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Merger Mania

Syed Nouman Faheem discusses how mergers and acquisitions of companies are now the reality that most employees have to live with and businesses struggle with as well. Learn how the largest companies deal with mergers.

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Merger and Acquisition Negotiation

Introduction

The globalization of the world economy presents a new business environment in which competition is international in a growing number of industries and only world class standards will satisfy customers. Finance, markets, technology, consumption, culture and consciousness are all becoming global. The paradox, those conceptions of "one world" has released a wave of multiculturalism, which international companies are struggling to come to terms with (Roberta Foundations of Corporate Law, 1993). There have been shifts in management thinking and various paradigms in management theory and practice. The paradigms that have changed are ideas and values, market environment, processing and communication, orientation, organization and control, measures and objectives.

Companies in the technology, media and communications sector continue to pursue mergers and acquisitions as they react to market conditions convergence, the increasing value of customer relationships, the drive to develop new services and solutions and move quickly to increase their global presence and reap the benefits of economies of scale. Failed M&A transactions, however, can result in enormous business and financial risk and can be disruptive, costly and emotionally wrenching experiences. The paper sets out to gauge the impact of mergers and acquisitions on the businesses that pursue them and to bring to light the lessons learned for human resource to play a proactive role. Focusing both on the acquirer as well as the acquired, we studied the effects on employees by such merger activity and also recommended actions that would help managers guide their companies through the merger process in the healthiest and most effective manner.

Why Companies Agree on Merger or Acquisition

There are many motivations for mergers. One reason is expansion. A larger, growing company may try to take over its smaller rivals in order to grow bigger. In some cases it is the smaller company that wants to expand, but is hampered by lack of capital. It seeks a larger partner who will put in the necessary investment. Other mergers make cost savings by integrating operations, sometimes on a world scale. And some mergers are defensive, responding to other mergers, which threaten the competitive position of a company. In the recent years the mergers have increased and the main reasons are perhaps the boom in the stock market which has made mergers much more attractive because it is relatively cheap to acquire other companies by paying for them in high valued shares. Secondly, the pace of deregulation and globalization has increased worldwide. This has especially affected the financial sector.

The creation of the Euro currency has created a much larger capital market in Europe. In the USA, changes in the laws regulating the financial industry have made consolidation much easier. There is a great deal of bad experience from which to learn in the merger and acquisition arena.

Oracle, PeopleSoft & J.D. Edwards

$1.8 billion acquisition of J.D. Edwards & Co., business software maker PeopleSoft will likely lie off between 800 and 1,300 workers (The Wall Street Journal). PeopleSoft chief Craig Conway has complained loudly that Larry Ellison will slash jobs if Oracle Corp. succeeds in its hostile, $7.3 billion bid for PeopleSoft. But Mr. Conway is about to wield his own ax, with surprising force. During a visit to J.D. Edwards's Denver campus, Mr. Conway seemed to dispute analysts' suggestions that up to 1,000 employees of the combined companies would lose their jobs as a result of the merger. PeopleSoft's board, in urging rejection of Oracle's bid, warned that employees wouldn't stay with the company if their future was in doubt. In speeches, Mr. Conway has said 'respect for employees' is a core value the two companies should share. [Newsweek Interactive]

But eventually job cuts showed up after all. The combined PeopleSoft and J.D. Edwards head count will shrink to a targeted near about 11,700 workers. Current figures peg the combined employer roster at between 12,500 and 13,000 workers.

PeopleSoft gave analysis on how it plans to integrate its operations with J.D. Edwards. PeopleSoft faces enormous pressure to make its friendly $1.8 billion merger with J.D. Edwards work and to do so quickly (The San Jose Mercury News). Merger experts say that whether the merger ultimately benefits shareholders of the new company or leaves them worse off than before rests heavily on the quality of the plan presented, and its execution (San Francisco Chronicle). The idea behind mergers like this one is that two plus two can add up to five. But it's very common in such mergers for the total to end up being some number less than four.

Oracle made a formal offer to acquire PeopleSoft for the shockingly low sum of $5.1 billion, or $16 per share. The takeover bid, valid for 20 days, is just the first shot across PeopleSoft's bow. A more realistic offer would closely mirror PeopleSoft's recent bid for J.D. Edwards, which placed a 19 percent premium on J.D. Edwards's shares. It is unlikely that PeopleSoft will sell to Oracle under the terms of the current offer. (The Wall Street Journal)

If Oracle wants to close the deal, it likely will need to raise its offer and engage in substantive discussions with PeopleSoft's management team to convince the company to amend a majority of PeopleSoft's shareholders validly tender, or not withdraw their shares.

Reason to the Merger of People Soft & J.D. Edwards

With a common point of view from J.D. Edward's Board of Directors "As a regular part of our respective business plans, our company and J.D. Edwards have from time to time each considered opportunities for expanding and strengthening our respective technology, products, research and development capabilities and distribution channels, including strategic acquisitions, business combinations, investments, licensing and development agreements and joint ventures. Although our company and J.D. Edwards did not have any prior business understandings or relationships, during the past several years, our senior management and that of J.D. Edwards have made periodic inquiries to each other regarding whether a strategic transaction between the parties would be mutually beneficial."

PeopleSoft board of directors believes that the offer and the merger represent an opportunity to enhance value for PeopleSoft stockholders. Strategic intent is to grow the business and provide the customers with integrated enterprise solutions through internal development, strategic acquisitions, business combinations and alliances.

Directors approved the offer; the merger would provide us with increased breadth and depth across our products, market segments and industry coverage. Determination is based on that of J.D. Edwards' expertise in manufacturing and distribution applications which would strengthen the enterprise application suite. J.D. Edwards' mid-market focused applications and AS/400 based solutions would be additive to our Internet-based enterprise application suite resulting in what we believe will be the broadest suite of integrated software applications serving multiple market segments. (People Soft)The directors unanimously recommend that the holders of shares of J.D. Edwards's common stock accept the offer, tender their shares and approve the merger agreement and the merger. (Washington Post)

Work Cited

  • Romano, Roberta Foundations of Corporate Law (Oxford University Press 1993).
  • Washington Post, September 2003
  • Newsweek Interactive, November 2003The Wall Street Journal, September 2003

Writer's Bio:

Syed Nouman Faheem is experienced, dedicated and skilled freelance writer with 5 years of working experience. His first print publication appeared in Summer 2003 edition of Quest Magazine. You can reach to him at syednoumanfaheem AT gmail.com

 

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