Category: Merger

Abstract

The presented paper focuses on investigating the case study of Union UK Ltd and its potential purchase of HK Carz. The study focuses on analyzing the available options, such as complete acquisition or creation of a joint venture. For this reason, it offers the peculiarities of each choice, the benefits associated with one or another decision. At the same time, the work outlines actions that should be made if 100% acquisition is performed and Union becomes the owner of HK. There is a discussion of potential risks, critical elements of the process, creation of the corporate identity, and how the given deal will lead to the change in Union’s current position. Financial, reputational, branding, and legal issues are also discussed. At the end of the paper, a conclusion is offered to summarize the information and discuss all questions relevant to the case.

Introduction

Business decisions require long-term strategic planning and critical decision-making when it comes to making choices for the future of the company. Executives must holistically approach decisions, weighing financial, operational, legal, and many other factors. Union UK Ltd (referred to as Union) is a British car manufacturer exploring the possibility of a merger with Hong Kong-based manufacturer HK Carz (HK). This report will examine the opportunities, compare and contrast the options of joint venture versus full takeover. Furthermore, the acquisition process will be examined from a legal and commercial standpoint. Finally, the formation of the new joint Purchasing Department will be discussed.

Compare and Contrast – Acquisition and Joint Venture

The acquisition of one firm by another, also known as a buyout, is a permanent action made in order to take control of the acquired company’s assets and build upon their existing platform for the benefit of the owner firm. Sometimes the enterprise is left virtually untouched simply to operate under a new brand and bring profits, while in other cases, the company is fully dismantled with its assets, technologies, and supply chains being either sold or put to use for the buyer. One of the primary advantages of the acquisition of a company is reducing barriers to entry to a specific market as new capabilities, resources, capital, patents, and experts become accessible (DePamphilis, 2019). At the same time, more control over the critical procedures is acquired.

Meanwhile, joint ventures are a cooperation of two entities in which each agrees to share profits, losses, and costs. Joint ventures are often entered into for a limited and predetermined period of time for a specific purpose that usually benefits both firms. The joint venture has the benefit of sharing risk, acquiring know-how, and potentially proprietary methods and processes, it may lead to some capital gain for one of the firms. Joint ventures also require just an agreement without the need to create a separate legal entity. Joint ventures are typically short-term to achieve a strategic objective and cannot be kept for prolonged periods as businesses pursue their growth trajectories (DePamphilis, 2019). However, regarding the Union’s desire to empower its positions in the region, the acquisition seems a preferable option as it ensures the ability to control all critical procedures and improve decision-making processes.

Financial

Financial issues play a central role in determining the possible course of action. Forming a joint venture might be less expensive; however, it also presupposes a specific accounting strategy. Partners have to share profits, losses and control a new entity, which might be complicated in some cases and demand additional investment (DePamphilis, 2019). At the same time, the full acquisition demands significant investment at the start to make a purchase, while after a buyout, the acquiring company has the authority to control all financial issues. It allows better planning, analysis of available resources and reduces the level of dependency on a partner. For this reason, these matters should be considered regarding the current situation and parties’ interests.

Branding

A joint venture presupposes that both companies preserve their own approaches to branding. For Union and HK, it means that they will remain the same brands with no significant alterations. At the same time, complete acquisition offers a newly formed group more branding opportunities. It can employ brand extension because of the more powerful resources available at the moment and empower its presence in the selected market. Moreover, the acquiring company can improve brand positioning by emphasizing its desire to increase its presence in the market through the deal. In such a way, the buyout helps the company to get additional tools to reconsider its branding and make it more effective. At the same time, it might decide to preserve the already existing approach, ensuring a new subsidiary follows it to attain the existing goals. For this reason, the choice between two available options should also consider the desired branding strategies.

Reputational

Reputation is another vital issue that should be considered during the potential deal. It influences clients’ loyalty and readiness to continue using the company’s products and services. Thus, creating a joint venture means a new formation will be perceived regarding the current reputation of two brands, HK and Union. From one perspective, it might ensure the growing clients’ interest and preservation of the client base. However, there is a risk of the unit’s image deterioration if one of the partners fails to support its image (Sherman, 2018). At the same time, the complete buyout means that the reputation of the acquiring company becomes the dominant one and impacts clients’ decision-making and intentions to use products and services (Sherman, 2018). It can be a beneficial option for brands with a stable and high reputation. It will help to ensure potential clients in the appropriate quality of goods and services, which is vital for entering a new market.

Risk of Unfriendly Takeover

The acquisition of one company by another also implies the risk of an unfriendly takeover. It states for the intention to buy a firm against its will, replace management, or directly influence shareholders to ensure they are ready to take part in the deal (Sherman, 2018). This sort of risk is usually regulated by using specific regulations and laws protecting the rights of companies and guaranteeing their right to select the option for the future partnership. However, the risk might remain high, especially if the target company is might guarantee a significant competitive advantage for an acquiring brand (Sherman, 2018). At the same time, joint venture excludes such risks and creates the basis for establishing partnership and trustful relations between future cooperators. For this case, the risk of an unfriendly takeover is minimal because of the brand’s reputation and readiness to cooperate. Moreover, Union wants to ensure HK remains a powerful actor, meaning that its management cannot be replaced by a new one, as it will lead to a significant reduction in effectiveness.

Loss of IP

The loss of intellectual property is another issue that should be considered when determining the future cooperation between two companies. Every company has its own intangible assets protected from outside use or employment without agreement (Sherman, 2018). The discussed deals introduce alterations in managing this factor and its current state. Thus, a joint venture presupposes that every company remains capable of controlling its IP and using it in the way it wants (DePamphilis, 2019). At the same time, the complete acquisition presupposes that intangible assets can be controlled by a firm responsible for a merger. It might introduce the risk of losing IP because of various factors, including transferring rights to another brand as the result of the agreement (DePamphilis, 2019). For this reason, it is vital to establish the terms of the interaction and avoid conflicts caused by the loss of IP and potential claims. At the same time, the acquiring company avoids such risks as it remains capable of controlling all assets and managing them of its own will.

Law and Jurisdiction

The establishment of a new partnership between different firms is always regulated by the existing laws and regulations. Additionally, global cooperation is also controlled by the legislation creating the framework for the collaboration and other processes. Companies forming a joint venture have specific agreements regulating their interaction, the distribution of shares, rights, and duties (Sherman, 2018). These contracts are created following the existing law and cannot be violated, guaranteeing the absence of unfair practices or other attempts to act unfriendly (Sherman, 2018). The complete acquisition is also regulated by international law, which monitors the terms of the agreement, financial aspects of the deal and ensures that both parties remain protected and do not suffer from fraud or other violations of the existing legislation (Sherman, 2018). From this perspective, both a joint venture and a buyout can be appropriate options for a company, and the choice depends on the current situation and the existing plans.

Discussion

Altogether, the analysis shows that forming a joint venture and a complete acquisition have their own unique peculiarities that should be considered when selecting the possible option for further expansion and generating competitive advantage. However, regarding the case study, buyout seems a preferable option. It can be evidenced by the information acquired from discussing the aspects mentioned above. First, it will allow Union with more control over the company and all its assets, meaning that it will improve its presence in the market and will become more successful. Second, new branding strategies will be available for the company, which is vital for its future development. Finally, the existing international and state regulations ensure safety during this deal and reduce the risk of an unfriendly turnover or other hostile actions. For this reason, the complete acquisition seems an advantageous option that should be selected by Union to establish the ground for its future rise.

Acquisition Process

The complete acquisition of one company by another is a complex process that should be controlled to ensure positive outcomes. After the decision to buy HK, Union should start negotiating with the potential partner to establish the terms of the deal and all issues associated with it. This stage is followed by the due diligence phase, presupposing reviewing the fundamental aspects, such as financial, commercial, labor, and fiscal ones (Sherman, 2018). It is vital to outline the contingencies influencing the operation and select strategies to manage them. The creation of draft contracts is the next step needed to list the methods of payment, power patterns, rules governing the partnership, guarantees, and people retaining (Sherman, 2018). The transaction financing comes after all aspects are determined and partners are ready to make a deal. Finally, closing is the last stage implying the merger via signing the commercial operation and integration of two units (Sherman, 2018). Increased attention to every step is vital to promote the success of the whole process and avoid legal issues.

Risks and Their Management

At the same time, the process of acquisition always implies some potential risks that should be managed; otherwise, it will lead to the worsening of outcomes. One of the possible threats is overpaying for the target company (Sherman, 2018). Trying to generate a competitive advantage or enter a new market, the acquirer employs too significant investments to guarantee successful purchase. It might also come from ineffective valuation practices and previous cases of overpaid deals (DePamphilis, 2019). It destroys shareholder value, and the reduces effectiveness of the company. Additionally, overpaying might undermine the financial resources of the company and decrease its value because of the ineffective strategies used to make a deal. Statistics show that about 70% of all acquisitions fail to create value for shareholders (DePamphilis, 2019). It proves the significance of the risk and the necessity to address it to avoid undesired results.

