HR'S Role in Mergers and Acquisitions - human resource

management

It's about the people.

In June 1999, Shaw's Supermarkets acquired Star Markets for roughly $500 million.
Shaw's at that time had 126 stores and about $3 billion in volume; Star had 54 stores
and $1 billion in sales. That acquisition was Shaw's largest to date, growing revenue by
roughly 50 percent and increasing its workforce from 20,000 to 32,000. It took eight
months from signing the agreement to Federal Trade Commission approval. To bless the
deal, the FIC required that 10 stores be divested. Shaw's anticipates achieving roughly
$50 million in synergies, with about $10 million in the first year.

Completion of the acquisition and integration--operationally and culturally--of the two

companies have required human resources to play a major role. The work is still going
on: Although most of the integration plan has been implemented, the human side of the
integration continues to evolve.

The key HR initiatives have included

* development of preliminary organizational designs and identification of the top three

levels of management

* assessment of critical players and deployment of appropriate resources in the new

company

* retention of key people and separation of redundant staff

* development of a total rewards strategy for the combined companies

* communications strategy development and implementation

* integration of payroll benefits and HR-IS

* an ability to do all of the above with speed.

We followed a carefully designed integration plan, with the HR element at the heart of
much of it. The integration is proceeding on schedule and, by and large, the factors
affecting the people have been executed successfully. The critical learning throughout
the process has been that it's all about people.

The upheaval associated with any merger or acquisition is a prime opportunity for HR to
demonstrate its knowledge and skill in the management of human capital. HR is an
intrinsic part of the integration team in an m&a because of its ability to evaluate the
compatibility of corporate cultures and different options for combining enterprises. HR
must also be the trusted source of information for employees about what the m&a means
for them.

The guiding principles:

* Take definitive action and make decisions quickly--the secret for holding onto good
people.

* Be candid with employees, and treat them with respect. Let them know that the
combined entity will be a more valuable organization.

* Whenever possible, use ownership of the company as represented by stock options and
stock grants to get everyone pulling in the same direction.

* Be honest about the people decisions that must be made.

* Treat those leaving with the same respect and attention as those staying.

Rather than take a risk-averse, wait-and-see attitude that can lead quickly to irrelevance,
HR executives should be integral to all phases of due diligence, to easing the transition,
and to focusing employees on the creation of shareholder value as soon as possible.
Taking a wait-and-see attitude will lead to an irrelevant role for HR. Instead, the role
must be orchestrated so that its value becomes integral to the deal.

According to Mergerstat, there were more than 7,700 deals in 1998 involving U.S.
companies valued at $1.2 trillion. Worldwide transactions totaled more than $2.4 trillion
in nearly 23,000 deals. Of those, 96 percent were friendly, 85 percent were to gala
competitive advantage, and 88 percent were companies in similar businesses. Though
the final numbers aren't in yet for 1999, the pace can be expected to have increased.

Many companies report that their mergers are successful but admit the end results aren't
as successful as they could have been. Recent studies place the success rate of merged
companies at 30 to 60 percent, depending on what criteria you measure. No matter how
flawless a deal seems on paper, the results are often disappointing. Most merged
organizations lose 1 to 10 percent of their market value in the first year after the merger.

There's a lot to learn about managing the transition period, optimizing short-term
performance, keeping the highest percent of talent, and integrating processes and
systems. Companies that don't address those issues may suffer a loss of profitability, top
talent, and confidence in leadership decisions.

Although a multitude of factors can contribute to a disappointing merger or acquisition,

success depends ultimately on the effective use of people. A recent report from the
Bureau of Business Research shows that organizational and cultural problems are more
likely to derail a merger than are financial factors. Only 28 percent of companies said
they did a good job of assessing the culture of their merging organizations before the
deal, only 26 percent said they had put the right people in the right roles during the
merger, and a scant 15 percent said they had successfully communicated the vision and
goals after the union.

From the due-diligence stage through the identification and appraisal of people to the
management of culture issues and communication, people issues impact every step
along the way. Such issues are essential and integral to the process and must not be
treated as an afterthought. It's unrealistic to assume that one business can absorb
another without being altered. When two companies merge, one may change more than
the other, but both will change.
Post-Merger Integration: A Human Resources
Perspective
Ignoring until too late the barriers of management, culture, people, organization, and systems can doom even a
financially attractive merger deal. This report taps the experience of senior human resource officers in 134
merged companies to focus on the achievements, problems, and processes in post-merger integration.

Questions addressed:
• How successful is the integration?
• What are the roles of the CEO and other members of top management?
• What is the effect of the merger/acquisition on stock performance?
• Is M&A a corporate core competency?
• Does downsizing lead to improved financial results?
• Who participates in integration planning and who receives feedback?
• What is the impact of cultural differences between buyer and seller?
• Which of these problems tend to be resolved and which defy solution?
Special features:
• 15 tables and charts
• direct quotes from respondents
• a short summary of "What We Have Learned"
ROLE OF HUMAN RESOURCES IN MERGERS AND ACQUISITIONS

