadbury at 13 times the basic earnings pre-tax, pre-interest, and before amortization and depreciation. This deal would then add 5 cents per share. The plan was beneficial to Kraft’s shareholders. For instance, in 2011, the shareholder got a more than 10% ROI. In Glencore’s merger with Xstrata, shareholders also gained from the amalgamation plan. Qatar Holdings, which had a 12% stake in Xstrata, received a 3.05% stake in the newly merged company (Blas 2013). Moreover, profits in the first year of the merger were projected to amount to $500 million.
Notwithstanding the previous impasse between Xstrata shareholders regarding their company’s merger with Glencore, the financial market power of Glencore- Xstrata was massive. The merger created a globally reputable firm, which is currently listed on the London and Hong Kong Stock Exchange with its headquarters in Switzerland. In 2014, the merged company generated more than $3.67 billion in net income. Hence, it managed to attain a 20% increase in profits as compared to the situation before the merger in 2013. The merger added Xstrata’s main trading commodities such as coal, copper, nickel mines, and zinc to Glencore’s portfolio. This plan resulted in good returns with annual sales from its operations going above $200billion in five continents. The strategy made it the fourth largest miner in the world. The merger also enhanced efficiency to the extent of leading to a $2.4 billion in cost savings in the same year (Riseborough 2014). Kraft’s collection boasts of many candy and sweets companies, probably above 40, with yearly returns that go beyond 100 million US dollars. The acquisition also brought about a cost saving of roughly $675 million annually after three years of the deal.
The Glencore-Xstrata merger bears a clause on the suitable compensation arrangements for key personnel. The main agenda of this feasible arrangement is to ensure that key employees or managerial level staff members are motivated to enhance the growth and development of Glencore-Xstrata. Mick Davis, the chief executive of the merged company, was the best-paid Financial Times Stock Exchange (FTSE) boss. He earned 18.5 million pounds in 2010. His remuneration in 2011 was 5.4 million pounds. Ivan Glasenberg, the CEO of Glencore, echoed this remuneration increment when he said that shareholders should pay performing managers, especially if they are not shareholders themselves (Ferreira-Marques 2012). Irene Rosenfeld, Kraft’s CEO, was awarded more than 40% pay rise in 2010. She had an annual payment package of more than 17 million pounds. She was paid $ 7.8 million in stock honors, roughly $1.6 million in wages, approximately $11 million in a different enticement plan, $ 2 million in option awards, and $4m in yearly motivation payments. This remuneration plan was said to reveal the momentous endeavor put by Kraft and the eventual Cadbury possession.
Financing Methods-Similarities and Differences
Due to their huge capital base, Glencore-Xstrata and Kraft-Cadbury mergers and acquisitions were self-financed. For Glencore-Xstrata, the deal was financed in shares whereby Glencore offered close to three fresh units for each Xstrata’s piece. The company’s major shareholder publicly rapped Kraft’s CEO and warned that she should not issue many of Kraft’s shares to pay for the Cadbury acquisition deal. Hence, Ms. Rosenfeld persuaded Kraft to sell its pizza subsidiary to Nestle foods and hence partially funded the takeover deal. The rest of the funding came from an apparently reduced issue of shares. Therefore, for the Kraft-Cadbury deal, financing was done through exchanging stock and cash payment.
Impact on Shareholders
Kraft’s acquisition of Cadbury caused an increase in share value for the latter company’s shareholders. Lord Mandelson, the UK’s business secretary, also commented on the acquisition indirectly urging Cadbury’s shareholders to take a long-term view of the shares. Reacting to market news, Cadbury share value went up by 3.5% to hit the 835p mark in 2010. This one-off outcome was expected with reference to the prevailing share rates. However, Mandelson’s spokesperson stated that any decision that was to be made involved the shareholders and the company. The 850p value that was set for each share made it possible to win the confidence of shareholders who had previously declined Kraft’s initial offer. On the other hand, for Glencore-Xstrata merger deal, major Xstrata shareholders such as Qatar Holdings complained that they required an offer that was higher than 3.05 Glencore shares per Xstrata’s share, which was not the case since the deal was done at 3.05. The majority of shareholders benefitted from the merger deal after Xstrata agreed Glencore’s least offer of 3.25. The market capitalization and the imprint of Glencore-Xstrata as a global force in mining led to increased profits in 2013, which consequently resulted in augmented earnings per share for the shareholders. Glencore-Xstrata became the world’s largest producer of coal, lead, and zinc and the largest independent producer of copper.
Impact on Managers/Employees
After the acquisition of Cadbury by Kraft, the majority of Cadbury’s employees panicked because they did not know their fate. In fact, hypothetically speaking, whenever mergers and acquisitions are established, layoffs are bound to happen during the restructuring process since the new company adopts a different business model and strategy. The majority of job termination cases negatively affect employees who lack sufficient skills. Hence, it becomes difficult for them to move on to better jobs. In the case of the merger between Glencore and Xstrata, both companies retained their individual workforce, which made the business operate in 20 or more countries where it employed 70,000 people. Regarding the acquisition of Cadbury, the UK Prime Minister, Gordon Brown, urged Kraft not to cease the operations in the country and suggested the government’s influence on maintaining jobs for Britons after the takeover.
Impact on Customers
A merger or acquisition may present a variety of product lines, economies of scale, and cost-containment for two businesses. In a market where some competitors have a brand image that is important to consumers, an acquisition can lead to customers shifting towards the opponent. For the acquisition of Cadbury by Kraft Foods, not all customers from Cadbury became part of Kraft’s customers. Besides, changes are bound to happen in terms of prior customer service experience. If the clients feel that the changes are negative, they will progress to the original business’ competitor (Hitt, Harrison, & Ireland 2001).
Competition Issues
Mergers and acquisitions help in eliminating competition on the same field. Kraft’s acquisition of Cadbury ensured that the company (Cadbury) was eliminated from the market and that Cadbury’s assets became Kraft’s possessions. The move was aimed at increasing Kraft’s asset base and marketing leverage power (Lei 2001). The plan was advantageous to Kraft in the confectionery world. After the merger between Glencore and Xstrata, the new company Glencore-Xstrata became a major force in the mining industry. Acquisitions occur with the view of acquiring the assets of a company that has a great capital portfolio before rival companies do so. Consequently, such acquisitions make the weaker company competitively stronger compared to its stature before.
Regulatory Implications
According to Gregoriou and Renneboog (2007), mergers and acquisitions affect a company’s corporate governance. They are part of any business’ strategic management. Moreover, it is imperative for legal due diligence to be done to facilitate a merger or an acquisition, which can help in minimizing any legal risk that might be implicated on the deal. The initial stage involves analyzing both businesses’ Articles of Association and aspects that relate to employee registration with the relevant regulatory bodies. For instance, the Cadbury-Kraft deal was delayed for more than four months due to regulatory observance.
Post-bid Defenses that a Business can Deploy to Resist a Proposal
Shareholders Rights Plan
Shareholders rights plan is the most common takeover defense mechanism. The strategy is activated the moment potential investors announce their plans of acquiring a firm. Through this mechanism, shareholders can purchase additional stock at a discounted price hence making it difficult for the potential acquirer to come in.
Voting Rights Plan
When implementing this plan, target companies ensure that the majority of shareholders are barred from voting on matters of a takeover bid. Thus, a corporate predator’s presence may cause the super-majority type of voting, which necessitates 80% of the shareholders to approve the merger, rather than the usual majority of 51%.
The Degree of Success of the Post-bid Defenses
Kraft maintained that it would safeguard the contractual agreements on employment rights for all Cadbury company’s employees, including their pension rights. However, as Peston (2010) reveals, “Kraft shut down the Somerdale Cadbury plant in Keynsham in 2011 by citing plans to move to a new plant in Poland” (para. 7). This move led to a loss of over 400 jobs. Regarding management, when Kraft and Glencore CEOs managed to seal the acquisition and merger plans, they were awarded packages that were matching their roles towards the success. Hence, the post-bid defenses that were applied in each deal can be regarded as successful to the extent that they protected the interests of the upper elite of corporate executives instead of investors or the company.