Managing this threat is one of the important factors needed to ensure an effective merger and avoid poor outcomes. To avoid overpaying, the creation of a comprehensive and in-depth report can be recommended. It will promote the better realization of the brand’s position, state of the market, and relevant prices (Sherman, 2018). Additionally, the valuation report offers information about tax returns, key financial showings, and the organizational structure of the target company. It helps to correctly realize the importance of the deal and the opportunities associated with it. At the same time, the fair and relevant price can be offered due to the improved negotiation process, and the due diligence phase focused on determining the conditions of the would-be cooperation and financial aspects of the purchase (Sherman, 2018). Under these conditions, by conducting a better analysis, it is possible to avoid overpaying and create a significant value for shareholders, which is essential for the stable rise of the firm.

Integration shortfalls should also be viewed as potential risks associated with the commercial aspect of the company’s work. These state for the problematic post-merger integration, which is treated as one of the most sophisticated parts of the process (Rowden, 2017). Union and HK have to align their strategies and reconsider them to form a basis for new patterns (Sherman, 2018). At the same time, in numerous cases, there is a threat of employee disenchantment, decreased motivation, loss of value, and failure to create effective collaboration (DePamphilis, 2019). Additionally, the differences in culture, which is especially vital regarding the case, might complicate cooperation between employees and decrease its effectiveness. All these factors will lead to a substantial reduction of income and multiple commercial issues. Under these conditions, it is vital to use effective practices and methods to minimize this risk and manage integration to cultivate desired outcomes.

One of the most approaches to managing this risk is the involvement of due diligence team members in the integrating group. This method has several advantages vital for the successful overcoming of all barriers of the merger. First, it will create the continuity of the process and guarantee that both actors possess the needed information vital for establishing a new environment accepted by all workers (Sherman, 2018). Second, the management skills of these specialists might help to forecast potential issues and offer methods to resolve them (Sherman, 2018). Finally, including employees from the target company in the planning activities helps to acquire their vision of future cooperation. It is a critical aspect necessary to attain success as they have a comprehensive knowledge of the firm’s peculiarities and can help to focus on the most complicated points. Using this method, it is possible to avoid the negative influence of integration and establish the ground for successful cooperation.

Finally, there is always a risk of unexpected costs linked to the deal. Following the statistics, about 80% of all agreements of this sort are characterized by the increase in the estimated sum due to the influence of various factors. These might include advisor, investment, banking, legal fees, taxes, or deal costs that were not considered previously (Sherman, 2018). Additionally, for Union and HK, international regulations should also be considered, which might demand new investment. In such a way, there is a chance that a negotiated price will grow significantly and influence the value of the agreement and acquisition (Sherman, 2018). This factor will also impact the commercial aspect as the firm will have to spend more money and reconsider its budget devoted to this process. It means that consideration of the unexpected costs and their management is another vital aspect of the acquisition.

The potential partners can use some effective approaches to manage the problem mentioned above. First of all, it is possible to shift towards a flat rate model during the due diligence phase (Sherman, 2018). It will help to step away from less effective methods, such as per page pricing, and create the complete image of the planned acquisition, considering all possible spending and factors that might influence the final value (Sherman, 2018). Additionally, the preliminary analysis and planning might also contribute to better results and help to avoid unexpected costs. The correct understanding of the existing legal environment, fees, taxes, and prices for particular services will lead to creating a relevant budget necessary to make the deal and avoid new commercial risks. Finally, involving experienced practitioners might also be a potent method to resolve this problem (Rowden, 2017). Effective management of this risk will lead to better results and minimize losses.

Altogether, the acquisition process is a complex process consisting of several important stages. For NK and Union, it is vital to discuss the terms of the agreement, outline their expectations, and create the contract by considering all possible factors. At the same time, there are always specific commercial risks that might emerge during this process. These might include overpaying, poor integration, or unexpected costs influencing the value of the deal and outcomes. For this reason, to address these aspects, it is vital to use management and analysis tools leading to better data collection and its processing. Possessing up-to-date information, both parties might be more effective in planning and distributing costs, which is vital for positive results and the ability to overcome possible difficulties. The collaborative effort of the two companies will promote easier post-merger integration and create the basis for future improvement.

Joint Purchasing Department

At the point of the merger and acquisition of Union and HK Carz, a joint purchasing department will be created. Procurement is a vital lever that contributes to synergizing the companies in the post-merger. Most typically, a merger increases the combined companies’ volumes of necessary supplies. When two companies combine through acquisition, optimizing procurement synergies is strategically critical to driving rapid growth and long-term EBITDA improvements. Procurement synergies are important to generate the optimal value proposition for the new entity (Kaplan, 2019). It means that this factor should be considered necessary for future success.

Corporate Identity

A corporate identity is a perception for the entire company, including all visual elements to represent the organization, including logo, tagline, font, images, color pallete, and others. Therefore, it is most visualized via branding and trademark. The identity design is also commonly reflected in physical form as well via uniforms, packaging, advertising, and merchandising. Corporate identity is also formed through other means that the company presents itself, such as advertisement, public relations, and potentially product design. Although it is not connected to any given product, corporate identity serves as the identifying factor of the organization and should represent what the firm stands for. If there is a dissonance between corporate identity and how the company is perceived, it generates confusion and mistrust in public (Rowden, 2017). For this reason, it is vital to avoid differences in this sphere.

There are typically three approaches to corporate identity during mergers and acquisitions. First is assimilation, with the buyer company fully swallowing the other company, and its identity is discarded, with the buyer maintaining its own. This underperforms in the market by 15%. The next variant is ‘business as usual,’ where each entity in the merger keeps its separate identity, it underperforms on average by 25% (Rowden, 2017). Finally, there is ‘fusion’ with components from both the companies being used in a new identity, it outperforms the market by 3% on average (Knowles et al., 2011). It is expected that the Union’s corporate identity will be kept intact during the acquisition but drawing elements from its new organization. This is particularly relevant for the Asian markets where Western firms rarely succeed initially. With cultural and visual aspects from HK Carz, Union may be more recognizable in the market. The new corporate identity will be based on a framework of integration post-acquisition and seeking to understand involved stakeholders. It is critical to comprehend that even though firms may be highly complementary on paper, they do not indicate practical combinations (Melewar & Harrold, 2000). Without clear and strong management and strategic direction guiding corporate identity in the acquisition, it will become bundled and poorly mixed, one would rather see Union take control to establish an innovative brand.

Maximizing Joint Organization

For manufacturing firms, procurement represents 60-80% of total costs, so it is important to take action which will result in post-integration optimization. Dhal (2019) suggests using four key levers to capture the procurement synergy and maximize the joint purchasing organization capabilities, as seen in the table below.

The above approach is essentially an adoption of a change management model similar to Lewin’s change management model. It offers a basic method for change, ‘unfreeze,’ which consists of analyzing the status quo to understand what needs to be changed and preparing for it. Next comes ‘change’ – the active implementation of changes and putting new processes into practice while communicating. Finally, there is the ‘refreeze’, ensuring that changes remain and are working, developing strategies for evaluation, and measuring new performance (Hussain et al., 2018). While Dahl (2019) focuses on the processes, the Lewin model will likely have to be applied in the joint organization to the change management for staff. Procurement opportunities should be identified and addressed early in the acquisition process as it allows the new entity to function more effectively and focus on more complex activities such as spend management capabilities, forecasting cost reduction, and other elements to capture synergies later. Changes for procurement strategies are highly impactful, need to engage multiple stakeholders, and may take up to 18 months to complete (Dahl, 2019).

Clause Headings

One of the elements that will have to be reconsidered upon a merger is the Corporate Terms and Conditions that will be used with suppliers. This is a supplier contract or agreement, a legal document that indicates a pact between a business and a supplier to deliver products or services upon agreed upon terms (Upcounsel, n.d.). This document needs to have some of the following relevant clause headings:

1. Party identification and information – full legal entities, addresses, and contact information for involved parties.
2. Definitions – clear identification and interpretation of some key terms used in the corporate agreement.
3. Scope and Responsibilities – essentially the expected services or work that is expected to be completed in a contract (i.e., deliver, sale and delivery).
4. Conditions – any event or action that obligates the party to perform an action as specified in the contract (i.e., payment upon delivery).
5. Covenants – unconditional legal promises to what parties should not do (i.e., a supplier may be forced not to sell to a direct competitor).
6. Ordering and delivery – describes in detail the process of procurement and supply.
7. Refund and compensation terms – descriptors of financial exchanges between parties in varying contexts.
8. License restrictions – if one of the parties provides another the use of their brand, trade name, method, or product, this section outlines what can and cannot be done with these assets.
9. Warranties – a contractual assurance of the condition of the delivered product or service, for which the seller/supplier is liable.
10. Limitations of liability – a clause that limits the amount of legal exposure faced by the company if a lawsuit is filed against them.

