Term Paper HR17

8/7/2019 Term Paper HR17

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HR ISSUES: MERGER &ACQUISITION

Group 17


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MERGERS AND ACQUISITIONS

MERGERS ACQUISITIONS

Shareholders of transferorco. will become share-

holders of transferee co.

Usually by negotiations

Two organizations ceaseto exist individually. But

exists in a joint entity.

May be friendly or hostile.

Acquirer company

shareholders have

controlling interest.

Purchase of a company byanother company.


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HR Issues & their Implications on

Various Stages of M&A

Stage 1: Pre Combination

The HR issues in the pre merger phase are:

Identifying reasons for the M&A

Forming M&A team leader

Searching for potential partners

Selecting a partner

Planning for managing the process of M&A

Planning to learn from the process

The HR implications in this phase are:

Knowledge and understanding need to be disseminated

Leadership needs to be in place

Composition of team's impact success

Systematic and extensive pre-selection and selection

Conducting thorough due diligence of all areas

Cultural assessment

Planning for combination which minimizes problems at a later stage

Creating practices for learning and knowledge transfer


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Stage 2: Combination (Integration of the Companies)

The HR issues in this phase are: Selecting the integration manager

Designing / implementing teams

Creating the new structure strategies and leadership

Retaining key employees Managing the change process

Communicating to and involving the stake-holders

Deciding on HR policies and practices

The HR implications in this phase are: Selecting the appropriate candidate

Creating team design and selection which are critical for transition andcombination success

Communicating the benefits of merger

Deciding on who stays and who goes

Establishing a new culture, structure, and HR policies & practices


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Stage 3: Solidification & Assessment

The HR issues in the phase are: Solidifying the leadership and staffing

Assessing the new strategies and structure

Assessing the new culture

Assessing the new HR policies & practices

Assessing the concerns of stakeholders Revising as needed

Learning from the process

The HR implications in the phase are: Elective leadership and staffing of the new entity

Creating and evaluating a new structure

Assessment revision required for melding two cultures

The concerns of all stakeholders need to be addressed and satisfied

The new entity must learn


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Facilitates Transition Teams

Develop Newly Formed Teams

Reinforce the New Culture

Involve in Planning, Transition & Integration Teams

Identify HR Issues & Carry Out an Effective HR Due Diligence

Carry Out Effective HR Integration

Help Line

anagers to Communicate Effectively During Transition Phase

anaging Individuals with Dignity

Developing & Implementing Actions to Retain Key Employees

Help Clarify Roles

Career pathway

Team intervention

Orientation programme

Workshops on vision development

Deputation to acquiring company

HR Interventions/ Activities during &A

Road locksIncompati lecultures

Loss of keytalent

Clash ofmanagement

styles

Power statusand prestige

changes

Issues a

outPay Equity

Lack ofCommunication

Road locks to &A Success

(Schmidt2003)

Source: Yasmeen Rizvi ,Human capital development role of Human Resource (HR)during mergers and acquisitions, African Journal of Business

anagement Vol. 5(2), pp.

261-268, 18 January, 2011


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Air India Case Study

Based on primary research


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Tata Airlines was converted into Air India in 1946

Air India concentrated on overseas operations.

Indian Airlines was formed with the merger of 8 domestic airlines andconcentrated on domestic operations.

Indian Airlines went through a complete rebranding phase in 2005 byspending 45 billion. Shares dipped by 25%.

The two companies merged in 2007. The merger was a 150 billioncompany with 150 fleets but also incurred a total debt of Rs 440 million.

Merger helped the company to strategically position itself against itscompetitors.

The merger aimed at significant potential synergies between the twoairlines in the areas of sales and distribution network, fuel procurement,material procurement, passenger amenities, ground handling and parkingfacilities.

A brief history


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Business Issue:- Difference in objectives/goals:-

The merger concentrated initially on the internationaloperations.

This led to the decrease of domestic market share.HR Perspective:-

Indian Airlines employees had to re-orient themselves to thevision of the merged entity.

The vision was different from that of Indian Airlines. This resulted in employee resent and decreased productivity.