The Situation of the Companies after the Acquisition
In Cadbury’s post-acquisition process, the UK plant was shut down, a move that caused massive loss of jobs to the company’s parent country while the Glencore-Xstrata merger produced profits in the recurrent trading periods. The corporate financial strategy adopted by Kraft was inappropriate as cited in a report. For instance, the committee chair, Adrian Bailey, asserted that the committee would monitor the previous pledges made by Kraft to the employees. Moreover, Kraft decided to change the recipe of the Cadbury dairy milk egg to one that was made of a standard cocoa mix. This strategy led to a dip of over 6 million pounds in sales in 2015 and more job cuts in the Bourneville plant. In the 4th quarter of 2010, Kraft’s profits also reduced by 24%. On the other hand, in 2014, Glencore made a net profit of $ 2.31 billion, notwithstanding the $7b write-down in 2013. The profitability was witnessed due to the company’s merger with Xstrata.
Conclusion
Kraft Foods struggles to change Cadbury’s business model. The Bourneville Union convener, Peter Taylor, confirmed his apprehensiveness about further job cuts. On the other hand, Glencore-Xstrata enjoys brisk business in terms of profits due to its large market share after the merger. The merger has not had any job cuts. In fact, it has employed more workers in the mining plant in South Africa and other parts of the world. Kraft acquisition of Cadbury may be regarded as a work in progress. However, Glencore-Xstrata is a major force to reckon with in the mining industry since it is the second largest mineral company after BHP Billiton.
References
Blas, J 2013, Glencore Finishes takeover of Xstrata, Web.
Gregoriou, G & Renneboog, L 2007, Corporate Governance and Regulatory impact on Mergers and Acquisitions, Academic Press, Amsterdam, Netherlands.
Hitt, M, Harrison, J & Ireland, R 2001, Mergers and Acquisitions, Oxford University Press, Oxford.
Lei, D 2001, ‘Strategic Restructuring and Outsourcing: The Effect of Mergers and Acquisitions and LBOs on Building Firm Skills and Capabilities’, Journal of Management, vol. 21, no. 5, pp. 835-859.
The farming industry and, specifically, the production of milk has been experiencing serious turmoil in the U.S. lately. The article by Yaffe-Bellany (2020) seeks to understand what has made the dairy industry so vulnerable and why farmers are exposed to external threats. Due to the increased competition and the high prices set for raw milk, farmers are unable to withstand the rivalry and, therefore, have to forfeit, leaving the market (Yaffe-Bellany, 2020).
At first glance, the situation that farmers are facing is impossible to resolve without introducing artificial barriers for large companies selling raw milk. However, Yaffe-Bellany (2020) argues that the use of mergers may have the milk farming industry in the U.S. without hampering the development of the organizations selling raw milk.
A farming co-op that can be created with the help of a merger will need to comply with the standards of the Dairy Farmers of America. The latter was expected to support the rights and needs of American farmers, yet, as time passed and larger organizations emerged, increasing competition, the Dairy Farmers of America lost its impact on the economic status of farmers. Consequently, the development of a co-op will help to consolidate the community of farmers and build the comparative advantage that larger corporations will not be able to trump. The proposed change is believed to start the gradual development of progress within the milk farming sector of the dairy industry.
Viewing the change from the standpoint of the price elasticity of demand will show that, with greater comparative advantage and more flexible prices, farmers will be able to stretch the Viewing the problem from the standpoint of the price elasticity of demand for dairy products. For this reason, the acquisition of Dairy Foods and the consideration of a merger across the farming community should be explored as a possible future opportunity (Yaffe-Bellany, 2020). Thus, the interests and needs of farmers will be addressed correspondingly.
Grifols, S.A. is a pharmaceutical company based in Barcelona Spain whose main specialization is the research, development and manufacture, and marketing of plasma derivatives. It also engages in the development of IV therapy, internal nutrition, diagnostic systems, and other medical materials. The main segments that the company deals with include bioscience, hospital, and diagnostic. Though headquartered in Spain, the company has subsidiaries throughout the world that help it make undertake the above tasks.
According to Bloomberg Business Week, the company’s year-over-year financials has recently experienced a bottom-line shrink from 148 million euros to 115 million euros. However, the company’s revenues experienced a bump increasing to 990 million euros from 954 million euros. in the first quarter of 2011, the company has experienced a rise in revenues increasing by 3.8% to 261 million Euros compared to the previous year.
Though headquartered in Spain, the company has operations across the world concentrating mainly in North America, Europe, and Asia including a facility in Los Angeles California. The latest subsidiary that the company acquired was Talecris Biotherapeutics Holdings Corp, a US-based company that also is involved in the production of plasma derivatives.
Talecris Biotherapeutics Holdings Corp. is a global biopharmaceutical company that specializes in the production of protein therapy products. These products are used to treat conditions such as immune system disorders, severe burns, and hemophilia. The products that this company makes, like those of Grifols, S.A, help in bleeding control as well as combating infection. Some of the products include Gamunex IGIV and Prolastin, which help in the treatment and control of immunodeficiency conditions and leukemia respectively. In the fiscal year ended December 2010, the revenues for the company topped 1601 million dollars representing revenue growth of 4.5% compared to the previous year. Talecris Biotherapeutics Holdings Corp. is based in Research Triangle Park, North Carolina, and has operations in the US, Canada, and internationally.
Incentives to consolidate
According to the Grifols management, the merger of the two companies will provide much-needed diversification of the global industry that provides life-saving and life-prolonging plasma protein therapeutics. The diversification will be a result of the established and strong presence of the firms in the US, Europe, and other markets worldwide.
Additionally, the combination of the two firms offers the best platform for the achievement of both company’s strategic initiatives through the creation of an efficient system for manufacturing, innovation, marketing, and sales of the products that the companies produce in the global market.
According to the company, the merger will avail a large pool of expertise and skills that will be driven by both companies’ legacies that emphasizes patient commitment growth and innovation. On this basis, the companies hope to increase the availability of high-quality plasma-derived drugs for patients globally.
According to the CEO and chair of Grifols Victor Grifols, the merger has enabled the creation of a vertically integrated company that has increased its global presence as well as its manufacturing scale. The transaction will enable the new company to achieve the objectives cited above through increased capacity that will enable it to optimize the use of collected plasma. Besides, the transaction will avail the company of a well-established plasma collection system to address the increasing demand for plasma-derived products from patients. Additionally, the merger will avail to it an enhanced R&D pipeline of complementary products that will ensure the sustainability of growth and a well-developed clinical research program in the United States. In addition, the new company y will be able to offer a wide variety of products that will satisfactorily address the need of the therapeutic markets ranging from immunology pulmonology and hematology.
The Firms in the Industry
The Grifols S.A. belongs to the larger pharmaceutical industry. Like many industries such as oil and manufacturing, the pharmaceutical industry is a multi-billion dollar industry that plays a crucial role in the economies of the world. Most of the top pharmaceutical companies that control significant portions of the market include Johnson and Johnson, Pfizer, Roche, GlaxoSmithKline, Norvartis, Sanofi- Aventis, AstraZeneca, Abbot Laboratories, Merck & Co, and Bayer Healthcare. The above form the top ten pharmaceutical companies in the world.
Johnson & Johnson is a public company that is traded in the New York Stock Exchange with established operations worldwide. Besides pharmaceuticals, the company deals with healthcare as well as cosmetics. The company posted revenues of over 60 billion dollars in the year 2010. Its net income for the same year was 13 million dollars with total assets and equity totaling 102 billion and 56 billion dollars respectively.
