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Merger and acquisition (M&A) activity is a world-wide phenomenon which increasing

reach and scale constantly alters the global business landscape. Waves of M&As in 1980s and

1990s brought the total volume of annual M&A activity past the trillion mark; and high levels of

activity continued after the turn of the century (Hensen, 2001). Ideally, M&As should create

synergy; combined assets and operations of firms create greater value than before.

Sadly, corporate marriages and their subsequent divorces or failures are common sight

today. High profile unions; such as between Daimler and Chrysler, Time Warner and AOL,

AT&T and First Union, often failed terribly in spite of high pre-M&A expectations (Hensen,

2001). Decreased shareholder value, declining market share and inefficient operations that

stemmed from failed integration went against all that management wanted to achieve, defeating

the very purpose of the M&A. However, before we lament the inability of M&As to create

synergy, we should analyze the reasons behind failures in order to mitigate future estrangement.

Past research was conducted mainly on the financial aspects of M&A activity; focus of

analysis include strategic fit of merging firms, bid price as well as combination potential between

business operations. However, research failed to produce a consistent result to show the relation

between the above mentioned factors and the success of the M&A. Interestingly, an alternative

stream of research emerged to analyze the effects of culture fit between organizations and its

impact on the outcome of M&As. As explained by Chatterjee et al. (1992), organization culture

refers to the set of assumptions (often unspoken) that members of a community share in

common; and where every group has a unique culture that is shaped by members· experiences.

As two distinct firms merge, their unique organization cultures are bound to come into contact

(to varying degrees, depending on how thorough the integration is); hence it is not surprising if

friction arises when employees face changes in their social environment and work practices.The

loss of corporate identity may also lead to a decrease in organizational commitment and increase
resistance against the impending M&A (Sidle, 2006). Yet, to date, strong statistical evidence to

establish the link between organization culture and synergy realization has not been found.

Considering that human capital is the backbone of corporations and that employee

support is crucial to the merged entity, it is important to study negative emotions of employees

and the potential effect it may have on the their job performance (and hence organization

performance). It is especially so when billions of dollars are potentially at stake. Hopefully, by

focusing on this single factor of influence, the results will provide direction among the myriad of

influences surrounding M&As. Hence, this study will attempt to ascertain the links between the

above mentioned; namely, can employee reactions mediate the effects of pre-M&A culture of

firms on synergy realization. Therefore:




Naturally, as firms integrate, employees from the two differing cultures will be required

to work with each other. As each is accustomed to different working practices and social norms,

acculturation may result in tension, discomfort and hostility as at least one party will either have

to conform to a new culture (if they belong to the acquired firm) or accommodate a foreign

culture. Hence, this results in lower organization commitment and cooperation from the

disgruntled parties (Chatterjee et al., 1992). Employee resistance hereby refers to the ´individual

and collective opposition of employees to the combination and subsequent integration of joining

firmsµ (Larsson and Finkelstein, 1999). Employee resistance may also manifest in increased

counterproductive work behaviors such as absenteeism and tardiness (Schweiger and Denisi,






High levels of employee resistance will result in lower levels of employee job

performance during or after firm integration. Hence, employees do not perform up to

expectations in the new environment, inhibiting synergy realization (Larsson and Finkelstein,



a : We examined responses of 3000 questionnaires targeted at 50 companies that

have undergone M&A. There were 60 respondents from each post-M&A company, which

comprised of 30 respondents from each pre-M&A company. Respondents represent full-time

employees in each company. The companies studied span several industries, including healthcare,

telecommunications, networking hardware and software, and automotive industries.

: Pre-M&A culture was measured using the modified Organizational

Culture Inventory (OCI) (Balthazard and Cooke, 2004). Respondents were required to depict

how the culture was like before M&A. We measured three culture groups ² Constructive, Passive

(Defensive) and Aggressive (Defensive) ² and constructed a culture profile for each company.

  : Post-integration employee resistance, specifically organizational withdrawal

behavior, was measured based on four withdrawal measures: unfavorable job behaviors, lateness,

absenteeism and turnover intentions.

: We compared accounting ratios to measure the extent of synergy

realization for each M&A. Items include pre and post-M&A profit margins, return on net

operating assets, earnings before interest, tax, depreciation and amortization.

  : Degree of open communication was assessed based on ratings given by the

respondents. Degree of relatedness was assessed using SIC codes, based on industry similarity of
the acquiring and target firms (Stahl and Voigt, 2008). Type of integration was classified into

assimilation, transformation, integration-proportionality and integration-equality (Sidle, 2006).

m : Synergy realization may be affected by variables other than employee resistance

and the above moderators. Thus, we controlled variables that have been found to be related to

synergy realization. Control variables include time of measurement, organizational integration,

combination potential, management style similarity and cross-border combination (Larsson and

Finskelstein, 1999).




Table 1 presents the mean correlations between the main variables examined in this study.

A Pearson test was conducted on each mean effect size (ES) to determine significance.

Correlation figures are low, but are statistically significant due to the large sample size we have

drawn; with the exception of pre-M&A culture differences and synergy realization (King et al.,


Hypothesis 1 states that differences in pre-M&A culture are positively associated with

employee resistance. As indicated in Table 1, r = 0.21 is statistically significant, therefore

hypothesis 1 is supported. (Rikard & Sydney, 1999) Hypothesis 2 states that employee resistance

is negatively associated with synergy realization. Likewise in Table 1, r = -0.22 is statistically

significant, Hypothesis 2 is supported. Little or no correlation exists between pre-M&A culture

differences and synergy realization. However, as the r value is statistically insignificant, we are

unable to conclude that pre-M&A culture differences are not associated with synergy realization.

