SUBJECT:CORPORATE EVOLUTION AND STRATEGIC MANAGEMENT

IMPACT OF MERGERS
AND ACQUISITIONS
ON EMPLOYEES AND
WORK CULTURE
SUBMITTED TO- PROF.J.K.SHARMA

SUBMITTED BY-
 ACKNOWLEDGEMENT

I acknowledge with great sense of gratitude, the help extended by my

teacher Prof.J.K.Sharma in the making of this term paper. I thank him for his
valuable inputs and the insights he gave to understand the subject to the core.

I also thank my parents and friends for their tremendous support and
guidance without which this term paper wouldn’t have been possible.

Thank you,

Vidhi Setia.

2
PARTICULARS PAGE NO.
Introduction and meaning 4
Scope and objectives 5
Reasons for failure 6
Impact on work culture 6
Ways to overcome 8
Conclusion 9
Bibliography 10

Table of contents

3
 IMPACT OF M&A ON EMPLOYEES & WORKING
CONDITIONS

INTRODUCTION

Mergers & Acquisition have become very popular throughout the world in the recent times.
This has become popular due to globalization, liberalization, technological developments &
intensely competitive business environment. Mergers and acquisition are a big part of
corporate finance world. This process is extensively used for restructuring the business
organization. In India, the concept of mergers and acquisition was initiated by the
government bodies. The Indian economic reform since 1991 has opened up a whole lot of
challenges both in the domestic and international spheres. The increased competition in the
global market has prompted the Indian companies to go for mergers and acquisitions as an
important strategic choice. The trends of mergers and acquisitions in India have changed
over the years. The immediate effects of the mergers and acquisitions have also been diverse
across the various sectors of the Indian economy.

MEANING OF MERGERS & ACQUISITION

The phrase Mergers & Acquisition refers to the aspect of corporate strategy, corporate
finance and management dealing with the buying, selling and combination of different
company that can aid, finance or help a growing company in a given industry, grow rapidly
without having to create another business entity.
In a merger, two companies come together and create a new entity. There are mergers
between equals and unequals. But, In general there are mergers of equals rather than
mergers of unequals.
Examples of few mergers between equals are:
1. Merger between Arcelor and Mittal Steel forming Arcelor-Mittal.
2. Citicorp and Travellers forming Citigroup.
3. Ciba and Sandoz forming Novartis.
Examples of few mergers between unequals are:
1. Chase and J.P. Morgan creating JPMorgan
In an acquisition, one company buys another one and manages it consistent with the
acquirers needs. There are two major types of acquisitions: Those involving acquisition and
integration such as made by Cicso Systems, Infoedge (India) Pvt Ltd; and those involving
acquisition and separation such as between Unilever and Best foods. Thus, a merger or

4
acquisition is a combination of two companies where one corporation is completely
absorbed by another corporation. The less important company loses its identity and
becomes part of the more important corporation, which retains its identity.

SCOPE OF MERGER & ACQUISITION

M&A has become a daily transaction now-a-days. Mergers and acquisitions are an
important area of capital market activity in restructuring a corporation and had lately
become one of the favored routes for growth and consolidation. The reasons to merge,
amalgamate and acquire are varied, ranging from acquiring market share to restructuring
the corporation to meet global competition. One of the largest and most difficult parts of a
business merger is the successful integration of the enterprise networks of the merger
partners. The main objective of each firm is to gain profits. M&A has a great scope in sectors
like steel, aluminium, cement, auto, banking & finance, computer software,
pharmaceuticals, consumer durable food products, textiles
etc. It is an indispensable strategic tool for expanding product portfolios, entering into new
market, acquiring new technologies and building new generation organization with power
& resources to compete on global basis. With the increasing number of Indian companies
opting for mergers and acquisitions, India is now one of the leading nations in the world in
terms of mergers and acquisitions. Till few years ago, rarely did Indian companies bid for
American-European entities. Today, because of the buoyant Indian economy, supportive
government policies and dynamic leadership of Indian organizations, the world has
witnessed a new trend in acquisitions. Indian companies are now aggressively looking at
North American and European markets to spread their wings and become global players.
Almost 85 per cent of Indian firms are using Mergers and Acquisitions as a core growth
strategy.
The merger and acquisition business deals in India amounted to $40 billion during the
initial 2 months in the year 2007. The total estimated value of mergers and acquisitions in
India for 2007 was greater than $100 billion. It is twice the amount of mergers and
acquisitions in 2006. Thus, we can say that M&A has become a day to day transaction now-
a- days.

OBJECTIVES OF MERGER & ACQUISITION

The main objective of Merger & Acquisition transaction is as follows:

o Proper utilization of all available resources.
o To prevent exploitation of unutilized and underutilized assets and resources.
o Forming a strong human base.

5
o Reducing tax burden.
o Improving profits.
o Eliminating or limiting the competition.
o Achieving savings in monitoring costs.

REASON FOR FAILURE OF MERGER

The main reason for failure of merger is non-integration of human resources of both the
transferor and transferee company. It is also not successful because the merger of two
organizations is actually a merger of individual and groups working in company which had
a great impact on individuals working in a company such as it creates ego clashes among
individuals working in a company. There is also failure of M&A when purchasers plans &
strategies are not clear to the employees of the acquired firm.