Pfizer like Johnson & Johnson is American and publicly traded on the NYSE. Founded in 1849, it has operations worldwide with revenues exceeding 67 billion dollars. Its net income is more than 8 billion dollars with assets and equity totaling 195 and 88 billion respectively.
GlaxoSmithKline Kline is a UK limited company that is traded in both the NYSE and the London Stock Exchange. The company was founded in the year 2000 through a merger between pharmaceutical companies, Glaxo Welcome and SmithKline Beecham. The company has global operations dealing exclusively in pharmaceuticals. Its revenues for the year 2010 amounted to over 28 billion pounds with a net income of 1.8 billion pounds in the same year.
Manufacture of protein derived products
The main raw material for the manufacture of plasma-derived products is blood plasma. It can be recovered plasma, which is separated from the blood, or source plasma that is obtained by plasmapheresis strict licensing and regulation is enforced in the collection of human blood plasma in most countries that have companies that undertake the processes. The regulation ensures collection sites meet the required standards, donor selection is done ethically, and testing is done on the plasma for the identification of transmissible diseases (Starr, 1999, p. 59).
There are various technologies involved in the production of plasma and the products that are derived from it. One of the most dominant technological processes is the Plasma Protein Purification System (“PPPS”) which ensures efficient extraction of plasma from human blood with powerful affinity separation materials in a multi-level process. The manufacturing process in the plasma extraction is referred to as Fractionation (Surgenor & Edwin, 2002, p. 88).
It involves the separation of fractions with biological functions from a mixture of serum and plasma. Various chemical and physical methods are used in the separation of plasma into various fractions so that the concentration of the desired activity and removal of unwanted activity can take place. The process also includes cold ethanol fractionation and chromatographic purification both of which help in the fractionation process.
Competition
The global pharmaceutical industry is dominated by a concentration of twelve firms that were listed earlier. The firms account for the majority of the sales and profits of the global pharmaceutical business. These companies set the trend in the industry thanks to their high returns. The high returns have enabled to generate enough cash which is key for rapid growth. This growth is, marketed by mergers and acquisitions. Although size does not guarantee success to a company, big pharmaceuticals use their size through capitalization of economies of scale in manufacturing clinic trials and marketing. Additionally, big pharmaceuticals are better to engage in research and development, which ensures the introduction of new products into the market effectively ensuring long-term stability.
According to Taggart (1993, p. 76), competition in the pharmaceutical industry comes in three forms. There is competition among the big companies themselves as well as the small companies that are experiencing rapid growth. The companies are also experiencing some heat in form of profit losses from generic drug manufacturers. Finally, the companies in the pharmaceutical industry are experiencing competition from healthcare sector industries.
The size of these companies and the resources at their disposal have ensured they affect competition through price control, price setting, and advertising they have also influenced competition in the market through protection patents and drug portfolio management. Dominant players like Johnson & Johnson and Pfizer are capable of carrying out the above competition practices (Warren-Boulton, 1990, p.43).
Concentration ratios
The pharmaceutical industry’s four-firm concentration ratio is composed of Johnson & Johnson, Pfizer, GlaxoSmithKline, and Roche together which account for US$ 205.09 billion of revenues in the year 2010 alone. On the other hand, the eight-firm concentration ratios for the industry comprises of the firms described above in addition to the next four that include Norvartis, Sanofi-Aventis, AstraZeneca, and Abbot laboratories. The firms together account for US$354.92 billion in revenues. On the other hand, taking using the eight-firm concentration ratios of the pharmaceutical industry, the Herfindahl Herschler will be 0.125 the industry.
Arguments for and against
According to Davidson & Greblov (2005, p. 98), output and pricing decisions in oligopolistic markets are complicated and no theoretical framework can provide a comprehensive answer to the issues that characterize it. For instance, price cuts in oligopolistic firms may be met with price reductions by other competing firms. On the other hand, if an oligopolistic firm rises its price other firms may not raise theirs. This ensures a prolonged period of price stability in oligopolistic markets. Pricing forms one of the fronts of competition in oligopolistic markets. There are both demerits and merits of this competition.
For instance, the merger between Grifols and Talecris Merger should go ahead because it’s likely to benefit consumers of protein-derived drugs in many ways. This includes the creation of an additional supply of drugs into the markets. The additional supply is likely to push down prices of the drugs whose ripple effect will benefit the consumer. The expected quality boost from the merger will ensure other companies involved in protein-derived drugs manufacturing increase the quality of their products directly benefit the consumer. The merger increases efficiency that will positively affect the labor market of the industry. Increased efficiency will lead to increased output hence better wages for workers or less working time. Companies involved in the manufacture of protein-derived drugs will likely invest more in technology to effectively compete with a company of the Grifols magnitude. Increased technology use will lead to efficiency the will indirectly and directly affect the consumers positively (Taggart, 1993, p. 76).
On the other hand, the merger may present problems both to the consumer and the industry of the country that it takes place. For instance, the Federal Trade Commission says that the acquisition of Talecris by Grifols will be anti-competitive through the lessening of competition in the American markets in some plasma-derived products. Additionally, stiff competition may force rival firms to institute restructuring in cost-cutting measures to stay competitive. Cost-cutting measures more often than not affect workers who are laid off dealing a blow to economic growth and personal development.
When looked at from an objective perspective, however, a competitive industry benefits society because most firms are forced to improve the quality of their products. The process of improvement also is capital and labor-intensive, which is beneficial to the economy. The acquisitions, mergers, and development of new companies may lead to a concentration of the oligopolistic market that may present mixed fortunes to the consumers.
A high degree of concentration of the market is not very beneficial to the consumer in the long run. This is because some firms are likely to be pushed out of the markets, which may affect the oligopolistic balance that exists. In the long run, the market may be dominated by a player who may exhibit a monopolistic behavior that is not beneficial to the consumer at all (Warren-Boulton, 1990, p.58). To counter the above situation it will be prudent for oligopolistic markets to adopt common standards that will help in the regulation of the industry in terms of technological exchange and other competitive practices that may derail the growth of the industry.
References
Davidson, L. & Greblov, G. (2005). The Pharmaceutical industry in the Global Economy. Bloomington, Indiana: Indiana University Kelley School of Business
Taggart, J. (1993). The world pharmaceutical industry. New York: Routledge
Starr, D. (1999). Blood, an Epic History of Medicine and Commerce. New York: Springer.
Surgenor, D. & Edwin J. C. (2002). The Development of Protein Chemistry. New York: Routledge.
Warren-Boulton, F. R. (1990). Implications of U.S. Experience with Horizontal Mergers and Takeovers for Canadian Competition Policy. Vancouver: The Fraser Institute.
The terms merger and acquisition imply two different things. Acquisition refers to a situation where a company takes over another established company and establishes itself as the new owner of that company (Anonymous, 2010). The company which has been taken over or “swallowed” by the new company therefore ceases to exist. Merging involves two separate companies which opt to come together and form a new single company and is often referred to as the “merger of equals”. However, for a merger to exist, the two companies must often be about the same size. Take over (acquisition) can either be friendly or hostile depending on the circumstances.
The motivation behind the merger/acquisition between Interclean and EnviroTech was that the company wanted to consolidate its markets and gain a competitive advantage in the industry. Interclean wanted to provide its customers with a full range of service packages which met the individual demands of its clients. Interclean also wanted to be in position of forecasting and acquiring a different line of business that will help it build a cutting edge through reduction of competition across the industry (Barney et al, 2009).
There exists five types of merger/acquisition namely, Conglomeration, vertical mergers, horizontal mergers, product expansion mergers and market extension mergers. Horizontal merger is case where two companies who directly compete and serve the same market opt come together for the purpose of serving the market as one entity. Vertical merger happens when the organization decides to merge with the customer or the supplier. Conglomeration is the merger of organizations which do not share the same market or even sale related products. Product extension merger entails merging of companies which sell related products to serve a common market. Market extension merger is executed between two companies which sell products that are related but in different markets (Anonymous, 2010).
