1. Mergers & Acquisitions
Communication, Change, People, & Process

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Mergers & Acquisitions – Key Terminology
• Acquisition - purchase of shares, assets, or companies in a merger
• Merger – two separate companies combine (only one survives)
• Consolidation – combination of two or more companies (new corporation formed)
• Leveraged Buyout (LBO) – acquisition by group of investors or management (MBO- management buyout) purchase a company
• Holding Company – owns sufficient voting stock to have controlling interest in one or more companies called subsidiaries
• Divestitures – are a means of facilitating acquisition of company to improve earnings or shareholder value, or as a means to raise capital
• Divestitures: Spin-offs – company distributes all of its shares in a subsidiary to the company’s shareholders as a tax-free exchange
• Divestitures: Equity carve-outs – similar to spin-off . Occurs when a company sells some of its shares in a subsidiary to the public
• Hostile Combinations – acquiring (bidding) company makes purchase offer but management of target company resists.
Bidder then tries to take control of the target through a tender offer to purchase a majority of the target’s stock at a predetermined price
higher than current market price to attract the shareholders’ attention. May result in a bidding war
• Friendly Combinations – management of both companies come to an agreement . Many acquisitions that begin
as hostile end up being completed on a friendly basis.
• Motives for Acquisitions – economies of scale, increased revenue/increased market share, cross selling, synergy, taxes, and diversification
• Financial Analysis – analyze financial statements, understand lenders’ and investors’ required returns, and corporate valuation analysis
• Due Diligence - requires broad & deep data analysis of assets & liabilities
• Post-Merger Integration – managers of the acquired company will feel some loss of autonomy, once simple procedures become complicated.
Strengths and weaknesses along with the skills and potential of its personnel will not become immediately apparent. Disciplines, procedures,
and controls may not work as well in the new environment and there may be a clash of cultures.
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Mergers & Acquisitions – Lessons Learned
Queens University Study
Communication
 If employees are unaware of how they will be evaluated for the retention decision, feelings of
powerlessness will be high.
 A realistic merger preview depicting job expectations for the future will allow employees to cope
more realistically with new or modified job demands. The longer fear of the unknown lasts, the
more damage will be done.
Change
 Management of the transition stage requires a delicate balance between providing a stabilizing
influence and creating a climate for change. Uncertainty and anxiety, anger, frustration,
psychological withdrawal and family disruptions are pervasive during M&A activity.
 The study found a positive correlation between job insecurity and resistance to change.
 The study advocates a single reduction in the work-force, based on a solid understanding of the
anatomy of the organization. The manner in which the workforce reductions are undertaken has a
significant impact on the organization’s success in managing the survivors: how employees are
terminated is often interpreted by the survivors as an indication of how they can expect to be
treated by the new company
Transitions
 In the final analysis, it is the employees who allow an organization to realize its change objectives.
 It is only when they truly understand the need for change, the direction set, and are actively
engaged in the process that change can happen.
 Faced with a ‘burning platform’ most will be responsive to new approaches, but it is only when the
infrastructure and support mechanisms are in place that they can give their support to
Implementing change.
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Mergers & Acquisitions – Lessons Learned
Queens University Study
People
 The most valuable employees—those that the post-merger corporation can least afford to lose—
tend to be the first to leave the organization.
 Those who voluntarily leave their company indicate that uncertainty leads them to do so early in
the acquisition process.
 After downsizing, considerable uncertainty and frustration may be exhibited among remaining
employees, who may feel that the termination decisions were based on unclear or inappropriate
criteria.
 Differences in the two organizational cultures can lead to competition between employee groups
and hostile ‘we-they’ attitudes. Managers should try to avoid this situation by carefully mixing
employees as much as possible at all organizational levels. When combining departments,
functional counterparts should not be placed in subordinate and supervisory relationships.
 Automate elimination of redundant positions correlates highly with post-event problems. In one
study, two-thirds of the firms that adhered to this policy encountered post-event difficulties.
Policies that created fewer problems included automatic retention of all employees wishing to stay,
one-on-one interviews with employees, and retention of employees meeting specific criteria.
Process
 75 percent of the organizations surveyed had terminated employees following a merger or
acquisition event.
 70 percent of the companies that had downsized following a merger or acquisition reported one or
more post-event problems, compared with 40 percent of the companies that had retained all their
workers.
 Of the companies reporting no post-event problems, 41.8% had left the management structure
unchanged. Of the companies reporting problems, only 13.0% did not alter the management
structure.
 When key functions were centralized in the acquired firm, problems such as higher absenteeism
and turnover and lower productivity were nearly twice as likely as when no change was made.
 Organizations that make a series of cuts tend to keep the employees’ anxiety focused on personal
survival with no sense of where the cuts would come next. The result is a ‘vicious cycle of
disintegration’ in which a first set of cuts leads to declining morale and lower performance, which
in turn leads to a second round of cuts and further decline in morale and performance.
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Mergers & Acquisitions – Cultures
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Culture of the Acquirer /
Dominant Merger
Partner
Culture of the Acquirer
Or Other Merger Partner Likely Outcome Comments
POWER
ROLE / TASK
ACHIEVEMENT
PERSON / SUPPORT
ALL POTENTIALLY
DISASTROUS
Assimilation resisted. Culture collisions will inevitably result and labor
turnover rates can be expected to rise.
POWER POWER PROBLEMATIC
Success very dependent on choice/charisma of organizational leader.
Political infighting will likely result in a pseudo-merger situation.
ROLE POWER POTENTIALLY GOOD
Assimilation likely to be accepted. Most acquired employees will
welcome the ‘fairness’ of a role culture.
ROLE ROLE POTENTIALLY GOOD
Smooth assimilation likely as effectively rewriting or presenting a new
rule book is all that is required.
ROLE TASK ACHIEVEMENT
POTENTIALLY
PROBLEMATIC
Many managers will have joined the acquired organization to escape the
bureaucracy and red tape of a role culture.
ROLE PERSON / SUPPORT
POTENTIALLY
DISASTROUS
Anarchy likely. Members of a person / support culture will not accept that
the size of the organization may now require greater infrastructure.
TASK
POWER
ROLE
TASK / ACHIEVEMENT
POTENTIALLY GOOD
Smooth. Assimilation likely for those in existing power and role cultures;
there will inevitably be a pleasant but still potentially disturbing culture
shock. Some are likely to feel their status is eroded, particularly those
with considerable position power. Many will find the new culture very
demanding and perhaps stressful.
TASK PERSON / SUPPORT
POTENTIALLY
PROBLEMATIC
While person / support cultures nurture self-development, they are not
conducive to team cultures and consensual decision making.
 Person / Support Cultures: Have minimal structure; nurtures personal growth & development; egalitarian in principle and decision making is conducted on a shared collective basis
 Power Cultures: Power rests with the president, founder, or small core group of key managers; employees are motivated by feelings of loyalty; fosters a sense of tradition; tend to have
inequitable compensation systems based on favoritism, loyalty, & performance
 Role Cultures: Clear division of labor, organizational power defined by position & status; rules & procedures clearly defined; respond slowly to change, are predictable and risk averse
 Task / Achievement Cultures: Emphasize accomplishment of the task; employees usually work in teams and are flexible, create, & highly autonomous; and emphasis is on what is
achieved rather than how it is achieved.