When the Corporate Terms and Conditions are being drawn up to be used with suppliers, it is critical that the legal document protects the buyer, in this case, the new entity under Union, and shifts as much legal responsibility unto the supplier. Good contracts have built-in assurances and terms as to what occurs problems with supplied goods or services arise. Specific penalties should be established for non-critical breaches of contract, such as failure to meet quality standards or delivery times. Also, either in the corporate terms, or later individual contracts with the suppliers, the concept of how issues will be resolved should be present, such as through dispute resolution, with exit procedures also in place for contexts where either party is dissatisfied (Invest Northern Ireland, n.d.). It will guarantee effective collaboration and the absence of critical issues in the future.

Conclusion

Altogether, the analyzed case revolves around different types of cooperation between companies. Joint venture and complete acquisition might be used by companies regarding their goals and available resources. For Union, it is recommended to buy HK as it will provide additional resources and tools for empowering its position. At the same time, the firm acquisition is a complex process consisting of several stages and implying substantial risks that should be managed by using specific tools and analyzing existing options. Moreover, creating a joint purchasing department is another factor leading to more effective consideration of all possible issues and their resolution. In such a way, the success of the deal depends on multiple factors, and it is critical to consider the international regulations, current situation, the market, and available resources to achieve success.

References

DePamphilis, D. (2019). Mergers, acquisitions, and other restructuring activities: An integrated approach to process, tools, cases, and solutions (10^th ed.). Academic Press.

Dhal, S. (2019). Four essential levers to capture procurement synergy in a post-merger scenario.

Hussain, S. T., Lei, S., Akram, T., Haider, M. J., Hussain, S. H., & Ali, M. (2018). Kurt Lewin’s change model: A critical review of the role of leadership and employee involvement in organizational change. Journal of Innovation & Knowledge, 3(3), 123–127.

Invest Northern Ireland. (n.d.). Negotiating supplier contracts.

Kaplan, D.A. (2019). How to navigate procurement in a post-merger world.

Knowles, J., Dinner, I., & Mizik, N. (2011). Why fusing company identities can add value.Harvard Business Review.

Melewar, T.C., & Harrold, J. (2000). The role of corporate identity in merger and acquisition activity. Journal of General Management, 26(2), 1-15

Rowden, M. (2017). The art of identity: Creating and managing a successful corporate identity. Routledge.

Sherman, A. (2018). Mergers and acquisitions from A to Z (4^th ed.). HarperCollins Leadership.

Upcounsel. (n.d.). Supplier contract: Everything you need to know.

Introduction

This is a course work on an analysis of a merger. So what is a merger? A Merger is an integration of one business with another and sharing of control of the combined businesses. It is a common way of expanding a business.

Stockholders of the two companies are allowed to keep equal interest in the new company (Business Link, 2011). It usually happens between two former competitors and is considerably managed by investment bankers who transfer ownership via stock sales (Brainz, 2010). In this case, we shall look into the Utah Symphony and Utah Opera: A Merger Proposal.

Background Information

Utah Symphony and Utah Opera: A merger proposal was a proposed merger of two organizations; Utah Symphony and Utah Opera, with the voting on whether to merge or not by the boards of the two organizations scheduled for July 8, 2002. The outcome of the voting would have been very important for the general director of Utah Opera, Anne Ewers for she had been requested to lead the new merged entity if the deal went through.

This paper will show how motivational concepts can be used to enhance organizational performance. It will also determine how power and influence can be used to achieve organizational objectives. The course work will equally demonstrate how conflict management concepts can be used to improve organizational performance.

It will achieve this by reviewing the various human interactions, cultural and organizational, that can emerge during the merger process in the “Utah Symphony and Utah Opera: A Merger Proposal” case study. Conclusively, the course work will help Anne Ewers think through issues that may result from the merger process.

Most specifically, the course work will illustrate how Bill Bailey, chairman of the board of the Utah Opera Organization, might use one theory of motivation to oppose or support the merger, how Scott Parker, chairman of the board of the Utah Symphony Organization, might use one theory of motivation to convince Mrs. Abravenal to support the merger.

It will also describe Anne’s positional power in relation to her personal power, how Anne could use her positional power to successfully lead the merger efforts and how Anne could use her personal power to empower Keith Lockhart.

Similarly, the paper will discuss influence tactics Anne could use to persuade the Opera’s full-time staff and artists under contract to endorse the merger. It will additionally present a potential issue with the musicians that, if not resolved, would jeopardize the continuing organizational performance. In conclusion, the course work will recommend how Anne could deal with the issue.

Motivation and Organizational Performance

In this context, we will look into how Bill Bailey, chairman of the board of the Utah Opera Organization, might use one theory of motivation to oppose or support the merger and how Scott Parker, chairman of the board of the Utah Symphony Organization, might use one theory of motivation to convince Mrs. Abravenal to support the merger.

Motivation is what drives us to act. There are different types of motivational theories: Intrinsic, extrinsic, drive, needs, investment model, and expectancy motivational theory e.t.c. Motivational concepts give individuals in an organization the power and strength to face adversity and personal challenges.

Bill Bailey might use the needs theory of motivation to support the merger by denoting the financial strength that the merger will have, recognizing the financial stability of opera and the flexibility that the business model will inherit from this stability.

By pointing to the superiority of the merger to be formed, it will be easy to convince all the stakeholders involved that the merger will be better placed to meet their objectives and desires, be they career wise, making profits or expanding wide (Delong & Ager, 2005).

He may also use another theory to oppose the merger by highlighting the rigidity of symphony finance and registering the Opera’s concern that they would lose its identity by merging. On the other hand, Scott Parker will use the needs theory to convince Mrs.

Abravenal to support the merger by explaining that the merger will help in alleviating some financial pressure Symphony was experiencing and completely solve the problem of recruiting a quality CEO because Anne Ewers from Opera would take up that position after the merger.

This will likely go a long way to cut down on unnecessary expenses which would have been incurred by Utah. It will be important to point out the rich experience and capability of the Anne Ewers therefore showing that the vacant of a CEO will be filled in an effective manner by a highly qualified person.

Motivational concepts have thus been used to enhance organizational performance in this case where Bill and Parker confirm that the merger will satisfy their needs.

Power and Influence in Organizational Objectives

In this context, we will look into Anne’s positional power in relation to her personal power. We will also show how Anne could use her positional power to successfully lead the merger efforts and equally use her personal power to empower Keith Lockhart.

Anne Ewers positional power can be demonstrated in the following circumstances: she was hired to lead Utah Opera in 1991, she had been a general director of the Boston Lyric Opera, she served as assistant director to the San Francisco Opera and Canadian Opera Company, and a stage director for more than 60 opera productions.

This positional power is very significant in her personal power in that she had used it to build an endowment fund, increased the number of productions from one to three. This has helped her earn an early reputation, success in annual turnovers, opera productions and fund-raisings.

In this case, Anne could use her positional power to lead the merger efforts because other board members from the two organizations noted that she was a good listener, very energetic, had great potential, competent, capable, an evaluator, a solicitor and had resounding experience in leadership. All these characteristics are significant in leading the challenging merger objectives.

Being a good listener will help her to become aware of all the challenges affecting all the stakeholders in the merger and consequently addressing the challenges effectively. The position of a CEO requires energy to appropriately ensure that all running as expected. Anne Ewers is quite energetic and is in a good position to serve the merge as the responsibilities are already increased.

Personal power has three sources: referent, prestige and expert. In case of Anne Ewers she can be said to enjoy referent, expert and prestige sources of power. Her career is filled with much exploits and is, so far, very successful. Her personal power will therefore give her great leverage in making negotiations and interaction with other authorities in the merger.

She could also use her personal power to empower Keith Lockhart by being a good role model to him. Her good listening and mobilizing skills could empower Lockhart to greater heights as he represents the artists and as they work together for the good of the merger and reporting to the board.

Her expertise in leadership will become useful in empowering Keith. Having being a leader in more challenging scenario than Keith, Anne Ewers will offer him useful tips on how to execute various functions.

Conflict Management Concepts in Organizational Performance

In this case, I will present a potential issue of conflict with the musicians that, if not resolved, would jeopardize the continuing organizational performance. Conflict occurs when individual(s) cannot meet their own self-interest. However, there are many ways of resolving conflict like: creating sound management system, discussions, frequent communications, good planning and setting goals (National Science Foundation, 2005).

The musicians formed the most critical position in Symphony and in the proposed merger and such they were a point of concern in the merger. The musicians had issues with the board and management of Utah Symphony, specifically in the way they handled their salaries and thus felt that the merger discussions would worsen their salary terms hence did not support the merger.

Thus, if this issue is not resolved, the organizational performance would be thrown into jeopardy. Anne can deal with this issue by signing a memorandum of understanding with the musicians in the form of a binding contract that will not affect the upward trend of their remuneration, and that is not open to alterations by the board of the new merger.

Influence Tactics Anne could use to Persuade the Opera’s Full-time Staff and Artists

The support of the full-time staff and artists in the new merger is very essential and mandatory. However, they had refused to endorse it and consequently, set out their points and guidelines to the discussions regarding the merger. As of such, Anne as the CEO must seek their endorsement to the merger lest it fails. The influence tactics that she can use to persuade them endorse the merger are: rational persuasion and inspirational appeal.