The kind of merger that existed between Interclean and EnviroTech was a Horizontal merger because Interclean Company and EnviroTech were two separate companies which offered the same products and served the same market.
The challenges that Interclean and EnviroTech merger will face as result of their merger and acquisition is that they will have to convince their clients that they haven’t sold their businesses or company by making them feel the same or better. The clients will not feel good when they discover that the company they have been dealing with has been sold out or acquired by another company and therefore the biggest challenge that will face these companies is convincing the customers that they are still the same people. Another challenge that will be forced by this merger and acquisition is that the company will have to try by all means to reduce anxiety among it sales personnel (Anonymous, 2010).
Mergers and acquisitions should therefore be done in a way that takes in the interests of the customers, the employees and all the stakeholders so that all the business ideals that were represented in the parent company continue to exist. Failure by companies to take in the interests of the stakeholders involved often lead to reduction in sales and therefore making the merger and acquisitions to be a raw deal. The top management should therefore take into consideration all advice from the stakeholders with a common view of improving the image and income of the new company.
References
Anonymous (2010). Waiting for a wave. Web.
Barney, J and Hesterly, W. (2009). Strategic Management and Competitive Advantage (3rd edition) New York: Prentice Hall.
Companies’ cultures within the Competing Values Framework:
Competing Values Framework;
Utah Opera’s culture;
Utah Symphony’s culture.
Message strategy for Anne Ewers:
The main reasons for merger;
The benefits of the merger;
Specific arguments;
Difficulties to overcome;
New strategic goals.
Two technology tools to help the companies merge their administrative technology applications.
Competing Values Framework
The competing values map has four hierarchies:
Hierarchy is a traditional structure where control flows from an organization’s chain of command.
The market value framework is one that seeks control by venturing more into the markets and having controlled costs of transaction.
Clan organizations place more focus on flexibility rather than structure. They are driven by a flexible vision and have no room for strict procedures.
Adhocracy is a more flexible system than clan and is always ready to adjust to the changing markets (Herzog, 2007, p. 67).
Utah Opera’s culture
The main idea of Utah Opera’s culture is as follows,
“being forced to compete for funds and audiences by being more outward and market-focused, flexible in responding to change” (Delong & Ager, 2005)
Utah Opera exhibits a clan culture:
Personal and close organizational characteristics
Mentoring and nurturing leadership style
Management of employees involves team work and participation
Loyalty and trust are the organizational glue
Strategic emphasis on human development and high trust
Utah Opera has integrated a creative, competing and creative culture to open up to growth.
Competence through innovation and growth.
Collaboration by investing in the team.
Creativity which is evident from the company’s innovation
Control through rules and regulations.
Utah Symphony’s culture
The main idea of Utah Opera’s culture is as follows,
“a strong identity derived from company’s high-powered conductors and professional approach to the art form and the business” (Delong & Ager, 2005)
Utah Symphony exhibits a market culture:
Organizational characteristics are competitive and driven by market achievements.
Leadership style is aggressive and result-oriented.
Employee management is more driven by achievements.
Goals accomplishments hold the organization together.
Strategic emphasis is on winning and competitive actions.
Utah Symphony’s is competitive and driven by market achievements.
Utah Symphony is aggressive and result-oriented.
Utah Symphony is more driven by achievements.
Goals accomplishments hold the organization together.
Utah Symphony has their strategic emphasis on winning and competitive actions.
Message strategy for Anne Ewers
A weakening economy
Decline in support for art
The need for better products (Conrad, 2005).
There are a lot of different reasons why the key members of the opera contractors and the orchestra employees should be retained. These three ideas mentioned on the slide should be considered as the main reasons for the merge. The merger is supposed to help the companies economize on costs and replace lost revenues. A merger is also considered the best option for these two companies to expand their artistic potentials.
Control will give the business efficiency and quality
Creativity will enable it launch new into the global markets
Collaboration will be possible through long serving music directors
Competence will allow the business venture into international markets
The merger of these two companies will allow the companies to experience the following benefits:
Control has given the business efficiency and quality through adhering to their budgets and persistent management.
The company exhibits creativity by speculating and taking advantage of new markets every time there is an opportunity.
Collaboration has been possible by having long serving music directors.
Creativity is evident from the company’s ability to venture into international markets even when it was not a common trend.
It is important to remember that Anne Ewers may use the following arguments for retaining employees:
Some employees are very critical for a company’s success. Retaining such employees from both company’s may simply require reassuring them that they are needed and are important to the business.
Autonomy is the most treasured right of privilege by most managers. However, Anne Ewers should only allow this for those managers linked to highly valued company goals.
Employees will many times identify with a company’s culture and may not longer be comfortable when it changes. Anne Ewer must ensure that the integration and culture changes do not leave employees feeling alienated.
Increasing the pay of key employees will definitely attract their attention.
Anne Ewers shouldn’t hide the fact that the first years are going to be rather difficult for these two organizations, still, it is possible to overcome those It is impostant to be honest with the key members of the opera contractors and the orchestra employees and say hem that the following problems will occur, but, still, it is possible to cope with them:
A merged management will ensure that executive teams from both companies are in agreement.
Employees need to be educated and trained on the new business model, practices and changes.
The new company will need to build a business reputation, based on the strength of each of the companies.
A brand strength will be made possible by merging products to make one strong brand and avoid internal competition among products.
The new company’s strategic goals will include managing internal mobility and merging financial management through:
Needs analysis
Training
Establishing responsible departments
Merging stakeholders from both businesses
A human resource management technology will help the company establish responsible and well able departments through tools such as training.
The new company will need a harmonious system to integrate employees from both companies and their responsibilities. Managing human resources will be the foundation of the merger and its operations.
The business will need to merge and integrate other stakeholders from both businesses such as suppliers.
Available technology will help the new company easily identify and manage arising problems.
Managing a merger’s financial operations determines how well it can hold its stability in future. A financial management technology will help the merger manage its financial needs and operations such as revenues, salaries, purchases and other expenses.
Technology Tools
Human Resource Management Technology
HR auditing
Training and re-training facilities
Leadership strategies
Creation of the healthy environment
Restructuring of the staff ()
Certainly the business will need to integrate all the employees from both companies and manage their new responsibilities.
A key goal for the new company will be to create harmony amongst employees and allow a smooth transition of cultures and responsibilities.
Financial Management Technology
Problems:
Radical difference in scale and action
The absence of the performing artists under continuing contract in opera
Differences in organizational structure
The merger of these two organizations may lead to numerous problems. The financial one will suffer the most and to understand the tendency the analysis will have to be completed. Moreover, it is obvious that some employees will have to be retrained.
Solving:
Merging their financial supply chains management
SAP software implementation
The financial department is going to be responsible for the task. A financial management technology will enable the company achieve one of the most important goals, which is merging their financial supply chains management. A financial management software such as SAP will give the new business modular applications.
Conclusions and Recommendations
The business will need:
Re-evaluation
Research and consideration
Consultations
A competent leader
Employee’s training
Re-branding
Advertising
A successful merger requires that both companies’ models be broken and be re-evaluated.
When a transaction has not been tried before, as is the case of Utah Symphony and Utah Opera merger, the risk becomes bigger and therefore needs more information and consideration.
Every stakeholder in both companies must be involved to reduce disruption of business after the merger is complete.
After the merger, the new business would require a leader who is familiar with the industry.
Reference List
Conrad, B.H. (2005). Five thousand concerts: A commemorative history of Utah Symphony. New York: Routledge.
Delong, T.J., & Ager, D. (2005). Utah Symphony and Utah Opera: A merger proposal. Boston: Harvard Business School Publishing.
Herzog, P. (2007). Open and Closed Innovation: Different Cultures for Different Strategies. Wiesbaden: Gabler Verlag, 2007.
