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.
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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