By using rational persuasion, Anne could explain to the staff that supporting the merger would finally benefit them as the merger will be in a better position to offer better salary and allowance package to them. She could also use inspirational appeal by showing them that with a merger their careers are headed to a bright future since the opportunities to raise in ranks would be increased.

She could also personal appeal and assure them of an effective fundraising, a collective-bargaining agreement and the protection of their rights. Anne could also introduce incentives to the staff package and guarantee better working conditions.

To the full-time staff, Anne could introduce a retirement benefit scheme for them and a promise to appreciate retention and promotion of employees upon the success of the merger. She should foster excellence in artistry and pay for value of work done.

Conclusion

A merger is signed with an aim of expanding business and getting more markets and profits with fewer costs. It brings together competitors in the same field and market, but each entity retains their share capital. However, the establishment of a merger is not an easy ride subject to the many interested parties involved.

It will be hard to convince some executive officials of both entities to forfeit their positions in favor of the limited newly created positions of the merger that cannot accommodate all. This was best illustrated in the case of Keith Lockhart, Leslie Peterson, who eventually resigned.

It is equally hard to get the support of all parties concerned. Some officials will go against the idea, staff and employees will be reluctant to endorse the merger as they view the eminent loss of their jobs, and even the general community may oppose the merger with valid reasons. It, therefore, requires sober, competent and focused minds to negotiate and actualize a merger.

And so, for the case of Anne and the proposed merger, she should incorporate good ideas like those of Chase Peterson and wisely tackle the issues of the musicians, full-time staff, the community and doubting managers for the smooth running of a new merger if it succeeds. Conclusively, for an improved organizational performance, good management and support from all stakeholders is very significant.

References

Brainz. (2010). What Is a Merger? Brainz. Retrieved from: https://www.brainz.org/

Business Link. (2011). Mergers and Acquisitions. Business Link. Retrieved from: https://www.gov.uk/government/publications/cross-border-mergers-filing-requirements-in-the-uk

Delong, T & Ager, D. (2005). Utah Symphony and Utah Opera: A Merge Proposal. Allston, MA: Harvard Business School.

National Science Foundation. (2005). Dealing with conflict. National School Boards Association. Retrieved from: https://www.nsba.org/

Alcatel is a company that makes communication equipment. It is based in Paris France while Lucent Technologies is a giant US Telecommunications company. During the renewed merger in 2006, various issues were negotiated that were missing in the collapsed deal of 2001.

The main reason why the deal collapsed in 2001 was discussed and settled in 2006. The two companies failed to agree on the strength of Alcatel in the merger. Whereas Lucent officials wanted a deal in terms of merger of equals, Alcatel negotiated for a takeover. The two companies agreed in 2006 to merge under a new name and brand Alcatel – Lucent.

There were financial matters that were not clearly elaborated in 2001. This was ironed out in 2006. In this agreement, Alcatel paid Lucent a total of $13.5B. The stock valuation was discussed. It was agreed that one Alcatel American depository share was to go for every five lucent shares.

Issues on saving costs were handled in details in 2006. It was agreed that by dismissing 10% of the employees, 9,000 of the workforce, $ 1.8B would be saved spread over three years. The cross- cultural conflicts that would result from the merger were predicted. This was addressed by the adoption of English as the company official language, and, hiring of the staff with mixed nationalities.

Mr. Ben Verwaayen heads the current management team of Alcatel- Lucent Company. The company is on course to recover the big losses they incurred during Ms. Russo’s tenure as the Chief Executive.

Describing the merger as a giant transatlantic experiment in multicultural diversity was based on various assessments. To begin with, this was a merger between a giant American telecommunications company and big French communications equipment maker. They were merging one company from the US and the other from France.

These are nations with very different cultural setups. France appears to be male dominated while the US exercises more gender equality. This is what necessitated the appointment of Ms. Patricia Russo as the CEO and Mr., Serge Tchurunk as the Chairman. The merger was experimental in the sense that in the recent times there had been no mergers of that kind and between the two nations.

There is evidence from the article that the company ran into cross-cultural problems. The CEO, Ms. Russo, failed to integrate Lucent’s corporate culture with Alcatel that was structured in the French business model. Her reason of quitting was a clear indication of this. She claimed that she could not agree with Mr. Tchurunk.

Further evidence emanates from the Alcatel leadership that did not appreciate the decision to give leadership to the target company. It became bad when choices of managers were based on nationality rather than skills. In averting the crisis, the new appointments went to French as the board Chair and a Dutch national who was fluent in both French and English.

Most of the problems the company faced arose from leadership. This eventually spilt to how the company performed attracting industry obstacles. Once the top management was in crisis then the company could not do well. The company would have been better of if leadership would never have been negotiated based on nationality. The negotiations should have been restricted to professional ethics and requirements. This would save the company from the turbulence.

Bibliography

Belz, Frank-Martin. Sustainability Marketing: A Global Perspective. New York: John Wiley & Sons Ltd, 2009.

Charantimath, Paul. Total Quality Management. New Delhi: Pearson Education, 2006.

Hitt, Ireland. Strategic management: Competitiveness and globalization, concepts, Cengage Learning, Connecticut, 2010.

Sirkin, Keenan. A 2005, “The Hard Side of Change Management”. Harvard Business Review 3.4, p. 18.

Wilson, David. A Strategy of Change: Concepts and Controversies in the Management of Change. London: Cengage Learning, 1992.

Executive Summary

The process of acquisition is associated with a plethora of changes that cover organizational structure, financial performance, and the importance of different departments. With the help of Agthia’s example, it was revealed that the acquisition of Al Bayan not only contributed to the growth in revenues but also increased the need to underline the significance and include different entities such as shareholders, VP Strategy, and external audit in the process. Apart from the need to include executives of different departments, a pivotal role of CEO could not be underestimated since he/she can be discovered as an intermediary, who ensured a connection between shareholders, managers, and Board of Directors, integrity, and transparency of the processes in the company. It could be said that the decision-making mechanism related to the acquisition of Al Bayan supported the company’s philosophy and complied with its organizational structure.

Introduction

Agthia specializes in producing beverages and food with its headquarters in Abu Dhabi (Agthia, 2017). Apart from being one of the leaders in the market and having offices in different countries in the Middle East, the enterprise prioritizes a continuous expansion of its locations and takes advantage of vertical and horizontal acquisitions to strengthen its position in the market. To support its growth, Agthia acquired Al Bayan in the recent past (“Agthia signs agreement”, 2015). Thus, this merger was reflected by changes in the corporate culture of the company and caused the development of a specific managerial structure. Consequently, the primary goal of the paper is to conduct the analysis of modifications in the organizational chart before and after the acquisition, describe the departments in charge of the takeover, and introduce the reporting mechanism of the developed entity and its compliance with the existent structure.

Current Organizational Structure of Agthia

To understand the working mechanism of the company and modifications that took place after the acquisition, it was essential to describe the current organizational structure. In this case, Figure 1 clearly portrayed the general principles of corporate governance that were present in the company in 2015. Thus, a similar structure continues to exist today, as Al Bayan becomes an essential definer of organizational performance. The company’s focus on the value of transparency and integrity allows reviewing organizational structure in details while applying the principles of its key philosophies and concepts (Agthia, 2015). At the same time, one of the critical policies of Agthia is to ensure that all components portrayed in Figure 1 respect corporate values and act in compliance with their duties, responsibilities, and ethics of the enterprise (Agthia, 2015). The aspects of the decision-making process that exists within the organization help the departments work as interdependent components towards the common goals.

Nonetheless, it is crucial to review this structure in detail and discover different professionals responsible for various parts of organizational growth and decision-making. In this case, the Board of Directors is in charge of effective policymaking that not only complies with the corporate strategy but also helps identify the required pool of talents, proposes strategic initiatives, and takes advantage of effective leadership approaches (Agthia, 2015). At the same level with the Board of Directors in the organizational structure, Audit Committee and Nomination and Remuneration Committee are present. These entities are responsible for designing policies regarding human resource management, developing remuneration packages for senior executives, and monitoring organizational financial performance (Agthia, 2015). Thus, to ensure the sufficient control of the internal operations Auditing Committee consists out of Internal and External Audit and Conduct and Values Department (Agthia, 2015).

Another important actor, who represents the opinions of shareholders and the Board of Directors in front of other departments, is CEO Chief Executive Officer (CEO) (Agthia, 2015). This figure can be discovered as a mediator, and the chosen one to ensure integrity in Agthia and the acquired firms. He/she ensures that the activities of other departments such as Public Relations (PR), Strategy, Human Capital, Projects & Business Solutions, and Manufacturing Operations comply with the organizational strategy and corporate philosophy (Agthia, 2015). Apart from that, the CEO controls the actions of different members of the Executive Committee, and they are Chief Financial Officer (CFO), Agri-Business Division (ABD), Consumer Business Division (CBD), and Chief Operational Officer (COO) (Agthia, 2015). The title of each executive defines his/her operational focus and subdivision, and each member is responsible for its department to reach the set corporate goals and objectives. Thus, being united under the Executive Committee implies that all units mentioned above and their executives work towards meeting organizational objectives while assuring transparency and integrity as the principal values of the organization.

