Mergers and Acquisitions

Introduction
Mergers and acquisitions are a major part of the corporate finance world that deals with buying,
selling and combining different companies to form larger entities. They are one of the key
activities of corporate restructuring and are worth millions of dollars. From a legal perspective, a
merger is a combination of two or more firms in which all but one legally ceases to exist and the
combined organization continues under the original name of the surviving firm [key-7]. Mergers
and acquisitions are undertaken by companies to achieve certain strategic and financial
objectives , which the managers of the acquiring firm believe are beneficial to the company.
Not all mergers activities are successful. KPMG found that 83% of mergers were unsuccessful in
producing any business benefit as regards shareholder value. The objective of this essay is to
study M&A activities in two different industries Cars & Chemicals and highlight the factors
that distinguish the successful mergers form the unsuccessful ones.
Mergers and acquisitions are the part of the modern corporate finance world. Theoretically
mergers and acquisitions should be value creating for the shareholders of both the offeror and
offered companies. In practice situation is more complicated. In this work I have generalized my
knowledge about the mergers, described current trends in corporative business, analyzed the life
examples and made my own well-grounded conclusion. Mergers and acquisitions often don't
create value for offered and even for offer or. The main reason is the fast decision on the wave of
recent "merger mania" without detailed research and long-term business perspective estimation.

Mergers and acquisitions

Mergers and acquisitions are the part of business strategy, which allow restricting, financing or
aiding the growing company through combining two business entities in one.
Merger is "voluntary amalgamation of two firms on roughly equal terms into one new legal
entity." (BusinessDictionary.com) http://www.businessdictionary.com/definition/merger.html
Acquisition is "acquiring control of a corporation, called a target, by stock purchase or exchange,
either hostile or friendly, also called takeover."

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The difference between merger and acquisition is simple: merger is the unit of equals, and
acquisition is the "ingestion". After the merger the stocks of both or more) companies are
surrendered and new company stock is issued in its place, and after the acquisition the target
company ceases to exist while the buyer's stock continues to be traded. Thus, after the merger of
Daimler-Benz and Chrysler companies new company, DaimlerChrysler, was created.
Acquisition usually is the purchase of a small company by the bigger one, therefore it can be
friendly or hostile. Company-buyer can purchase the stocks or the assets of the target company to
take it over. The example of recent acquisition is the acquisition of Australian company Felix
Resources by China's Yanzhou Coal Mining Dynamic Exports, 2010)
However hostile takeovers or even the friendly acquisition could spoil the reputation of both
companies and cause the fall of the buyer's stocks. That is why usually companies proclaim the
action as the merger, though it's technically an acquisition. From the other hand, if the boards of
unequal companies negotiate the best strategy for both companies, this could be the real merger.
The problem of distinguishing the merger and the takeover becomes more complicated because
of different extensions, markets and products of the companies. There are few types of mergers
by the relationship between the companies:

"Horizontal merger - Two companies that are in direct competition and share the same
product lines and markets.

Vertical merger - A customer and company or a supplier and company.

Market-extension merger - Two companies that sell the same products in different
markets.

Product-extension merger - Two companies selling different but related products in the
same market.

Conglomeration - Two companies that have no common business areas." Investopedia, 2)

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By the type of financing there are two main types of mergers: purchase merger and consolidation
merger. Thus, the difference between some types of merger and acquisition is only in name. "In
other words, the real difference lies in how the purchase is communicated to and received by the
target company's board of directors, employees and shareholders." )
Some researchers think that the ratio of mergers and acquisitions depends on global economical
situation. Thus, the globalization forced many companies to merger because of high competition
in the world trade and the domination of big corporations. Some corporations make such
strategic moves for higher rank in a more lucrative global market. The period of economic
recession caused the increase of number of mergers. First, corporations have no free finances to
provide acquisitions; second, individual organizations are less likely to be able to survive.
Main goals of mergers and acquisitions
The dominant rationale used to explain M&A activity is that acquiring firms seek improved
financial performance. The following motives are considered to improve financial performance: lowering the fixed costs by removing duplicate departments or operations;

increasing the scope of marketing and distribution, and other demand-side changes;

increased revenue or market share;

cross-selling;

reducing tax liability;

resources distributing across firms;

synergy.

Theoretically two companies together are more then two separate companies. That is why
synergy is the main criteria of the success for every merger or acquisition is the synergy. It makes
the value of the combined companies greater than the sum of the two parts.

Mergers and Acquisitions

Thomas Straub shows that M&A performance is a multi-dimensional function. For a successful
deal, the following key success factors should be taken into account:

Strategic logic which is reflected by six determinants: market similarities, market

complementarities, operational similarities, operational complementarities, market power,
and purchasing power..