As the range of ES is wide, it suggests the presence of moderators. Hence, we conducted

a series of sub group analyses to identify the effects of moderators in Table 2.

Table 2 suggests that the type of integration matters in determining the synergy

realization and employee resistance of the M&A. Greatest employee resistance will occur in the

acquired firm when it is being assimilated (Elsass, P.M., & J.F., 1994). As such, synergy

realization will decrease due to greater counterproductivebehavior exhibited by employees. As

integration approaches proportionality, employees will view the M&A as equitable and have

lesser tendency to exhibit counterproductive behavior; achieving greater synergy as a whole. We

expect transformation to achieve highest synergy realization as employees are aligned with new

company values. Contrastingly, it turns out to be suboptimal as compared to integration by

proportion. This conclusion is supported by Karen L. Newman (2000) where it was discovered

that second order change, transformational, often result in highly uncertain outcomes. As a result,

the eventual outcome of synergy realization depends on other factors such as communication,

management effectiveness and combination potential. (Larsson & Finkelstein, 1999)

Our findings suggest the degree of communication between management and employees

mitigates the effects of a pre-M&A culture difference. This is supported by a longitudinal

experiment where communication with management regarding M&A processes alleviates the

overall uncertainty and stress experienced by employees (David and Angelo, 1991). As a direct

implication of decreased employee resistance, the merged entity will experience higher scales of

return from productivity gains.

In addition, the degree of relatedness between merging firms has a direct impact on

employee resistance. Intuitively, a high degree of relatedness presents competing elements within

the merging entities, often resulting in redundancy and corresponding waste reduction policies.

However, as the degree of relatedness decreases to a moderate level, competing elements present

opportunities for betterment and therefore lead to higher synergy realization. Conversely, low

degree of relatedness reduces such opportunities and is unable to realize economies of scale or

synergistic performances. This conclusion is strongly supported by a study which found culture

differences positively associated with accounting-based measures when degree of relatedness is

low-moderate, and negatively associated when high (Gunter and Andreas, 2008).

The variances left unexplained can be attributed to control variables such as management

styles, combination potential and cross border combination.

Our research seeks to include employee resistance as the missing link in achieving

synergy for M&As. Among the list1 of motivations and objectives for M&As, synergy realization

is one of the top cited reasons. This finding should draw top management·s attention to the issue

of pre-M&A culture differences and how employee resistance should be mitigated in order to

achieve the goal of synergy realization. Though Hypothesis 2 is not fully supported, any step

taken may potentially have a significant effect on the new entity·s bottom line.

Employees are key stakeholders of any corporation. Their performance and commitment

have implications on the organization·s synergistic performance. In light of this, management

should formulate policies that bring the differing cultures together and minimize alienation of

employees in the new setting. Given the sensitive nature of culture, integration of work and

social environments requires careful advancement so as to avoid counterproductive clashes. ´To

show intolerance for the acquired managers' culture is to threaten the cooperation and

commitment of the very group who may be instrumental in determining the M&A·s ultimate

successµ (Weber, 1988); therefore managerial openness to differing cultures and application of

conflict management is an approach that should be adopted.

Directions of future research

This paper has provided three grounds for future analysis and research. Firstly, synergy

realization can be better measured with the inclusion of factors such as corporate flexibility and

diversity and not just based on financial results. Secondly, it provides a basis for in-depth

research on other inter-mediatory factors like combination potential, organization integration

and similarity in managerial style. Lastly, researchers can examine the implications of cross-

border cultures involved in transnational M&As on synergy realization.


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An area of potential credibility of our research roots from the initiative to conduct our own field

surveys. In addition, the diversity of industries studied and number of respondents will provide a

significant sample size for a substantial quantitative statistical analysis to generate reliable data.


Limitations are inevitable in most research and especially in this context; five points have been

identified as areas to be taken into consideration. In order to measure synergy realization, we

used financial data; however it is potentially sweeping to use this as a sole means of measurement.

Secondly, in this globalizing world, companies are increasingly diversified. Our research is

constrained by local context and lacks a broader scope. Thirdly, we realize that there are

difficulties in collecting financial information for private organizations. This greatly limits the m 
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completeness and accuracy of our findings as most M&As involved at least one private firm.

Furthermore, firms (private or listed) often do not publish complete financial reports while the

M&A process is on-going. This leads to a gap in critical financial data required for measurement

of synergy realization. Fourthly, as M&As are a long process, longitudinal studies (although there

are arguments over its downside) are more suitable as empirical results focus on a fixed point

which is time-based and therefore inadequate in capturing the entire synergistic process. m 
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However, during negotiations, merging intentions of firms are not revealed due to the high

sensitivity of financial markets; we were unable to conduct longitudinal studies on pre-M&A firm

cultures due to the inability to pinpoint merging firms. Last of all, it is difficult to solely classify

M&A into any of the four categories of assimilation, integration-equality, integration-

proportionality and transformation due to the multi-faceted nature of M&A and the underlying

strategic intents of top management. There may be a need to construct a new matrix of

categories to better profile M&A.


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