When reviewing the company’s organizational chart presented in Figure 1, pays vehement attention to the quality of manufacturing processes. These matters are highlighted by the existence of directors for Food Technology, Safety & Quality, and Supply Chain (Agthia, 2015). In this instance, these executives are not only responsible for the quality of the products manufactured and initially owned by Agthia but also for the recently acquired product lines such as Al Bayan’s water. Thus, due to the complexity of manufacturing, having only these controllers may not be enough, and the last level is introduced by VP (Vice President) Manufacturing Operations (Agthia, 2015). The current stage enhances the efficiency and the working mechanism of the quality control procedures and improves product delivery in a timely manner.

Lastly, the Executive Committee and CEO tend to regulate various departments such as Human Capital, Strategy, Public Affairs, and Projects & Business Solutions (Agthia, 2015). On the one hand, these entities are responsible for different spheres while paying attention to the ability of these units to meet different types of goals and objectives. At the same time, on the other hand, being monitored by one institution solely unites these departments and implies that they have to comply with the corporate philosophy. Overall, the proposed structure is logical since it pays attention to different working spheres simultaneously and supports the integrity of decision-making in the organization.

Changes after the Acquisition of Al Bayan

Thus, it remains apparent that mergers and acquisitions imply a high level of complexity since the companies have to modify their corporate organization to implement these changes effectively. Generally speaking, the changes targeted at enhancing communication between different entities and underline the significance of various departments in the decision-making process and solution-evaluation. In the context of Agthia, the incurred changes covered external audit, VP strategy, shareholders, and integrity.

One of the differences that took place due to the acquisition was the fact that recently external audit became of higher importance after the takeover of Al Bayan (see Figure 3 for the organizational chart in 2014). The development of this business entity was rational. For example, one of the reasons for that was the fact that additional control was required to control the financial performance and productivity of Al Bayan since independent and neutral opinion would not only help control these changes but also modify the direction of these activities and ensure the compliance with Agthia corporate philosophy, organizational structure, and strategy.

Another difference pertains to the fact that now, shareholders of the company are considered as important contributors to decision-making (Agthia, 2015). Their presence was graphically portrayed in Figure 1 while in 2014, they were not considered as vehemently significant. The involvement of shareholders in the process and communication with them was also logical since they determined the company’s value in the market and defined the attractiveness of the business to investors (Agthia, 2015). At the same time, these change affected financial performance in a positive way while supporting the company’s mission and vision entirely.

Having a separate individual responsible for the strategy was the aspect that differentiated the current organizational structure from the old one (Agthia, 2015). This role was absent in 2014 while the associated responsibilities were distributed between different executives and decision-making units (Agthia, 2014). Thus, in 2015, this position was identified and represented by VP Strategy, Ted Thorbjorsen (Agthia, 2015). The development of this department allowed Agthia to distribute its human resources effectively and change its emphasis on the strategy of the company and its organization. The establishment of this department was rational, as the acquisition of Al Bayan not only caused changes in financial performance and organizational structure but also required adjusting its strategy. In this instance, Agthia had to make its water segment profitable with the help of Al Bayan while changing its strategic initiatives and emphasis (Scott, 2015).

It could be said that another change could be reflected by the fact that more entities and the executive responsible for the quality of the delivered products and services were present (Agthia, 2015). In the case of Agthia, this modification was logical since the acquisition of Al Bayan implied expansion and diversification of product lines. Consequently, increasing quality control and introducing additional executives would ensure a high level of profitability of Al Bayan’s water segment. Overall, it could be said that underlying the importance of various professionals after the acquisition helped not only determine the stages of decision-making procedure but also improved the flow of communication. The changes contributed to internal integrity and enhanced collaboration between different departments such as shareholders, CEO, CFO, VP Strategy, and External Audit. These matters supported the company’s vision and philosophy and ensured a rapid integration of Al Bayan in the business processes and organizational framework of Agthia.

Managerial Structure in Charge of Acquisition

Apart from the alterations in the corporate culture and organizational structure, companies like Agthia tended to unite different organizational entities that would control mergers and acquisitions. One of the reasons for this act was the fact that it would help review the decision from dissimilar angles and assure compliance with the principles of corporate governance (Risberg, 2013). One of the key players of this committee was CEO since he/she played the role of the intermediary between representatives of different departments, the Board of Directors, and shareholders.

It remains apparent that CFO was also in control of the process, as the acquisition caused changes in the company’s assets, financial performance, and related risks (Agthia, 2015). Meanwhile, considering the opinions of other executives such as COO, ABD, and CBD was also necessary since they were in charge of different critical segments that have a direct impact on the company’s success (Agthia, 2015).. Nonetheless, they had other duties and responsibilities to assure the sufficient functioning of the company and its operations before, during, and after the acquisition. Consequently, they only partly contributed to the process since, otherwise, the company’s profitability would be damaged.

As was mentioned earlier, the CEO was one of the critical players, who ensured sufficient networking and communication between the Board of Directors and shareholders (Agthia, 2015). Consequently, including shareholders in this decision-making process was reasonable, as they could be considered as value investors and contributors to the company’s value in the stock market and global arena. The representatives of this group took part in this process and represented the opinion concerning acquisition from an entirely different angle.

Risk Management Committee could be viewed as another player in decision-making regarding the takeover of Al Bayan. The primary focus of this entity was to assess and mitigate internal and external risks that posed a threat to the organization and its financial performance (Agthia, 2015). Including these executives in this process was reasonable since it helped conduct the sufficient risk assessment analysis and identify the threats and advantages related to this acquisition. Due to the impact of the takeover on the functioning of various departments such as external audit, strategy, HR, and manufacturing, including them in the decision-making team was rational. In this instance, the primary reason for selecting the representatives of different departments in the evaluation of the takeover was to ensure that the decision was weighted and discovered from dissimilar angles (Risberg, 2013). Meanwhile, with the help of the focus on the internal activities, it was possible to determine how this acquisition would be beneficial to the company’s market share and its overall organizational performance.

Lastly, apart from the active contribution of representatives of Agthia internal departments, one could not underestimate the role of Al Bayan’s executives in this process (“Agthia signs agreement”, 2015). To regulate this relationship, Agthia and Al Bayan signed an agreement that not only set the value of the takeover but also controlled actions of these two parties (“Agthia signs agreement”, 2015). This matter was beneficial for both companies, as it mediated their collaboration and ensured that the rights and needs of each entity were recognized and considered. It could be said that being able to include both internal and external participants contributed to the effective decision-making and was mutually beneficial for both parties.

Connecting Reporting Mechanism to the Organization Structure

It remains apparent that the departments of one organization have to work in unison to ensure the success of merger or acquisition, and a well-developed reporting system is one of the essential components of the company’s success. Effective communication pertains to a high level of integrity and collaboration between different entities while defining organizational direction towards triumph or failure (Verma, 2013). For example, some organizations use social media for internal purposes, as this type of communication is believed to have a vital impact on the internal efficiency and productivity of the company (Young & Hinesly, 2014). Nonetheless, in the context of Agthia, these values were reflected in the reporting mechanism and involvement of various agents in the evaluation of the proposed takeover or action.

To underline the importance of shareholders, it was essential to have a discussion with them concerning the acquisition (Risberg, 2013). Including these members in the decision-making process complied with the company’s values and philosophies related to the transparency and integrity of the enterprise. Simultaneously, it clearly supported the need for changes that took place in 2014-2014, as the attitudes towards shareholders and corporate social responsibility altered while being discovered at the top of the organizational pyramid (Agthia, 2014).

At the same time, it was vital to advise the CEO with the prepared proposal, as he/she was appointed to determine the relevancy and a rationale for acquiring or merging with a particular company such as Al Bayan (Agthia, 2014). In this case, the CEO had the power to review and reconsider the suggested change, as he/she was the one responsible for ensuring compliance with the initial corporate strategy, determining the company’s vision, focusing on its profitability, and selecting the most appropriate leadership practices. Having the executive, who was in control of the overall process of acquisition, certified that this decision was beneficial for the company and the needs of all entities were taken into account. This matter complied with the organizational structure of the enterprise and the CEO’s primary intention to establish a trusting relationship between shareholders, the Board of Directors, and executive managers of other departments.

Another key player in this reporting system is CFO. It remains apparent that any merger is associated with dramatic changes in the financial performance of the company. For example, upward and downhill shifts tend to incur liabilities, and matters such as ownership, goodwill, costs, and impairment of financial assets (Agthia, 2014). The acquisition of Al Bayan led to the development of changes in the described financial features, as it became one of the definers of productivity. For example, it increased the company’s revenues from Al Bayan by 20% while strengthening Agthia’s positions in the market and enlarging its market share in bottled water production (Scott, 2015). Consequently, it was reasonable to include CFO in the reporting system since she/he helped not only comply with the corporate goals, strategies, and values but also contributed to effective productivity that it was one of the central attributes of the company’s prosperity and growth.

