Impact On and Reaction Of Stakeholders to Takeovers and Mergers
The impact on, and reactionof, stakeholders to takeovers and mergers
Key points• All stakeholders are affected in some way by a takeover or merger – but some more than others!• For stakeholders of the target business, the effect (and response) is often negative• The key issue – to what extent are stakeholders able to influence the effect of the transaction on them?
Key definitions• Stakeholders: A stakeholder is someone or some organisation/institution that has an interest in the success of a business.• Post-merger integration: the process of bringing all aspects of the acquired business into the business organisation of the buyer (including customers, employees etc.)
The Stakeholder Model• Stakeholder model: requires that “all of the parties affected by management decisions, in addition to the shareholders themselves, management, employees, customers, suppliers, communities in which the business operates and the environment from local to global, all must be considered as fairly and justly as possible.”
Who are the Stakeholders?• An individual or group with an interest in an organisation• Any individual or group who can affect or are affected by the achievement of a firm’s objective• Groups/individuals that: – have an interest in the well being of the company – and/or are affected by the goals, operations, activities of the organisation• They have a stake in what the organisation does
Examples of stakeholders (all can be affected by M&A)• Shareholders or • Government business owners • Local community• Managers & • Other external employees groups (e.g. pressure• Customers groups)• Suppliers • Competitors• Banks and other • The media finance providers
Potential conflicts between stakeholders Takeover or Merger Decision Supported By? Opposed By? Shareholders Employees Cut jobs to reduce costs Banks Local community Management Transfer production to overseas Customers & Local community location suppliers Introduce new machinery to Customers Employees replace manual work Shareholders Increase selling prices by 10% to Shareholders Customers improve profit margins Management
Likely negative impact on stakeholdersMost takeovers and mergers are associated with:• Job losses in the acquired business (a direct result of cost synergies) & knock on effects on local economy.• Uncertainty & more job insecurity – particularly as organisational structures & systems are integrated.• Potential closure and / or transfer of capacity to other international locations (e.g. to emerging markets).• Change in the taxation status of the firm – profits may be transferred overseas with a loss of corporation tax for the UK economy.
Ways to manage stakeholder impact• Stakeholders need to be considered & included in the takeover / merger integration plan.• Clear, early and honest communication about the intentions & plans of the acquiring firm.• Focus efforts on the most important stakeholder groups. For example existing customers of the acquired firm are crucial, as are employees / management that the buyer wishes to retain (staff retention consistently shown as a major HR problem with takeovers).
Examples of stakeholder responseTakeover / merger Stakeholder reactionKraft / Cadbury Hostile reaction from employees, unions & local community – supported by media - but not enough to persuade Cadbury shareholders from eventually agreeing to the bid.L’Oreal / Body Hostile reaction from pressure groups, media and some customersShop (raising concerns about L’Oreal record on animal testing); but quickly died down.Dubai Ports Negative reaction in the USA to the takeover by a UAE-owned firmWorld / P&O that would involve foreign ownership of six ports in America.Coca-Cola / Widespread customer criticism of Innocent’s decision to sell a stake inInnocent their ethically-friendly business to Coca-Cola (who later took control)Fenway Sports Broad agreement from Liverpool FC supporters who welcomed theGroup & Liverpool takeover from the previous owners (compare & contrast withFC continued hostility to US ownership of MUFC
Why employees of the target business might welcome or support a takeover...• Opportunities for promotion• Investment by the buyer• A change of culture• A fresh start (particularly with a merger)• Business not well run by existing management (i.e. a better future)
Depends on factors• When an acquisition is announced, there are likely to be conflicts of interest between these different stakeholder groups, depending on their interest in the firm. E.g. customers may be supportive of the takeover. However, employees may react negatively if there are significant job losses involved.• The important thing is to consider the impact on the main stakeholder groups. Is the effect on the stakeholder serious, beneficial or will it hardly affect them at all?
Evaluation opportunities• Which stakeholder groups actually have the power to impact the eventual success or failure of a takeover? Whilst there might be widespread opposition from media & local community – are other stakeholder groups (customers, employees) much more important?• Too easy to assume that a takeover will have a negative effect on internal stakeholders like employees. The transaction might actually benefit them in the long-run if their business is stronger as a result.
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