1.

Describe the political, cultural and change management perspective on

integration.

Ans.

The value chains of the acquirer and the acquired, need to be integrated in order to
achieve the value creation objectives of the acquirer. This integration process has
three dimensions: the technical, political and cultural. The technical integration is
similar to the capability transfer discussed above. The integration of social interaction
and political relationships represents the informal processes and systems which
influence people’s ability and motivation to perform. At the time of integration, the
acquirer should have regards to these political relationships, if acquired employees are
not to feel unfairly treated.
An important aspect of integration is the cultural integration of the acquiring and
acquired firms. The culture of an organization is embodied in its collective value
systems, beliefs, norms, ideologies myths and rituals; they can motivate people and
can become valuable sources of efficiency and effectiveness. The following are the
illustrative organizational diverse cultivars which may have to be integrated during
post-merger period.

• Strong top leadership versus team approach

• Management by formal paper work versus management by wandering around
• Individual decision versus group consensus decision
• Rapid evaluation based on performance versus long term relationship based on
loyalty
• Rapid feedback for changes versus formal bureaucratic rules and procedures
• Narrow career path versus movement through many areas
• Risk taking encouraged versus one mistake you are out
• Risky activities versus low risk activities
• Narrow responsibility arrangement versus “Everyone in this company
salesman” (or cost controller, or product quality improver etc.)
• Learn from customer versus” we know what is best for customer”

The above illustrative culture may provide basis for the classification of
organizational culture. There are four different types of organizational culture as
mentioned below:

• Power

The Main characteristics are: essentially autocratic and suppressive of challenge

emphasis on individual rather than group decision making.

• Role

The important features are: bureaucratic and hierarchical: emphasis no formal rules
and procedures: rather fast, efficient and standardized culture service.
 • Task/Achievement

The main characteristics are: emphasis on team commitment task determines

organization of work: flexibility and worker autonomy needs creative environment.

• Person/support

The important features are: emphasis on equality: seeks to nurture personal

development of individual members.

Poor cultural fit or incompletely is likely to result in considerable fragmentation,

uncertainly and cultural ambiguity, which may be experience as stressful by
organizational members, such stressful experience may lead to their loss of morale,
loss of commitment, confusion and hopelessness and may have dysfunctional impact
on organizational performance. Merger between certain types can be disastrous.
Different in culture may lead to polarization, negative evaluation of counterparts,
anxiety and ethnocentrism between top management teams of the acquired and
acquiring firms. In assessing the advisability of an acquisition, the acquired must
consider cultural risk in addition to strategic issues. The differences between the
national and the organizational cultures influence the cross-border acquisition
integration. Thus merging firms must consciously and proactively seek to transform
the cultures of their organizations.
Q 2. What are the accounting treatment of share premium, goodwill and other
profits?

Ans.

Accounting treatment of share premium, goodwill and other profit

• Share Premium account

Share premium is difference between the sale price fo the share and its par value.
Section 78 of the Companies Act, 1956 empowers a company to issue shares at a
premium. A sum equal to the aggregate amount or value of the premium on those
shares shall be transferred to an account to be called “the share premium account”.
Share premium account cannot be distributed to shareholder excepts by the way of
bonus issue, writing of preliminary expenses other expenses incurred or discount
allowed on any issue of share or debentures or to provide premium payable on the
redemption preference share or debentures. The board of the acquiring company shall
fix up price of shares issued in three possible manners: at nominal value of shares, at
price equal to market price, at price equal to book price or the current valuation
reflecting the value of the consideration. In merger, the share acquired by the
company’s shareholders is issued at nominal value whereas in takeovers it is the
market value at which such shares are issued by the acquiring company.

• Goodwill

Goodwill represents the difference between the value of the assets of the acquired
company at the date acquisition by acquiring company and the cost in investment for
acquired company. It is an intangible asset and is available for a takeover of going
concern.

• Other Profits

The retained earning and capital reserves of acquired company in the year before
acquisition may be passed on to the acquiring company on merger which requires
treatment in account of the acquiring company as pre-acquisition profit. The question
arises whether these profits could be taken as current income of the acquiring
company or be treated as capital profit. These accounting problems solicit appropriate
solutions in the light of the existing accounting practices and the tax laws. Similarly,
the problem of accounting remain to be settle in respect of: profit in the year of
acquisition of the company being acquired, profit of the company on consolidation
after merger and post acquisition account etc.
3. Write short notes on:

(a) White Square

(b) Poison Put.

A. White Square

The white square is modified from of white knight. The difference being that the
while square does not acquire control of the target. In a white square transaction, the
target sells a block of its stock to a third party it considers to be friendly. The white
square sometimes is required to vote its shares with the target management. These
transactions often are accompanied by a stand-still agreement that limits the amount
of additional target stock the white square can purchase for a specified period of time
and restricts the sale of its target stock, usually giving the right of first refusal to the
target, in return the white square often receives a seat on the target board, generous
dividends, and/or a discount on the target shares. Preferred stock enables the board to
tailor the characteristics of that stock to fit the transaction and so usually is used in
white square transaction.

B. Poison Put

A covenant allowing the bondholder to demand repayment in the event of a hostile

takeover. This poison put feature seeks to protect against risk of takeover-related
deterioration of target bond, at the same time placing a potentially large cash demand
on the new owner, thus raising the cost of acquisition. Merger and acquisition activity
is general has had negative impacts on bondholders wealth. This was particularly true
when leverage increases where substantial.