At the same time, one could not underestimate the role of Risk Management Committee since it was in charge of evaluating associated internal and external risks (Agthia, 2015). Being placed at the same level with Executive Committee gave it a unique right to express its perspectives and show its concerns with the corporate performance when acquiring a particular entity such as Al Bayan. This department had to evaluate the proposed offer since it would review it from dissimilar angles and conduct an effective risk assessment, and including it in the reporting process was logical.

Apart from the paramount importance of departments such as Risk Management Committee, CEO, CFO, and shareholders in the decision-making process related to acquisitions, involvement and contribution of other units such as Executive Committee and Manufacturing Operations were pivotal. The primary reason for this decision and inclusion of these entities in the reporting process was the fact that they supported integrity, transparency, and collective decision-making, and they were of supreme importance in the organization. With the help of the main responsibility of CEO, they were able to express their opinions and report it from the perspective of their departments (Agthia, 2015). Overall, it could be said that reporting mechanism and selecting specific entities responsible for acquisition of Al Bayan were rational since they assisted in the development of effective solutions, complied with the existent organizational structure, and explained the requirements for particular changes.

References

Agthia. (2014). Annual report 2014. Web.

Agthia. (2015). Corporate governance report. Web.

Agthia. (2017). About Agthia. Web.

Agthia signs agreement to acquire Al Bayan group of companies. (2015). Drinks Business Review. Web.

Risberg, A. (2013). Mergers & acquisitions: A critical reader. New York, NY: Routledge.

Scott, A. (2015). Agthia tightens grip on UAE bottle water market with three acquisitions.The National. Web.

Verma, P. (2013). Relationship between organizational communication flow and communication climate. International Journal of Pharmaceutical Sciences and Business Management, 1(1), 63-71.

Young, A., & Hinesly, M. (2014). Social media use to enhance internal communication. Business and Professional Communication Quarterly, 77(4), 426-439.

History

Citicorp was established in the 1800’s as a banking institution that was inclined to providing financial services to the merchants in New York and its environs. For a long time, this was the biggest banking entity in America and owing to this fact, it owned a large amount of assets, and in mid-1900’s, it was accorded the name of being the largest banking institution in the world. It was the first financial institution to initiate negotiable instruments, credit and master card schemes.

On the other hand, Travelers group is made up of financial institutions dealing in all financial concerns. This includes the provision of insurance facilities. Besides, it also deals with real estate developments and offers asset management services as well. Citicorp and travelers group were merged in 1998 to create one large institution referred to as the Citigroup. Citigroup was expected to establish its operations globally. As a result, it obtained more than one hundred million clients from these locations.

Reasons for the merge

One reasons, as to why the Citicorp and travelers merger was considered important in the financial industry of the United States was because this merger would create “a financial supermarket hence increasing the economies of scale in both companies” (Walter 34). The other reason was the vulnerability of the travelers group to economic disasters. This merger would ensure that the company has the capacity to retain more financial shocks than before.

Most people were also not acquainted with the idea of purchasing insurance premium directly from the company. This merger would therefore, propose this concept to the public. It was believed that, they would appreciate it more keenly owing to the credibility of Citicorp. Citicorp on the other hand, needed to venture into the insurance business, and this was a perfect option as it would allow them get into this business without the trouble of investing.

Merger motives

One of the motives behind the merging of Citicorp and travelers was to create a larger proportion of assets which would be beneficial to both institutions. After the merging, the total assets for what was now Citigroup amounted to about $700 billion while the total value of the firm exclusive on the assets was $140 billion.

The second reason inclined to travelers group was that the company would be in a position to “market common funds and insurance to Citicorp’s retail customers whereas granting the banking units access to an elaborate customer base of investors and insurance buyers” (Federal reserve bank).

The next reason for merging these institutions was to reduce the cost of adjusting to new technology, which is changing gradually. The other motive is to allow faster globalization of the institutions as was being experienced in the financial markets.

How they work together and make money

One of the elements that will be established in the merging of these two companies is the expansion of their operations to over one hundred regions globally. Owing to the merging of their operations, these companies are more likely to attract more clients.

This is as a result of the fact that customers will avoid the situation whereby they obtain their services from different companies, which increases their costs of obtaining these services. As a result of the merging again, citigroup will be in a position to offer its clients discounts based on the number of services outsourced from the company.

The company was able to establish and implement successful strategies within the first six months, and this was as a result of combined efforts of experts from both companies. When the operations under the new company name commenced, these companies were able to attract the largest part of the market share because of their ability to provide financial and non -financial services all under one roof.

Type of merger

The merging process of these two companies can be classified under different categories depending on the element of the merger being considered. The first category is the type A merger whereby the companies would be expected to change to completely incorporated financial organization operating under an exclusive business structure and supported by a sole resource base as well. As a result of this type of merger, the company was in a position to provide banking services insurance services, asset management services and securities.

The other category of mergers is the type B merger which would require “the merged company to provide commercial and investment banking within the same entity while undertaking insurance underwriting and circulation, mortgage banking and other dedicated services through distinct capitalized affiliates” (Citigroup).

The next category of merging in this case is the type C merger which involves the process whereby a commercial bank takes the place of a parent in the merging process.

The commercial bank which in this case is the Citicorp takes the role of the foundational company and the services of the other company which include insurance and investment banking are integrated there in. finally, is the type D merger “which involves, the creation of the holding company controlling the associates involved in; asset banking, insurance, commercial banking and other categories of financial and non-financial businesses” (Citigroup).

This is the most appropriate model in the case of Citicorp and travelers group as the tow companies were brought together to form Citigroup which acted as the parent company controlling the other related operations which in this case included the banking activities, security and investment services and insurance services.

Results

After the merger had taken place, “the standing shares in the companies’ recent quarterly reports indicated the value of the company to be $70.6 billion” (Federal Reserve Bank). Financial analysts discovered that this value was $5.1 billion in excess of market capitalization of the Citicorp Company before the merger, and this therefore, was a sign of improvement in performance.

Citigroup portrayed an increase in the level of earnings as a result of the “cross selling of the opportunities between the two companies as well as the cost savings that resulted this merge” (Walter 35).

The quantity of assets in Citigroup also increased to around $700 billion, while the new company was able to earn net revenues amounting to $50 billion. It expected that within the first financial year of its operations to be among the top ranking company in fortune’s 500 companies list. This is illustrated by Citibank (1999), “the preferred stocks of both companies were all converted into preferred stocks for the new company”. The performance of the stocks in the stock market has been improving over the years after the merger.

The volume of trade for example, as at May 2007 was approximately $2.3 million which is quite high compared to the February estimates of around $1.4 million. These values however fluctuate a great deal over the years but on average, the operations of the company in the financial market are considerably high.

Works Cited

Citigroup. Citigroup corporate website, (n.p), April 2007. Web.

Citigroup. “Citigroup: Is this marriage working” Business weekly online 264 (12) n. pag.

Federal Reserve Bank. “Banks Merge To Stay Competitive” Richmond Publications in Summer 12 (5), n. pag. Walter, Ingo. Mergers and Acquisitions and Banking & Finance. New York: Penguins, 1999.

Abstract

The merger between Daimler and Chrysler was designed to create a complex multinational automobile manufacturer with a market worth of more than $130 billion. The merger was supposed to ring paradigm shifts in the way that cars would be made and driven. But unfortunately, the great upheavals and changes that were predicted did not happen and the merger sunk into a morass of cultural mismatch. Synergies between Daimler, a German company, and Chrysler, an American company could not develop. For the merger to be successful, a climate of mutual trust, learning, creativity common values, and ethics need to be developed first. When two companies merge, there needs to be a balanced change management policy where both parties are given their due right and encouraged to exchange ideas for mutual growth. Daimler tried to ramrod its policies on the resilient Americans who resisted and this resulted in a war of attrition in which neither party won. This paper analyses the Daimler Chrysler merger and the change management issues that the two companies faced. The paper also provides a brief overview of change management methodologies and explains the factors to be considered for managing change in organizations.

Stakeholders in the Merger

Stakeholders played an important role in the merger. These were entities that could critically influence any decisions in the merger. The major stakeholders were the two companies, the workers union and the majority Share holders. Table 1. Daimler Chrysler Statistics in 1997, gives information about the two companies.

Table 1. Daimler – Chrysler Statistics in 1997 (Schulten Thorsten, 1998)

Daimler – Benz AG

Daimler Benz or Daimler Mercedes Benz (DMB) was incorporated in 1926 after a merger of Daimler and Benz companies. The new company made the famous Mercedes cars that have dominated the market for premium, luxury, and racecars for the past few decades. The company has drastically changed how cars are made and driven and have brought in several technology changes in areas such as the engine, transmission, safety, and in providing a rich riding experience. The company has introduced innovations such as safety crumple zones, anti-lock brakes, airbags, seat belts pre-tensioners, and many more. The carmaker has manufacturing facilities in several countries and Mercedes cars and is sold throughout the world. The company also makes racecars, trucks, buses, and SUVs.(Waller David, 2001).