Mathis, R. L., & Jackson, J. H. (2007). Human Resource Management. Stamford: Cengage Learning.
In February, 2010, the world witnessed a significant merger of two leading confectionary companies – Kraft Foods in the United States and Cadbury, a famous British company. The merger perceived a mixed reaction and disapproval from the British government. Nevertheless, Cadbury and Kraft Food has gained much more beneficial positions in the world due to the takeover. Having accepted a £ 11.9 from Kraft Foods, the company has gained a great competitive advantage at the international market1.
The point is that the bid is about 9 % higher than the previously established by Kraft, which is considered as a kind of a victory of Cadbury shareholders so that Kraft investors appeared to be the most advantageous variant for the British confectionary company. The increase in bid can be considered as a reaction to completion on the part of other well-known and respectable companies that were just about to prepare a rival bid. Arising from these financial and business operations, the change in prices during a merger bid can be explained by several reasons. On the one hand, Kraft’s offer could be triggered either decline in stock returns2.
On the other hand, Kraft investors selected a specific corporate approach while offering a lower price. In order to find out the actual reasons, it is necessary to analyze the basic theoretical frameworks and corporate finance strategies implemented by the bidding company and the target company.
Analysis of Stock Returns to Bidding
Theoretical viewing the problem, it should be stressed that corporate performance of large companies largely depends on their sustainability as well as stock returns. In this respect, Stern and Chew believe that “…the market value of corporate stock – like the value of a bond or any other investment – is the present value of a company future expected after-tax cash flows…”3. Interpreting this, reported earning can be considered a measurement tool for evaluating the main concepts of finance marketing. Relying on the importance of value and profitability, the stock return of Kraft Food has been significantly increased after the takeover and, therefore, it can be regard as on of the main reasons for carrying out this operation.
While analyzing the connection between stock returns and bidding process in more detail, particularly the decision of Kraft managers to lower the bid price after the initial offer, one should discuss the concept of aftermarket strategies and phenomenon of underpricing4. The fact is that the mean underpricing often exceeds 15 % in most cases and this decline is often explain by the investors’ attempt to receive more returns. However, if investors offer a market-clearing price, their returns are, apparently, below the normal level. So, in case the initial order is rejected, the next bid will be much lower because investors strive to compensate their losses.
Stock price fluctuations also depend on the speculative demand where “momentum induces a myopic but active strategy of buying winners/selling losers, in which the momentum parameter of the stock price dynamic nearly appears”5. The demand is also significantly influenced by performance return rates that can be either above or below the expected return. In this respect, the momentum makes the demand negative through the boost of the distant-future stock prices volatility.
Regarding the Kraft Food and Cadbury merger, the target company has much more benefits in terms of increasing momentum that will further help the company to foster and ameliorate the ability to deliver much more attractive returns. Kraft position is quite beneficial as well, because the merger transaction will help the company to conquer the premium positions in emerging markets.
Long-term and short-term performance studies differ significantly in terms of stock returns connected to merger announcement dates. In particular, empirical studies conducted by Clayman, Fridson, and Troughton suggest that the target company can significantly prosper from the merger transaction because they create value, though in the short run6. They believe that about 30 5 premiums over the share’s pre-announcement price, and about 2 % percents are marked by the acquirer’s stock price falls7.
What is more interesting is that both the target company and the bidding one are more likely to experience higher stock returns. In general, returns gained by the target shareholders are traditionally measured by the control premium that is identical to the price paid for the target firm in excess of it actual value. In its return, the acquirer returns are identical to the value of any interactions initiated by the merger transaction minus the premium paid to target firm.
Analysis of Target Company during a Merger Bid
While analyzing the position taken by Cadbury, the target company, a particular emphasis should be placed on the merger bid process, a hostile takeover bid, and takeover defense strategies chosen. On the one hand, Cadbury’s position is quite effective and rational, but a bit risky. In particular, the company’s fear to be underestimated explains the initial bid rejection, but such risky decision and desire to receive higher price can be really a disastrous combination
According to Bender and Ward, “successful corporate raiders do not often get involved in changing the business strategies of the companies they buy, buy they do alter their financial strategies; normally or dramatically increasing the financial risk profile by raising the debt to equity ratio”8. It is understandable that financial risk directly relates to the maturity of the company that is also less influenced by the external factors. Consequently, shareholding companies should adhere to a low-risk business strategy to avoid the risk of a hostile bid and a hostile takeover.
In addition, due to the fact that company is often owned by shareholders, there is often a conflict between shareholders and an executive power preventing the achievement of company’s specific goals. In this respect, the shareholder value can be perceived as the company’s target9. In addition, even if the possibility of a takeover is insignificant, risk managers should be ready to react when a hostile takeover bid will be presented.
Evaluating the takeover market in the UK, it should be pointed out that the merger waves have acquired a much more intense nature. Approximately 25 % of all takeovers were hostiles in the 80s of the past century. Interestingly, the cases show that hostile character has been more typical of takeovers that were rejected initially10. Stern and Chew has also found that a number of financial variable including dividends, stock returns, and cash flow rates, the performance of the target companies of hostile bides prior to a bid was not significantly differed from that of examples of either non-merging companies or accepted ones. In this respect, share performance, but not hostility of bids significantly influences the overall company’s reputations and revenues. In contrast, companies with a low level of performance significantly reduced their dividends prior to a bid.
Explaining Possible Reasons for Changes in Prices
It is obvious that cash bidding, but not stock bidding, was chosen by Kraft to avoid stock undervaluation that followed a tender offer. It also partially explains why the second offer was relatively lower that the initial proposition. Another explanation of cash flow lied in greater efficiency and higher probability of success in tenders11. Nevertheless, the above-presented assumptions do not fully disclose the reason for price fluctuations, but just create pre-conditions for developing hypotheses concerning possible underpinning for changes in prices on the merger announcement days. A possible reason for price shifts can be connected with Kraft’s desire to make Cadbury’s shares rise in value and create a great competitive advantage. Leaving the rivals behind, Kraft has considerably contributed to the value of its shares.
Price changes can be clearly explained in terms of Kraft desire to receive higher stock returns, but there are no rational explanations for the last increase in a bid price. One the one hand, the rise indicates that Kraft was in extreme need of receiving a lager segment at the stock market. One the other hand, the company just had to raise the bid rate to compete with other bidding companies. More importantly, the merger was beneficial for Craft with regard to cost saving policies. Kraft planned to lift share values with the help of the merger transaction and generate cost savings. The deal is also to increase the long-term earnings.
Cadbury financial strategies can also be the cause of bid price change on the announcement dates. During the first bidding, Cadbury managers rejected the offer to raise the price and increased the share value. A hostile bid was also successfully withdrawn due to the appearance of a competitive environment. Consequently, despite of the risk accepted by the target company, Cadbury can be considered as a winner in this business transaction because to manage to stand a hostile takeover and increase the stock returns. What is more important is that the company is now considered to be one of the leading world producers of confectionary. In general both parties have considerably benefited of the merger transaction in spite of existing frictions and business risks.
Conclusion
The merger of two great companies – Kraft Foods and Cadbury has been a significant event in a financial world that has perceived a mixed reaction. Despite the controversies and hostile reaction on the announcement dates, both companies have considerably prospered from the merger transaction. In particular, Cadbury has received the world recognition, becoming the leading company at the international market. In its turn, Kraft has also been honored by a number of benefits, despite disapproval expressed by the British government. First of all, the company has increased the values of shares and stock returns and has reduced the costs.
However, closer consideration deserves the bidding process that received much more attention. Many questions were raised concerning the price fluctuations as well as the reasons for those shifts. In this respect, one of the reasons was Cadbury’s fear of being underestimated and Kraft concerns with risk management. One way of another, both Kraft and Cadbury have chosen beneficial corporate finance strategies to overcome the problems.
Bibliography
Bender, R & K Ward, Corporate Financial Strategy. Butterworth-Heinemann, New York, 2008.