ROLE OF HUMAN RESOURCES IN MERGERS AND ACQUISITIONS

Introduction:
A merger is a combination of two companies to form a new company, while an acquisition is the
purchase of one company by another with no new company being formed. A merger occurs when one
firm assumes all the assets and all the liabilities of another. The acquiring firm retains its identity, while
the acquired firm ceases to exist. A majority vote of shareholders is generally required to approve a
merger. A merger is just one type of acquisition. One company can acquire another in several other
ways, including purchasing some or all of the company's assets or buying up its outstanding shares of
stock. The term "acquisition" is typically used when one company takes control of another. This can
occur through a merger or a number of other methods, such as purchasing the majority of a company's
stock or all of its assets.
Reasons for Mergers and Acquisitions:
The management of an acquiring company may be motivated more by the desire to manage
ever-larger companies than by any possible gains in efficiency. There are a number of reasons why a
corporation will merge with, acquire, or be acquired by another corporation. Sometimes, corporations
can produce goods or services more efficiently if they combine their efforts and facilities. Collaborating
or sharing expertise may achieve gains in efficiency, or a company might have underutilized assets, the
other company can better use. Also, a change in management may make the company more profitable.
Other reasons for acquisitions have to do more with hubris and power.
Regulation of Mergers and Acquisitions:
Mergers and acquisitions are governed by both state and federal laws. State law sets the procedures for
the approval of mergers and establishes judicial oversight for the terms of mergers to ensure
shareholders of the target company, receive fair value. Generally, state law tends to be deferential to
defences as long as the target company is not acting primarily to preserve its own positions. Courts tend
to be sceptical of defences if the management of a target company has already decided to sell the
company or to bring about a change of control. Because of the fear that mergers will negatively affect
employees or other company stakeholders, most states allow directors at target companies to defend
against acquisitions. Because of the number of state defences now available, the vast majority of
mergers and acquisitions are friendly, negotiated transactions.
Motives behind M&A
i) The following motives are considered to add shareholder value:
Economies of scale, increased revenue / increased market share, cross selling, synergy, taxes,
geographical or other diversification and resource transfer.
ii) The following motives are considered to not add shareholder value:
Diversification, overextension, manager's hubris, empire building, manager's compensation,
bootstrapping and vertical integration
Mergers and Acquisitions: Doing the deal
Start with an Offer
 When the CEO and top managers of a company decide that they want to do a merger or
acquisition, they start with a tender offer. The process typically begins with the acquiring company
carefully and discreetly buying up shares in the target company, or building a position.
The Target's Response
Once the tender offer has been made, the target company can do one of several things Accept
the Terms of the Offer, Attempt to Negotiate, Execute a Poison Pill or Some Other Hostile
Takeover Defence.
Closing the Deal
Finally, once the target company agrees to the tender offer and regulatory requirements are
met, the merger deal will be executed by means of some transaction. In a merger in which one company
buys another, the acquiring company will pay for the target company's shares with cash, stock or both.
When the deal is closed, investors usually receive a new stock in their portfolios - the acquiring
company's expanded stock. Sometimes investors will get new stock identifying a new corporate entity
that is created by the M&A deal.
The Human Side of M&A Activity
Plenty of attention is paid to the legal, financial, and operational elements of mergers and
acquisitions. But executives who have been through the merger process now recognize that in today’s
economy, the management of the human side of change is the real key to maximizing the value of a
deal. The management of the human side of M&A activity, however, based upon the failure rates of
M&As, appears to be a somewhat neglected focus of the top management’s attention. People issues
occur at several phases or stages of M&A activity. More specifically, people issues in just the integration
phase of mergers and acquisitions include:
(1) Retention of key talent;
(2) Communications;
(3) Retention of key managers; and
(4) Integration of corporate cultures.
HR issues in three Stage Models of Mergers and Acquisitions
The three stages: (1) Pre-combination; (2) Combination and integration of the partners; and (3)
Solidification and advancement.
Selected HR Issues in the three Stages of M&A
Stage 1: Pre-Combination
• Identifying reasons for the IM & A
• Forming IM & A team/leader
• Searching for potential partners
• Selecting a partner
• Planning for managing the process of the IM and/or A
• Planning to learn from the process
Stage 2-Combination and Integration
• Selecting the integration manager
• Designing/implementing teams
• Creating the new structure/strategies/ leadership
• Retaining key employees
• Motivating the employees
• Managing the change process
• Communicating to and involving stakeholders
• Deciding on the HR policies and practice
Stage 3: Solidification and Assessment
• Solidifying leadership and staffing
• Assessing the new strategies and structures
• Assessing the new culture
• Assessing the new HRM policies and practices
• Assessing the concerns of stakeholders
• Revising as needed
• Learning from the process

Role of the HR Department in M&A activity

1. Developing key strategies for a company’s M&A activities
2. Managing the soft due diligence activity
3. Providing input into managing the process of change
4. Advising top management on the merged company’s new organizational structure
5. Overseeing the communications
6. Managing the learning processes
7. Re-casting the HR department itself
8. Identifying and embracing new roles for the HR leader
9. Identifying and developing new competencies
The strategic contribution of HR as consisting of the “Five
P’s”: Philosophy, Policies, Programs, Practices, and Processes.

Conclusion
Merger and Acquisitions success entirely depends on the people who drive the Business, their
ability to Execute, Creativity, and Innovation. It is of utmost importance to involve HR Professionals in
Mergers and Acquisitions discussions as it has an impact on key people issues. As Mergers and
Acquisitions activity continues to step up globally, Companies involved in these transactions have the
opportunity to adopt a different approach including the increased involvement of HR professionals. By
doing so they will achieve a much better outcome and increase the chance that the overall deal is a total
success.