What Daimler Benz brought into the merger

DMB brought into the merger, world-class engineering and top-of-the-line premium and luxury cars through its M and E class series. The company has a worldwide dealer and after-sales network and has a very strong brand identity as an exclusive and prestigious car and owning a Mercedes car is considered a status symbol. DMB also brought in its excellent research and development lab that is highly regarded and very well equipped to develop high speed and high-performance cars with a high level of safety (Waller David, 2001).

Chrysler Corporation

Chrysler Corporation (CC) was founded in 1925 in America by Walter Chrysler. The company had created a strong reputation with its well-engineered cars that were targeted at the middle class. In 1965, CC entered the European market and challenged the market with cars such as Plymouth Road Runner, Plymouth GTX, Dodge Charger, and a few others, and these were called the muscle cars. It also introduced the concept of minivans that became highly successful. It also had a stable of well-received Jeeps such as Commander, Compass, Grand Cherokee, Liberty, Patriot, and Wrangler and these were in the 15000/ 30000 USD price range. Over the years, the company had peaks of high revenues followed by a fall in sales and the US Government has bailed it out on a few occasions. At the time of the merger with Daimler Benz, the revenues were 61, 147 million USD. Faced with increasing competition from the Japanese carmakers, CC was seeing falling sales and was not in a dominant position in the merger (Waller David, 2001).

What Chrysler brought into the merger

CC had a great acceptance with the middle-class Americans. It had an excellent marketing strategy in place and the cars were categorized to cover different market segments such as Town and Country. Cruiser, Convertible, Jeep, mid-size, full size, sports, and SUV. It brought its expertise in marketing in recession struck economies, very good brand identity, an excellent and skilled workforce, and a huge sales network made of many dealers and sales agents. The car was identified with the blue-collar worker, middle-class segment and people who required value for money, and with people who shopped on a tight budget (Waller David, 2001).

Workers Union

The merger was not only a merger of two companies but also of the worker’s unions. Daimler Benz had a workers union of 300,168 who were affiliated to IG Metall while Chrysler had 121,000 workers affiliated to the American United Auto Workers. The merger would create the largest group of workers, a total of 421,168. The German workers union leaders were not taken in by the assurances given by Jürgen E Schrempp, president of Daimler-Benz that there would not be any layoffs and job cuts. The leaders wanted the management to extend the job guarantee agreement that was valid till 2000, to be extended to 2002. The management was not ready to give a written guarantee and this caused increasing unrest among the German workers. Since the merger was registered as a German company, as per the German laws, 10 workers would be given a place on the supervisory board. But after the merger, the management announced that five members would be from Chrysler. The German workers felt that since this was a deemed German company, the members had to be elected from the workers union and the elected members could, in turn, sit on the board. Since the Germans outnumbered the Americans by three times, the Americans were not ready to accept this arrangement. This issue was to be settled amicably by mutual discussions, but the strain had already set in (Schulten Thorsten, 1998).

Major Shareholders

Kirk Kerkorian (Auto Talk, 1998) was the single largest private shareholder in Chrysler Corporation. Kirk was a billionaire from Beverley hills. He had bought a 10% stake in 1990 in Chrysler and this grew to more than 15%. In 1995 he attempted a hostile takeover of the company but had to abort it due to government intervention. He then offered to sell a part of his shares in exchange for a place on the Board of Directors. It is reported that it was this hostile takeover bid that made Chrysler think of a merger with Daimler. He sued Daimler Chrysler in 2000 claiming that he had lost billions of dollars due to the merger. His case was turned down since the company was registered in Germany and German rules do not allow for stock options. In 2007, he has again made a bid of 4.5 billion USD for Chrysler (Kerkorian, 2007).

Literature Review

Many researchers and scholars have written about the care to be taken for organizational changes and change management policies that occur when international companies merge. Taylor (Taylor, 2000) has written about how companies need to communicate effectively. He argues that when dealing with cross-cultural changes, societal and cultural forces have to be addressed effectively. These forces can severely affect organizations and restrict their functioning.

Johnson (Johnson et all, 2004) have argued that in the early 1980s if employees would follow a predetermined set of corporate values then they could be allowed to bring in innovation. This would mean that shared values would help to encourage employees to perform better than ever. But this approach has its disadvantages. By placing importance on shared values, the employees may feel that they are being manipulated and this can create distrust and cynicism. Another important fact that Johnson has pointed out is regarding slogans and the vision statement. These things need to be followed and reflected in the behavior of managers. So slogans such as people are our greatest assets become meaningless when job cuts are looming ahead and the whole exercise is derailed. Johnson has also written about Change Levers and the issues that change agents face in organizations. Some several levers and interventions need to be used. Organizations have several interdependent subsystems and these need to be aligned to each other. The subsystems cannot work in isolation and any change that is brought should be effected at the organization level. If this does not happen then other units in an organization will start a counter effect. Johnson speaks of the cultural web of an organization that centers around an explicit paradigm. There are various factors such as Stories, Symbols, Power Structures, Organisation Structures, Control Systems, and Routines and Rituals. All these forms a part of the social fabric and any change management policies must ensure that these elements are included.

Bloomgarden (Bloomgarden, 1999) suggests that there are four phases in a merger. In the first phase, the merger is announced and this is the chance when the management can make a good impression. Special efforts need to be taken to present the facts in the best possible way. The second phase covers the time frame between the initial announcement of the merger and the final approval. A lot of questions need to be answered about finance, workers and staff status, market caps, and others. The management needs to be honest about certain things that they are not sure of. If any job cuts are planned, then it is best if this is mentioned as a possibility. In the third phase, the merger is signed and the merger needs to stay away and ahead of the rumormongers. The management needs to make regular announcements about any plant closures or job losses. In the fourth and the final stage, the change management policies from the merger are implemented. Stockholders will ask questions about the performance and how the merger has performed against the forecasts.

What the Merger was supposed to do

The merger between Daimler Chrysler was supposed to create a vast automobile manufacturing company that would create a virtual monopoly in all market segments. The market cap was supposed to be more than 130 billion USD. Daimler had a very good presence in the premium and luxury car market while Chrysler had a good hold in the middle-level car market segment. While Chrysler had managed to salvage its operation from bankruptcy on more than a few occasions, it was financially vulnerable. Daimler on the other hand had a sound business model and had enjoyed stable growth. Both these companies were expected to use their knowledge proactively and cooperatively to increase their business. (Surowiecki James, 1998).

The merger was also supposed to produce huge savings in the form of reduced development cost, sharing of resources, and reduction in procurement and outsourcing costs. US Suppliers to Chrysler were looking forward to sales in the European market while the German suppliers looked for similar opportunities in the US, South America, and Canada. The market was supposed to include OEM sales as well as the spare parts market. As the editorial board of WSES put it “If Daimler Chrysler were a country, it would rank 37th in the world in terms of Gross Domestic Product, just behind Austria, but well ahead of six other members of the European Union–Greece, Portugal, Norway, Denmark, Finland and Ireland” (WSWS, 1998).

What went wrong

Several reasons have been attributed to the failed merger and these cantered around certain cultural perceptions, work methods, technology, and other issues. These are discussed in this section.

Clash of Cultures

Though Schrempp had announced that this was a merger of equals, this was not the case. Daimler has paid 37 billion USD in a stock swap exchange and it wanted good value for its money. When the merger was to be signed, the Americans had the impression that the Germans were simpletons, hard-working but brilliant who had a low profile and kept to themselves. The Germans on the other hand had imagined a ‘Cowboy’ image of the Americans and were expecting a gung ho team. But the reality was very different as the German leader, Jürgen Schrempp, had a different background. It is reported that in one of the first meetings held on 11 December 1998 in Spain called the ‘Top Management Meeting’, the Germans outnumbered the Americans by two to one. It was clear that Schrempp was in charge as he rushed about, talking from the podium and shouting around. When the time came for drinks, everybody joined in the fun and it was Schrempp who sang the loudest and probably drank the most. The Americans were expecting a sober German, but they were facing someone who seemed to be more fun than their serious CEO, Eaton and it was clear who was in charge. This incident created a new paradigm shift in the relations and it was understood that the Germans with their money and superior cars would be in a dominant position. They looked down on the Americans as rather poor cousins who made small and inexpensive cars for the middle class (Vlasic et all, 5 June 2000).

Disparities in Wages

There were wide disparities in wages between the US and the German workers. It was felt the US workers were being a larger amount when compared to the amount the Germans were getting much lesser. According to Orr (Orr Deborah, 17 May 1999), Eaton, the head of Chrysler was getting about 11.7 million USD while his counterpart, Schrempp was being paid about 2 million USD. The company had filed a declaration with the Securities and Exchange Commission and had declared that only 17 managers and board members were paid a total sum of 40.4 million USD. The big question that was being asked was if the US workers would have to take a pay cut or would the Germans be given a massive pay hike. The US workers would not agree to any pay cuts while increasing the wages all around for a 440,000 workforce would mean certain financial ruin. Certain changes were made and bonuses paid to the Daimler staff and the options are given to the Chrysler staff disappeared when the merger came into effect. This issue continued to cause severe strain in the interactions between the US and German employees, but incidentally, before the issue became very serious, the merger itself was doomed.