Buxton, T & P G Chapman, Britain’s Economic Performance. Routledge, New York. 1998.
Clayman, M R, M S Fridson & G H Troughton. Corporate Finance: A Practical Approach, John Wiley and Sons, Ney Jersey, 2008.
Rodriguez, J C & A Sbuelz, ‘Understanding and Exploiting Momentum in Stock Returns’ in Advances in Corporate Finance and Asset Pricing. Emerald Group Publishing, US, 2006.
Stern, J M & D H Chew, The Revolution in Corporate Finance, Willey-Blackwell, New York, 2003.
Wearden, G, ‘Timeline: Cadbury’s fight against Kraft’, Guardian. 2010. Web.
Footnotes
G Wearden, ‘Timeline: Cadbury’s fight against Kraft’, Guardian.co.uk. 2010, n. p.
Wearden, n. p.
J M Stern & D H Chew, The Revolution in Corporate Finance, Willey-Blackwell, New York, 2003. p. 254.
J M Stern & D H Chew, The Revolution in Corporate Finance, p. 255.
Rodriguez, J C & A Sbuelz, ‘Understanding and Exploiting Momentum in Stock Returns’ in Advances in Corporate Finance and Asset Pricing. Emerald Group Publishing, US, 2006.
M R Clayman, M S Fridson & G H Troughton. Corporate Finance: A Practical Approach, John Wiley and Sons, Ney Jersey, 2008. n. p.
Clayman, Fridson &. Corporate Finance: A Practical Approach n. p.
R Bender & K Ward, Corporate Financial Strategy. Butterworth-Heinemann, New York, 2008. p. 60.
R Bender & K Ward, Corporate Financial Strategy. p. 61.
J M Stern & D H Chew, The Revolution in Corporate Finance, Willey-Blackwell, New York, 2003, p 545.
T Buxton & P G Chapman, Britain’s Economic Performance. Routledge, New York. 1998, p. 220.
Mergers are a crucial component of business practices as they unite two companies into one new entity. Businesses merge to diversify their activities, create value, increase their fiscal capacity, and attain better taxation measures. Mergers involve a shift in the identities of the two separate companies so they adopt one identity, usually that of the dominant company. A common identity is crucial for the two companies for effective coordination to be achieved. The formation of a singular identity involves multiple activities within a firm such as the merging of departments. The new management identifies the need for renewed departmentalization of the company owing to the increased staff and possible change in business practices within the organization (Tian et al., 2021). The formation of the new departments is likely to follow the direction of the dominant firm’s previous structure.
The integration of systems within the new firm may also involve downsizing the staff to a desirable number. This activity is vital in ensuring that redundancy is avoided within the organization (Ming et al., 2019). The allocation of responsibilities amongst the staff should not be repetitive as this would hinder efficiency and lead to the wastage of manpower. Practices may also need adjusting to ensure that the new desired business protocols are followed and company objectives achieved.
Typically, studies treat employees as a uniform entity despite the massive difference in the role they play and the impact accrued from the changes. Generally, two classes of employees are identified, core employees and peripheral workers. Core employees are the most valued members of a workforce and are part of the decision-making team. They are well-informed about the various changes that occur within the company. Peripheral employees are mostly uninvolved in the decision-making process within the company (Cooke et al., 2020). Their involvement in the management is minimal, and their awareness of changes occurring is usually delayed. The assumption that core and peripheral employees experience mergers the same way is problematic because mergers are communicated differently to varied groups.
Core employees are consulted by their companies on the changes desired by management and their input is sought. The mergers are not usually a surprise for them compared to the peripheral team who are last to know (van Dick et al., 2018). Core employees also experience minimal change regarding organizational identity given their activities still revolve around their field of expertise. This is because the roles of core workers mostly revolve around management, which undergoes minimal revolution after mergers. Peripheral employees, unfortunately, suffer massive changes with the addition of management teams from the other company. Both dominant and dominated company peripheral employees are likely to lose their jobs due to new demands from the other management team.
The change in organizational identity is more overwhelming for peripheral employees compared to their core counterparts due to the difference in structures through which they associate with the company. Peripheral employees are accustomed to viewing the firm from the bottom, through the various subordinates who manage them, and eventually, the ownership that pays their dues (Knippenberg et al., 2002). Core employees have a more direct view of the company and experience fewer levels. A merger is likely to revolutionize all these levels that the peripheral staff is accustomed to, disorienting the identity of the organization. A merger calls for greater interrogation of changes within the two sets of peripheral workers compared to their core counterparts. Acclimatization with the new identity and structure is troublesome for peripheral employees and takes more time. This is a major reason why mergers are more demanding for peripheral workers.
Tian, A. Y., Ahammad, M. F., Tarba, S. Y., Pereira, V., Arslan, A., & Khan, Z. (2021). Investigating employee and organizational performance in a cross‐border acquisition—A case of withdrawal behavior. Human Resource Management, 60(5), 753–769. Web.
Strategic mergers are the hallmark of the 21st century.
Challenges that prompt the need for collaboration such as uncertain economic changes include: similarity of mission and objectives and the need to share resources among others.
Such need has seen competitors align their forces together in the need to dominate their respective industries and markets.
However, merging is not entirely the only factor for success of any organization. It takes good captainship to steer the boat in the right direction.
Good leaders are the focal point for success.
This presentation will ,therefore, focus on two organizations, the Arizona’s Children Association and the CiteHealth organization.
It will shed light on each organization’s history, undertakings and how the proposed merger between these two organizations will be mutually beneficial.
Arizona’s Children Association
The Arizona Children Association is more than just a children home.
It has been a safe haven for children as well as families in need for its services.
It is a state entity registered in the state of Arizona and whose deep and rich history are part and parcel of its existence.
It is also one of the oldest and largest statewide child welfare and behavioral nonprofit agencies.
History
The Arizona Children Association was founded in 1912 with the aim of catering for orphaned and vulnerable children.
It set out to start a home that would care for the state’s children who needed to find a permanent home, handling the placement locally instead of taking children out of their comfort zone and transferring them to a home in the state of California (About us, 2013 ).
Mission
Protecting children, preserving families.
Arizona’s Children Association aims at providing orphaned and needy children a comfortable home as well as creating and sustaining healthy family environments.
Populations
The Arizona’s Children Association started with a humble population of only six children.
With time, this figure has grown to an impressive annual population of 45,000 children and their families across all 15 counties in Arizona.
This is can be attributed to the strategic positioning of the association so as to meet and address the changing needs of children.
Management
The Arizona’s Children Association is headed by a competent Board of Directors who bring to the table years of experience, skills and resources that have enabled the organization reach the level it is at this present moment.
These experts are committed to offering quality programs and services in a fiscally responsible manner. The day to day operations of the associations are run by the Executive Director, Mr. Fred Chafee, with vast experience in child welfare and behavioral health management.
Financial status
The association has properly kept books of accounts that are audited annually. This helps promote transparency and accountability.
Strategic mergers
The association has formed strategic partnerships with the following organizations that share the same vision and goals.
The Parent Connection– A Tucson based agency dedicated to helping children grow into caring, capable adults.
Las Familias– An organization dedicated to facilitating the healing process for children and adults who experienced childhood sexual abuse.
Child Haven– An organization that aims at helping children whose families are facing extreme difficulties.
In My Shoes– This organization was established by alumni of foster care that is dedicated to ensuring that young people experiencing foster care will be supported through their transitional year .
CiteHealth
This is a leading online service company that provides health related information to the public. Its main aim is to provide easy access to health institutions that address specific health related issues (About us, 2013 ).
It provides information on treatment offered and payment options of the following institutions in every state in the country.
Dialysis centers;
Home care agencies;
Hospitals;
Nursing homes;
Rehabilitation centers.