HR Issue(1)


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Business Issue:- Bad financial performance of the conglomerate

The conglomerate faced tremendous losses due to economicslowdown, cut throat competition in domestic and foreign

markets, rising ATF prices and so on.HR Perspective:-

The losses directly affected the employees and theirwages. Wages were not paid for months.

Increments were stopped and even a few executives andpilots were sent on leave for indefinite period.

HR Issue (2)


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Business Issue:- Reshuffling of the manpower

A single hierarchical structure had to be deployed for theconglomerate.

But the top management posts were given to the Air India executives.

Indian Airlines executives were denied such promotions even thoughthey deserved by virtue of seniority or capability

HR Perspective:-

This resulted in lack of confidence amongst the Indian Airlines staffand they refused to work under the assigned management.

Productivity of employees declined. The deadlock went on for a few months and is still not fully resolved.

HR Issue (3)


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Business Issue:- Difference in pay structure

The pay structures of the two individual entity were different.

HR Perspective:-

The pay structure of the two organizations rationalized tobring it at par with each other.

Whilst integrating at any particular level, there will beharmonization of policy and wages and review ofproductivity norms and linked incentives were allharmonized and made uniform across the company.

This was time consuming and very challenging and faced alot of internal obstacles.

HR Issue (4)


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Business Issue:- Cultural misfit

The two independent companies faced a lot of culturalissues like wage structure, channels of communication,

organization structure etc.HR Perspective

This led to dissent amongst the employees on both sidesand the government had to establish a committee to

address the issue and resolve them. The failure of the merger is attributed primarily to the

cultural misfit of the two organizations.

HR Issue (5)


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Business Issue:- Frequent change of leadership at the top

Top management frequently changed.

No fixed direction to the company

The employees had no one to look up to. Erosion of brand image in the industry

HR Perspective

Lack of confidence amongst the employees

Sudden high attrition rate. Very few people willing to join the company at managerial levels

even after the things are slowly settling down.

HR Issue (6)


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Acquisition of Hutchison Essar by Vodafone

In February 2007, British

telecom giant Vodafone

acquired a 67% stake in

Hutchison Essar from

Hutchison Telecom

International for about$11 billion

One of the biggest brand transition exercises : Hutch, countrys 4th

largest mobile service provider was renamed Vodafone(Sept 21,07)

Strategic Intent: To start operations in India (fastest growing mobilemarket, overtaking China in Sept 2006)

One of the most successful acquisitions in the telecom industry

Roles of HR during acquisition of Hutchison by

Vodafone

Pre-acquisition

HR due diligence role:

An informal transition team of 40

comprising of business heads and HR heads.

Extensive talent profiling had been done

Post acquisition

Employee advocacy role

Functional expertise role

Human capital development role


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Employee AdvocacyRole:

To counter thenegative feelings ofuncertainty, anxiety,loss of faith, andcareer doubt,

communication wasused as an effectivetool.

The MD of Hutch(India), Mr. AshimGhosh started theWeb Cast.

Every seven days,corporate HR had ameeting withemployees andcommunicateddirectly what thecompany was doing

Functional ExpertiseRole:

Not a singleemployee was laidoff

Early warning systemwas used to retain

employees. The pay cycle

changed from April-March to July- June:10 - 15% hike

Schemes such as 200- 300% of CTC as

part of ESOPcontinued

Human CapitalDevelopment Role

Training workshops and OD interventions

used as methods of facilitating change.Orientation programme to change fromthe Hutch model to the Vodafone modelChanged perception of red colouramong employee1st training Programmes(3.5 days): Band1 & above: 5% of employees inassociation with ISB through case StudyMethodThe 2nd training programmme(11.5Days) was held to communicate thevalues of vodafone-red, rock solid and

restless. These values were linked with thevalues of Hutch-brave, positive, simpleand gorgeousThe values of Vodafone werecommunicated to each and everyemployee, both fulltime (8000) as wellas outsourced (25000)Assessment centers assessed employeesand promotions were offered to theperforming employeesA workshop called Huddle conductedfor 14 - 15% of employees across 4 - 5

verticals. In that, the positive andnegative aspects of the organizationwere discussed. informal and full of fun.An employee satisfaction survey was alsoconducted across the company


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JET SAHARA DEAL

HR CHALLENGES:

Retention of key people

Communicating that the move would increase value of

the organization

Addressing the cultural issues

Integration


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Combating the challenge

Key people were taken into confidence

Proper roles were allocated which suited the interest withoutcompromising on growth and values.