Different Business Models

There was an apparent clash of business models and ethics for the stakeholders. The Germans catered to the high and premium market segment and consequently followed the high-cost, low-volume manufacturing model. The value proposition is offered to its customers was brand identity and exclusiveness. The company made and sold its cars with the finest engineering technology and quality and it demanded a premium price from its discerning customers that the customers paid. Chrysler, on the other hand, had to skim off each cent it could save and provide low-cost models to price-sensitive and fuel economy-minded customers. It had adopted a low-cost, high volume-manufacturing model that relied on mass production techniques. While the engineering and technology adopted were acceptable, the quality control was aimed at meeting the requirements and not exceeding them. Mixing and integrating these two models, unfortunately, did not pay off and was not handled well (Sandoz, 2002).

Adverse Media Reporting

The media, which had initially applauded the merger, started damming the merger and everyone from lay journalists to authors had a field day in bashing the merger. This created very bad publicity and may have hastened the failure of the merger. An excerpt from the book by Vlasic says

“But the union didn’t turn out to be a merger made in heaven. When the dust settled, Daimler was firmly in control of Chrysler, and the shock waves were reverberating on both sides of the Atlantic. An American icon would lose its independence, and a German giant would grow in power and influence. Daimler chief Jurgen E. Schrempp grabbed the wheel of DaimlerChrysler. His co-chairman from Chrysler, Robert J. Eaton, took a back seat. And Thomas T. Stallkamp, Chrysler’s president, got caught in between.” (Vlasic et all, 5 June 2000)

Such writings were published day in and day out and caused much anger and distrust among the Americans who believed that they had been ‘conned’ and ‘taken for a ride’ by the wily Germans.

Technology Issues

Chrysler had certain technologies that could have helped the German company. Chrysler had always used the front-wheel-drive transmission that got power from the New Venture gearbox that had been developed along with general motors. This was supposed to help the Daimler cars, which were always rear-drive vehicles. Mercedes on the other hand had the famous 5-speed automatic transmission that are standard features in its cars while this technology was not used at all by Chrysler. While Chrysler always led in the 2 stroke petrol engine that has been termed as more powerful but ‘gas guzzling’, Germans had advanced in the field of 4 stroke direct injection diesel engines. If the Mercedes engine could be adapted to the Chrysler vehicles and vice versa, then a very competitive model could have been developed for Chrysler in the 4 cylinders to 12 cylinder automobiles. Daimler cars were renowned for certain safety measures that were built into the cars and these included features such as anti-lock braking systems, smart baby seats, ultrasonic obstacle detectors, seat belt pre-tensioners, safety airbags, and others. Chrysler did not implement these systems in their cars since they felt there was no need for these innovations, the cost of the car would go up and finds lesser takers. Chrysler had used aluminum and impact-resistant composite materials in the body panel construction. This could have been used by Daimler to improve the fuel economy of their cars since the German company had always used gauge steel sheets for the body panel work. Both the companies had developed prototypes of hybrid vehicles that could run on alternative fuels such as electricity, biodiesel, fuel cells, hydrogen-based fuel cells, and so on. But common projects were never taken up to develop these vehicles. Unfortunately, deep distrust and the ‘we are better’ attitude acted as sound barriers to knowledge sharing. The benefits of engineering knowledge remained isolated in their respective companies (Herman Don, 1998).

Cost Cutting Measures

With reducing sales and increasing overheads, there was an urgent need to control costs. The management decided to cut about 13,000 jobs and close several plants and factories. This was deemed necessary since sales were down and there was excess capacity, so closing down idle plants was the immediate solution to control costs. This has created a lot of unrest in the workforce and the labor unions (Hawranek Dietmar, 19 February 2007).

At the beginning of the merger, an exercise to integrate the different systems running in the two companies and at the supplier’s was undertaken. Both companies were using SAP Financials for enterprise planning and CATIA for computer-aided designing. This proved beneficial to the IT systems people who were given the task of cost-cutting and identifying redundant systems that could be scrapped. The IT systems did a very good job and managed to provide substantial savings in the form of system maintenance and upgrades. This was one effort that had proved very beneficial and effective for both organizations (Wallace Bob, 1998).

Market Segments Issues

Chrysler had an upper hand in the gas-guzzling card such as the SUVs and the minivan. While these vehicles were popular in the early 1990s, the market demand for these cars fell in the early 2000s. While there was a demand for fuel-efficient, compact cars, Chrysler did not have any good car model to meet this demand. Consequently, Chrysler lost about 1.5 billion USD in 2006. There have been increasing demands from major shareholders such as the Deutsche Bank to sell off the ailing unit (Heading For Divorce, 2004).

Where the merger stands now

Daimler had reportedly spent 36billion USD to acquire Chrysler. With steeply falling sales, Chrysler is worth only about 14 billion dollars and it has a pension and health liability of 12 billion USD. This leaves a very small operating margin. Daimler has announced that it wants to sell the company and is reportedly seeking buyers (Hawranek Dietmar, 2007).

Daimler on the other hand has shown steady growth and increased sales. In 2006, Daimler showed an operating income of 7.28 billion USD up from 8.84 billion USD in 2005. The earning per share of the company has also gone up to 4.17 USD from the 3.7 USD of 2005 (Isidore Chris, 14 February 2007). The credit rating company, Standard & Poor’s, has brought down the rating of the company from BBB+ to BBB and has given it a negative outlook since they have strong doubts about any possible recovery by the company. This downgrade is a strong blow as it would make credit companies and banks think twice before involving themselves in this company or backing any investor who would be interested in it (Harnischfeger et all, 2003).

Conclusion

The Daimler Chrysler Merger is an example of how technologically advanced and financially strong market leaders manage to bring down a merger that should have worked wonders and turned the merged entity into a global giant. There was a cultural mismatch, poor support from the management, and political issues that played a negative role in bringing down the merger. Both companies had some intrinsic strength and good, non-competitive car models and between themselves, they stood a chance to cut a wide swathe in the car market ranging from the small mid-priced passenger cars, the SUV, town, and country cars, Jeeps, and the premium segment. Mutual distrust, bad market conditions, increased competition, hostile labor, indifferent management, and many other factors caused the merger to fail. The paper has provided an analysis of the major stakeholders who had a role in the merger, explained what the merger was supposed to do, and has analyzed various factors that caused the downfall. The paper should serve as a learning document for any future mergers and acquisitions that companies may undertake.

References

Auto Talk, 1998, ‘Kerkorian, Eaton are Deal’s Biggest Winners’. Ward’s Auto World, Volume 34, Issue 6.

Bloomgarden, 1999, ‘Unhappily married’, PR Central, 2007. Web.

Editorial Board, 1998, ‘The merger between Chrysler and Daimler-Benz: what it means for workers’, World Socialist Web Site, 2007. Web.

Harnischfeger Uta Roberts Adrienne, 2003, Daimler hit by S&P downgrade after profits fall, Financial Times. London, pp. 29.

Hawranek Dietmar, 2007, ‘Daimler Ponders How to Divorce Chrysler’, Spiegel Online International. Web.

Heading For Divorce, 2004, ‘Daimler Confirms Chrysler Sell-Off Talks’, Spiegel Online International, 2007. Web.

Isidore Chris, 2007, ‘For sale: A smaller Chrysler’, Jones Report, Web.

Johnson Gerry, Schools Kevan, 2004, ‘Exploring Strategic Chang’, Published by Prentice Hall.

Kerkorian, 2007, ‘Kerkorian in $4.5bn Chrysler bid‘, BBC International News, Web.

Orr Deborah, 1999, ‘Safe haven’, Forbes New York, Volume 163, Issue 10, pp. 207.

Sandoz Paul Strebel, 2002,’Cross-Border Lessons from the DaimlerChrysler Merger’, Perspectivesfor Managers: International Institute for Management Development, Web.

Schulten Thorsten, 1998, ‘Industrial relations aspects of the Daimler-Chrysler merger’, European Industrial Relations Observatory on-line, 2007. Web.

Sherman Don, 1998, Mutual Engineering Society, Ward’s Auto World, Volume 34, Issue 6.

Surowiecki James, 1998, ‘The Daimler-Chrysler Collision’, Washington Post.Newsweek Interactive Co. LLC, 2007. Web.

Taylor M, 2000, ‘Cultural variance as a challenge to global public relations: a case study of the Coca-Cola scare in Europe’. Journal of Public Relations Review, Volume 26, Issue 3, pp: 277-293.

Wallace Bob, 1998, ‘Now its Cost Cutting Time’ Computerworld, Volume 42, Issue 47.

Waller David, 2001, Wheels on Fire: The Amazing Inside Story of the Daimler Chrysler Merger. London: Hodder & Stoughton.