Populations
CiteHealth has clients throughout the 51 states. Based on the category chosen on the website, it indicates the number of dialysis centers, home care agencies, hospitals, nursing homes and rehab centers available in every state.
Financial status
The company has a stable financial portfolio with financial statements that are updated and audited annually.
Recent decades have seen an upsurge of network usage among the youth hence increasing the value of the internet business.
Problem statement
Lack of awareness and inaccessibility of services offered by Arizona’s Children Association amongst state residents as well as the entire country.
Solution statement
Promote accessibility and awareness of Arizona’s Children Association’s services by strategically aligning itself to an online service provider with a similar vision to provide an internet platform for a global audience.
Why Citehealth?
There is need for Arizona’s Children Association to keep up with the changing demands of the 21st century by embracing technology.
Therefore, one way that Arizona’s Children Association can achieve this and most importantly promote its accessibility is through a merger.
CiteHealth is a popular health provider whose vast network is present in every state and can help it achieve this feat effortlessly.
Advantages of the merger
CiteHealth has a similar organizational culture with Arizona hence both can foster similar work practices.
CiteHealth mainly focuses on online health care communities. This enables individuals to share health care experiences.
This merger will provide the much needed attention to the association.
Incorporation of CiteHealth browser search engine into the association’s browser. Individuals will be able to access the association’s services in the powerful CiteHealth browser.
Through the Google search Gadget external link, the powerful health care provider search engine will be incorporated into their Google homepage.
Provide customers with free content about the Arizona’s Children Association which can be utilized by the association in their media distributions.
CiteHealth accepts additional information on the association which can be posted on the association’s profile. This will increase its publicity.
CiteHealth also accepts rich media. For instance, the association may wish to include, for example, images, brochures and events catalogues.
Initiative
According to Zaiss (2002), partnership is an association between two or more parties that agree to work together towards a common goal for the mutual benefit of all parties involved.
The delegation that should present a proposal to CiteHealth should be made up of experts that would negotiate a good deal on behalf of the association.
The team of leaders that should have leadership skills such as good decision making skills, proper planning, evaluation and in general being a good representative of the association, understanding the needs and resources.
Upon negotiating terms, a contract is signed by both parties. This binding document can be enforced legally as any breach of the conditions specified in the contract will lead to dire legal consequences.
Each party is, therefore, advised to agree on conditions that define duties and responsibilities as well as consequences if not fulfilled.
Successful negotiations will lead to organizational restructuring in both organizations . This will see partners being included in the organizational structures.
Team building
Quick (1992), describes team building as a practice that views members of an organization in a team structure rather than as independent members.
In the case of mergers, this becomes relatively complex. This is because there are two or more organizations involved.
It will, therefore, take a good leader to unite the organizations involved in order to achieve a common goal.
Before any team building practices can occur, a team will need to be formed. This will see the group go through the dynamics involved, those of forming, storming, norming, performing and adjourning, as described by Enciso (2010).
In storming, although members are new to the group, the group leader should outline the purpose and direction of the group and a description of how the team will work. This entails allowing members to introduce themselves to the group.
In the storming stage, roles and responsibilities become clearer and even leads some members challenging the authority of the leader. It is at this point that the group leader should exercise assertiveness and should be able to hold his/her ground in order to hold the group together.
At the norming stage, members are more acquainted with each other and hence fit in their positions comfortably.
At the performing stage, the leader should nurture the development of members by delegating some tasks. The work performed here is seen to be directly coherent with the ultimate goal.
Finally, the adjourning stage is one the leader is focused on disbanding the team upon satisfaction that the team has achieved the set goals for the sake of the team and the organization.
Similarly, the same process is bound to occur upon the successful establishment of the partnership between Arizona’s Children Association and CiteHealth.
This will see the use of simple bonding exercises to the use of multi-day team building retreats that are organized courtesy of both partners. According to Jones (1999) , the following are exercises that could be proposed by the team leader:
Problem solving or decision making exercises- These involve getting the group to work together to solve difficult problems or make complex decisions.
Planning or adaptability exercises- These focus on aspects of planning and being adaptable to change.
Trust exercises- They engage team members in a way that will induce trust amongst them.
Accountability
According to Munro & Mouritsen (1996), accountability in a group setting helps cultivate responsibility amongst team members as they must be prepared to justify their actions to the group.
With proper leadership, members become more inclined and sensitive to group needs rather than their own individual needs.
In the case of partnerships, since different parties come together as one, there is need to draw proper lines of distinction that will clearly indicate responsibilities vested on each party to avoid conflicts of interest.
It is a common practice in partnerships to assign duties and responsibilities that are within the party’s capability to cope with the respective demands. This helps achieve optimal performance.
In this situation, the merger between Arizona’s Children Association and CiteHealth will see members of both organizations work together.
The activities carried out should also be transparent as both parties are involved in the merger. The decisions agreed upon by each party should be subject to approval of the other party before its execution.
Collaboration
For proper functioning a partnership between the two organizations, good leadership is vital. This is because a good leader will be able to integrate both parties and merge them as one, in a way that they will view themselves as a unified organization. This will help foster unity and promote co-operation.
Even though both organizations are different in terms of their responsibilities, the binding aspect is that both stand to benefit from this arrangement and, therefore, need to work together.
Management/co-ordination
Any merger is normally accompanied by organizational restructuring as it prompts the affected organizations to merge and form new structures that will accommodate the other party.
This is a scenario that is likely to happen upon the merging of the Arizona’s Children Association and CiteHealth. Therefore, there is need for proper action to resolve this issue.
Co-ordination aims at streamlining the activities of one party in order to ensure coherency. This is best achieved through good leadership practices between all parties concerned.
Advocacy
For suitable recommendation to be achieved there is need for proper motivation amongst employees in order to nurture the feeling of pride of being associated with the organization. This is also one of the qualities of a good leader, one who can inspire and motivate the team members.
Therefore, in the case of the two organizations, there is need to identify a good leader to accomplish this task for ease of integration and the transition process, while at the same time ensuring that employee motivation is maintained or even improved.
Goal-setting
Smart goals set the direction of the organization hence enable the firm to focus on achieving them.
Goals should be SMART. That is,
Specific;
Measurable;
Accurate;
Realistic;
Time bound.
It is, therefore, the duty of a leaders of the merger to clearly specify the goals the new organization hopes to achieve.
Problem-solving
Misunderstandings are bound to occur in any organization. There is, therefore, a need to come up with proper mechanisms that will address the problems that may occur to prevent a blown out conflict occurring.
According to Krantz (1997), the following are strategies the merged organization can adopt:
Collaborating- in this case, the conflicting parties jointly identify the problem, weigh and choose a solution.
Accommodating- this involves playing down differences while emphasizing commonalities.
Compromising- this is a give-and-take approach that involves moderate concern for both the party they are representing and the other party. Each party has to give up something of value.
A good leader will be able to identify which approach is most appropriate to address the issue at hand.
Barriers solution statement
These focus on team building to create a unified organization and foster team spirit as well as employ problem solving mechanisms to address issues related to conflicts arising from differences in opinion.
The barriers that are most likely to occur include the following:
Integration– there is a challenge in incorporating different structures as the two organizations are different in terms of the business they are both involved in.
Employee morale– motivation levels of employees are likely to be compromised. This is as a result of the restructuring as the roles and responsibilities held by individuals may end up being compromised as a result of the restructuring process.
Conflicts- Different individuals have their own opinions and if they are not listened to and appropriate action taken, it could lead to the collapse of the entire arrangement.
Resources required for this project
In the case of the merger arrangement, each organization has something to offer and should do so freely if required to make the project successful. The following are resources that are required in this project.
Point to note: these costs are calculated based on the number of team members, which is 20, 10 from each party. The proposed workshop is scheduled to take.
Resources required for this project.
Vision
Once the project has been completed, the output will comprise of an even larger organization that has undergone proper restructuring and that has defined structures specifying the roles of each individual.