Each team had the working freedom to operate and grow

All employees were treated with respect and provided achallenging work environment

Ensured a core set of shared values amongst the group

Effectively evaluated the compatibility of corporate cultures toensure integration

All change-management expertise were called upon to addressemployees anxieties about the acquisition and the employees wereupdated in real time on all the developments


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ROLE played by the HR

Before the Acquisition:

Assessed cultural fit and synergies

Analysed the effectiveness of the integration based on leadership

ability of the target policies, processes

Alignment of compensation and benefit plans, organizational

structure, decision making and all critical to most M&A finalization

Post acquisition:

Brought the organization together ensuring that two entities mesh

as one through the championing of the entire change management

intervention Organized regular employee engagements activities by making

them feel as a part of a bigger organizations with strong

employee centric values

They have a very transparent working system and a monthly open

forum which allows all employees to share their opinions


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Satyam- Tech Mahindra Deal

Reasons :

Bring Tech Mahindra into new industries, from manufacturing

to financial services,

Tech Mahindra will be Indias fourth-largest outsourcing firm,by employee count

HR Issues for Tech Mahindra:

Forming a new leadership team and the role of existing

top management in the team will be a key challenge as theyhave to shortlist the existing key leaders .

Marrying the work cultures, winning the trust of the

employees of two organizations


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Daimler-Benz and Chrysler Merger

Conceptual framework for culture: Hofstedes

cultural constraints in management theories

Hofstede developed a model in which worldwide differences

in national cultures are categorized according to fiveindependent dimensions

Allow analysis of: The way their society operates,

The management processes and

Theories applicable to their management


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Daimler-Chrysler merger: Reason for

merger

In 1998, Daimler- Benz Ag and Chysler corporation signed

merger agreement to build the worlds 5th biggest automaker

Luxury car Vs sports utility car

Opportunity for synergy: shared technologies

Distribution

purchasing and know how

Opportunity for Synergy:Daimler- Benz Chrysler

engineering skills innovation

Technological advances speed in product development

bold marketing style


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Reason for Mergers Failure: culture

clash


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Critical reflections

Both the top-management paid a lot of attention to

rationality and strategic goals

Clear on financial and market terms No attention paid to culture aspect

No Culture analysis done


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Acquisition strategy of GE Capital

The GE Capital uses a successful model called

"Pathfinder for acquiring firms. The model

disintegrates the process of M&A into four

categories : The pre-acquisition phase(due diligence, negotiations

and closing of deals ) :the model involves

cultural assessments

devising communication strategies

evaluation of strengths and weaknesses of the business

leaders


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Foundation building(integration plan is prepared)

A team of executives from the GE Capital and the acquiring

company is formed.

A 100 day communication strategy is evolved and the seniormanagement involvement and support is made clear.

The needed resources are pooled and accountability is

ensured


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Integration phase (actual implementation and correctionmeasures are taken ):

The processes like assessing the work flow, assignment of roles etc aredone at this stage.

This stage also involves continuous feedbacks and making necessarycorrections in the implementation

Assimilation process(Integration efforts are reassessed )

Long term adjustment and looking for avenues for improving the

integration. organization actual starts reaping the benefits of the acquisition.

The model is dynamic in the sense that company constantlyimproves it through internal discussions between the teams

that share their experiences, effective tools and refine bestpractices.


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Lessons Learnt

Companies consider cultural fit and employee

communication to be the most critical and

challenging HR issues to overcome during M&A. This

is similar to companies in other regions of the world.

These issues, along with leadership assessment, will

receive more attention in future M&As.


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THANK YOU.

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Term Paper HR17