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Mergers & Acquisitions – Closing Thought
Change is the law of life.
And those who look only to the past or present are certain to miss the future.
John F. Kennedy
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Mergers & Acquisitions
Appendix
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Mergers & Acquisitions – Due Diligence Checklist
 Organization of the Company
 Ownership and Control of the Company
 Assets and Operations
 Intellectual Property
 Reports
 Compliance with Laws
 Environmental Matters
 Litigation
 Significant Contracts and Commitments
 Employees, Benefits, and Contracts
 Tax Matters
 Miscellaneous
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Mergers & Acquisitions – Resources
Giddy, Ian - Professor of Finance at the Stern School of Business at New York University.
Giddy, I. (2006) Mergers & acquisitions: An introduction¹; Sample due diligence checklist¹;
•Dr. Giddy's thirty years of practical and academic experience reflect his interest in international finance, corporate finance,
structured finance, and risk management. He was a visionary who founded two nature reserves, Cloudbridge in Costa Rica, and
Wildcliff in South Africa. His legacy will live on in the forests and mountains where he loved to hike.
Love Kristjanson, Carolyn - Human Resources Director
Love, C.K. (2000) Mergers & acquisitions: The role of HRM in success ²
• Carolyn holds a Master’s degree in Industrial Relations from Queen’s University, ON and a B.commerce (Hons.) in Finance
from the University of Manitoba.
Pikula, Deborah A. - HR Professional from Queen’s University, ON Master of Industrial Relations Program
Pikula, D.A. (1999) Mergers & acquisitions: Organizational culture and HR issues ᶟ
• Human Resources and Industrial Relations Professional and graduate of the Queen’s University
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¹Source: Stern School of Business, New York University, New York, NY ; www.constable.net
²Source: Industrial Relations Centre, Queens University, Kingston, ON
ᶟSource: Queen's IRC (Industrial Relations Centre) Archive Revitalization Project
http://irc.queensu.ca/articles/queens-irc-archive-revitalization-project

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Mergers & Acquisitions – Links
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Title Description Link Document
M&A: Roll of HRM
 HR Problems
 Managing for M&A
Success
http://irc.queensu.ca/articles/mergers-and-
acquisitions-role-hrm-success
M&A: Organizational
Culture & HR Issues
 Types of Cultures
 Merger Types
 HR Implications
http://irc.queensu.ca/articles/mergers-
acquisitions-organizational-culture-hr-issues
M&A: Due Diligence  Documentation Checklist
http://giddy.org/mergers/documents/duedilig
ence.htm
M&A: Terminology
 Terminology
 Definitions
http://pages.stern.nyu.edu/~igiddy/articles/merge
rs_intro.htm