The organization will have a larger workforce that includes employees from each respective organization.
It will benefit from the improved client experience as they will be able to access services offered by each organization.
The Arizona’s Children Association will see the improved awareness brought about by its partner, CiteHealth. This fastens the achievement of the goals of both organizations.
Outcome indicators
Number of clients visiting the site- this will mean that more clients are more aware of its existence as well as services it has to offer.
Number of registered clients- the increase in the number of clients who actually register to use one or more services in the site depicts confidence in ability of the association to deliver.
Income revenue- if the project is successful, each organization will register growth in terms of its income revenue.
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The findings of this paper add to the understanding of how peripheral employees react to mergers in the company. The original model describes the processes of employees’ emotional reactions and rationalization of new information about mergers and resonates with the current scholarly discourse. The model provides insights into how peripheral employees react to changes, setting the framework for further managerial interventions. Managers and employees react to changes differently due to the determining factor of possessed power. Peripheral employees find themselves in a more vulnerable position since while managers receive new instructions for their roles, peripheral employees remain in an informational vacuum, waiting for their managers’ instructions (Schildt et al., 2020; Chawla & Kelloway, 2004). The model developed in this paper suggests that peripheral employees react to the changes emotionally, which means that peripheral employees face significant stress and require HR interventions.
The model also suggests that both peripheral workers usually elaborate the resistant attitudes, as the mergers are perceived more as a takeover due to a lack of identification and communication. Therefore, according to the model, and considering the research, the communication practices aimed to overcome the resistance should focus on communication to enhance employee identification with changes. This means that, after the new HR strategies are developed and applied, the peripheral workers will get the opportunity to face the merger without changing their work routines or will not have to change them significantly. In other words, the new communicational strategies will emphasize the employees’ right to stable work processes by supporting their inclusion and providing sufficient information.
The paper has implications for the prior theory since it helps determine the needs of peripheral employees. Importantly, while previous studies have focused on the distinctions in the reactions of managers and peripheral employees, this paper creates a framework for developing communicational practices to eliminate moral disengagement. Kroon and Reif (2021) speak of uncertainty and disconnection experienced by peripheral workers due to their dependence on the information provided. The new communicational practices can increase managerial involvement in sensemaking, which will lead to better employee engagement. Remarkably, Kroon and Noorderhaven (2018) emphasize the employees’ emotional reactions, and this topic is covered in the model that presents a framework for future emotion-targeted communication practices and strategic approaches.
The findings presented in the paper contribute to the sensemaking studies by determining the frameworks in which open and honest communication between the top and middle managers and peripheral employees can be established. These frameworks utilize the concept of sensemaking as the driving force for effective change implementation. Sensemaking plays a significant role in peripheral employees’ emotional and rational reactions. Maitlis and Christianson (2014) determine sensemaking as the process of making sense of unpredictable, new, or confusing situations. Dîrvă and Rădulescu (2018) emphasize that peripheral employees often feel lost and frustrated since they do not receive feedback concerning the mergers from their managers. However, during the mergers, the changes in organizational values and practices should be communicated by managers in the first place (Angwin et al., 2016). Remarkably, the scholars did not mention the importance of practical implications for peripheral employees, which should be discussed in more detail.
First, there is a need for open and honest communication between the top management, middle management, and employees. Zagelmeyer et al. (2018) rightly emphasize that, as a rule, information about mergers is not revealed to employees in advance and even in the process of mergers, partly due to the issues of commercial secrets. Nonetheless, information is often not communicated to those affected by the merger through negligence or inertia. Aspects of culture and values that employees, including middle managers, deal with can be discussed without as it does not relate to the financial aspects of mergers. The problem of insufficiently adequate communication is associated primarily with a lack of attention to employees’ needs, including peripheral employees and middle managers. Therefore, this paper suggests that future studies should focus on developing comprehensive guidelines for top managers on communicating the changes. The model considering the emotional reactions of employees and their sensemaking reactions could be used as the basis for communicating the information about mergers.
The previous studies consider employees’ commitment and their need for open and honest communication. However, these studies still accentuate the decisions of the CEOs and top managers. Unfortunately, the situation when the CEOs’ and board of directors’ interests are put in the first place remains with no changes since the late 80s. During the last 30 years, scholars are urging companies to communicate change more carefully, framing this request as the concept of ‘open and honest communication.’
This paper suggests putting the needs of peripheral employees’ at first place, ensuring their right to stable work routines. In general, the new values and culture should be developed by CEOs and top managers, since forming the organizational culture is initially part of their duties and responsibilities. The peripheral employees do not have any objective reasons to experience stress related to mergers and avoid participation in the mergers process.
This study shows that managers should not ignore employees during the merging process. As Simonsson and Heide (2020) note, employees are engaged in day-to-day activities that are aggregated and transformed into macro effects at the organizational level. Therefore, their perspectives should be heard and incorporated into the implementation phase to improve the merger’s success. This study has revealed that employees often have valuable ideas and insights. Hence, managers should take time to hear them out, ensure that they know each other, and organize informal meetings for better information sharing.
Based on the findings, I would recommend that middle and top managers, including CEOs, engage peripheral employees earlier in the mergers process. The managers should create a platform, where the employees can connect and make physical contact to decrease the tensions. During the joint communication group sessions, the employees can be asked about their thoughts on how systems should work together. When moving on with the conversation, the managers should talk about practical issues, such as new roles and responsibilities, moving offices to other cities, changes in culture and values, and, most importantly, job security.
The managers can learn about the emotional reactions of peripheral employees from this study. No less important, they can get acquainted with the expectations of these employees and the idea of the right to maintain a routine. Based on this study, the managers can change the existing communicational practices and attitudes, and move the emphasis from CEOs’ interests to the interests and needs of the peripheral employees. The managers should consider that employees should not face stress, as this greatly reduces job satisfaction and leads to higher turnover rates.
This study generates a theoretical model grounded in the data to illustrate the perceptions of peripheral employees during a merger. The findings suggest that resistance can be decreased by better use of communication forms in employees’ sensemaking of the merger. In particular, future studies could be designed to gather data for new models of comprehensive communicational practices aligned with the needs of peripheral employees. The original suggestions presented in the study, such as the call for the inclusion of peripheral employees in the cooperative dialog could be applied. When developing models for new communicational practices the employees’ right to stable jobs and routines should be protected. The communication should be performed to provide opportunities for free opinion expression for the peripheral employees, while also securing their right to an emotionally stable work environment.
References
Angwin, D. N., Mellahi, K., Gomes, E., & Peter, E. (2016). How communication approaches impact mergers and acquisitions outcomes. The International Journal of Human Resource Management, 27(20), 2370-2397.
Dîrvă, C., & Rădulescu, A. S. (2018). Managing Resilience to Change in Merger and Acquisitions. 68, 16.
Kroon, D. P., & Noorderhaven, N. G. (2018). The role of occupational identification during post-merger integration. Group & Organization Management, 43(2), 207-244.
Kroon, D. P., & Reif, H. (2021). The role of emotions in middle managers’ sensemaking and sensegiving practices during post-merger integration. Group & Organization Management, 10596011211037788.
Maitlis, S., & Christianson, M. (2014). Sensemaking in Organizations: Taking Stock and Moving Forward. Academy of Management Annals, 8(1), 57-125.
Schildt, H., Mantere, S., & Cornelissen, J. (2020). Power in sensemaking processes. Organization Studies, 41(2), 241-265.
Simonsson, C., & Heide, M. (2020). Change communication. In The Handbook of Public Sector Communication (pp. 153-166). John Wiley & Sons, Ltd.
Zagelmeyer, S., Sinkovics, R. R., Sinkovics, N., & Kusstatscher, V. (2018). Exploring the link between management communication and emotions in mergers and acquisitions. Canadian Journal of Administrative Sciences / Revue Canadienne Des Sciences de l’Administration, 35(1), 93-106.