IMPACT OF MERGERS & ACQUISITION ON EMPLOYEES & WORKING

CONDITIONS

Merger & Acquisition helps a Company to grow in a better way but it has a great impact on
the employees working in a company & on working conditions. The employees of the
companies merging and acquiring are mostly affected by M&A. Due to this reason, there is
mostly failure of M&A. To break the mindset of people working in companies undergoing
M&A and to convince them that merger is for common good & will help them in their
growth is normally an uphill task.
1. When 2 companies who have different style of functioning merge, there is a clash
between the companies which pulls them together into different direction apart from their
aims & objectives and in the process endanger the advantages envisaged both in the real life
as well as in the scheme of amalgamation. Thus M& A had a great impact on the individual
or group working in company & on work culture.
2. Company enters into M& A activity without recognizing the impact on the organization
and the overall affect on the human element within the two merging company. when M&A
activity do not meet corporate objectives it results in-
 Lost revenue
 Customer dissatisfaction
 Employers attrition issues
3. Many personnel issues such as salaries, benefits, pension of employees are also affected
due to M&A. Since the organizational structures are different, differences in compensation
packages and designation can take place normally.

6
4. There are ego clashes between the top management and subsequently lack of co-
ordination among them may lead to collapse of company after merger. This problem is
more prominent in cases of mergers between equals.
5. There is also a separation anxiety among the employees because they think some of their
co-workers will be leaving the company. The atmosphere of apprehensions leads to
company wide rumours. The employees loose faith in their organization and tend to become
demotivated.
6. Employees are the main victims when M & A takes place. They may be hurting themselves
by trying to cope with new changes. When they realize that their potential for future
growth within the organization dwindles, they often become withdrawn and frustrated
which can affect productivity of the company severely.
7. M&A affects the CEOs of the company because they are the most creative and talented
people within the organization. The resultant loss of control devastates these individuals.
The stress level experienced by these executives often travels through the chain of
command, affecting subordinates as well.
8. Employees of the company are mostly scared by M&A that they will be given step
motherly treatment. This question is always in the minds of employees of the transferor
company. This fear of transfer and retrenchment, the loss of position in the hierarchical
level are some of the thoughts which always remain in the minds of employees of both the
company.
9. There is also lot of reorganization & restructuring in the company during the days when
M&A process is going on .The process of M&A by which company is bought or sold can
prove difficult, slow and expensive. This M&A transaction typically require six to nine
months and involve many steps. Locating parties with whom to conduct transaction forms
one step in the overall process and perhaps it is the most difficult step in the transaction.
This process of M&A has a great impact on the work culture during those days as it disturbs
whole organization of the company.
10. In an acquisition the buyer assumes the dominant parent role and the acquired
company assumes the subordinate role, acting in the role of stepchild. Just as step parents
may deny stepchildren certain family resources acquired company may also experience
similar after an acquisition takes place. This situation is caused due to lack of fit between
the two organizations. Such lack of fit is an issue and it has a great impact on the acquired
company as it affects its work culture, organization and mainly on the employees working
in the company.
11. The uncertainties of M&As shift the focus of employees from productive work to issues
related to interpersonal conflicts, layoffs, career growth with the acquirer company,
compensation etc .Moreover, employees are worried

7
about how they will adjust with new colleagues. The merger involves downsizing, hence the
first thing that comes to the mind of employees is related to their job security. Merger also
leads to change in the well defined career paths of employees. Due to these reasons
employees find themselves in completely different situation with change in job profiles and
work teams. This may have negative impact on the performance of the employees.
12. Each company has its own set of values which may conflict with those of acquired
company. The employees may not be able to accommodate themselves in new culture and
thus may lead to cultural shock. Inability to adapt to new culture increases stress level
among employees and results in low job performance. The need therefore is to follow
structured approach in dealing with cultural differences.
13. The employees face great uncertainty which in turn produces stress .Such stress
ultimately affects their perception and judgments. Due to stress among employees by
M&A,the most common reactions displaced by them are as follows:
 Loss of identity.
 Lack of information & anxiety.
 Talent is lost.
 Family repercussions

WAYS TO OVERCOME IMPACT OF M&A ON EMPLOYEES & WORKING

CONDITIONS

1. Firstly organization must effectively develop and implement assistance program for
displaced employees. Such program should include advance notification, severance pay
extended benefits, retaining program and outplacement activities.
2. Strong emphasis needs to be placed in determining whether the acquired firms personnel
is a good fit for the acquiring organization and to whether the mass lay off can be avoided.
Moreover communication from the executive team with employees in the pre-acquisition
phase needs to be consistent so that anxiety levels among the personnel can be kept at low
level.
3. Moreover a company not only needs to select a right target, but also must have culture in
place that accepts the acquisition as quickly as possible.
4. There is need for developing and executing effective employee communication,
particularly conveying the employees that how the transaction will impact organizational
members. Communication between the members of transferor and transferee Company
should be open, honest and strategic. Any information regarding the progress of the deal or
integration should always be shared among the members because communication is very
important throughout M&A process.

8
5. Finance and the Legal departments are essential for the successful implementation of the
integration plan. Therefore, the inputs from these departments should be taken into
consideration while working on the plan.

CONCLUSION
Thus in nut shell we can say that M&A have become common in our country’s business set
up. There is a tremendous need for people to grow and become global players expanding
their business spheres. If success is to be achieved in M&A cohesive, well integrated and
motivated workforce is required who is willing to take on the challenges that arise in the
process of M&A and there should be proper organization among employees and they should
be provided with proper working conditions.

BIBLIOGRAPHY

9
 http://www.simama.org/article/profit-maximization-approach-the-
financial-management-objectives

 http://www.sjsu.edu/faculty/watkins/profitmax.htm

 http://www.economy-point.org/m/maximization-of-profit.html

 http://www.investorwords.com/7690/profit_maximization.html

10