Organizational integration which is reflected by three determinants: acquisition

experience, relative size, cultural compatibility.

Financial / price perspective which is reflected by three determinants: acquisition

premium, bidding process, and due diligence.

At the same time, near the half of mergers and acquisitions is not successful. Often the
executives of the acquiring company overestimate revenue and cost synergies. That is why they
make typical mistakes, described in the "Harvard Business Review" article by Dan Lovallo and
others: they rely upon future revenues too much, pay more for target firms than they're worth and
ignore the possibilities of future loss. (Lovallo, 2)
"Several studies have found a sharp divergence between market participants' pre-merger
expectations about the post-merger performance of merging firms, and the firms' actual
performance rates. David Ravens craft and F. M. Scherer's (1987) large-scale study of
manufacturing firms, for example, found that while the share prices of merging firms did on
average rise with the announcement of the proposed restructuring, post-merger profit rates were
unimpressive. Indeed, they find that nearly one-third of all acquisitions during the 1960s and
1970s were eventually divested. Ravens craft and Scherer conclude that mergers typically
promote managerial "empire building" rather than efficiency, and they support increased
restrictions on takeover activity. Michael Jensen, founder of the Journal of Financial Economics,
suggests changes in the tax code to favor dividends and share repurchases over direct
reinvestment, thus limiting managers' ability to channel "free cash flow" into unproductive."

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Investors in a company thatareaiming to take over another one must determine whether the
purchase will be beneficial to them. In order to do so, they must ask themselves how much the
company being acquired is really worth.

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Literature Review
A merger adds value only if the merging companies are worth more than each one of them. This
section focuses on understanding the objectives behind the merger and acquisition activities and
how they add value to the firms. The author aims to use the literature developed here to analyze
the industrial case studies in the next section.

Definition
For most practical purposes, mergers and acquisitions are treated as synonyms. The main
difference between these two appears to be in the method of execution. Sherman and Hart (2006)
define mergers as two companies joining together (usually through the exchange of shares) as
peers to become one.. They define acquisitions as involving typically one company -the
buyer- that purchases the assets or shares of the seller, with the form of payment being cash, the
securities of the buyer, or other assets of value to the seller. An acquisition can be friendly as
well as hostile. When the target companys management are receptive to the idea of the
acquisition and recommends shareholders approval, the acquisition is generally referred to as
friendly

Motivations for Mergers and Acquisitions

DePamphilis (2010) gives the following reasons for M&A: synergy, diversification, market
power and strategic realignment. Brealey, Myers and Allen add to that by pointing out that
promise of complementary resources and surplus funds and inefficiency elimination are also
major reasons for acquisitions. Sudarsanam(1995) states that a more fundamental objective for
the firms is to enhance the wealth of shareholders through accessing sustainable competitive
advantage of the acquirer.
Sherman and Hart (2006) provide the following objectives for mergers:

to respond to competitive cost pressures through economics of scale and scope.

to improve process engineering and technology

to increase scale of production in existing product lines

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to find additional uses for existing management teams

to redeploy excess capital in more profitable and complementary ways

In a merger, there is no buyer or seller. Merger is always seen as happening between equals and
though one firm may have contributed more than the others, or may have initiated the discussion,
the data gathering and due diligence part is always a two ways and mutual process.
Top 10 Indian Mergers and Acquisitions of 2014
Mergers and acquisitions (M & A) is the area of corporate finances, management and strategy
dealing which deals with purchasing and/or joining with other companies.
Though the two are often mentioned together, a merger is very different from an acquisition.
A merger, in a nutshell, involves two corporate entities joining forces and becoming a new
business entity, with a new name. It usually involves two companies of same size and stature
joining hands.
An acquisition, on the other hand, involves one bigger business taking over a smaller company
which may be absorbed into the parent company or run as a subsidiary. The company being taken
over is referred to as the target company in the corporate world.
Here is a list of some of the most happening mergers and acquisitions in India in the year
2014, listed in random order.
1. Flipkart- Myntra
The huge and most talked about takeover or acquisition of the year. The seven year old
Bangalore based domestic e-retailer acquired the online fashion portal for an undisclosed
amount in May 2014. Industry analysts and insiders believe it was a $300 million or Rs 2,000
crore deal.
Flipkart co-founder Sachin Bansal insisted that this was a completely different acquisition
story as it was not driven by distress, alluding to a plethora of small e-commerce players

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either having wound up or been bought over in the past two years. Together, both company heads
claimed, they were scripting one of the largest e-commerce stories.
2. Asian Paints- Ess Ess Bathroom Products
Asian paints signed a deal with Ess Ess Bathroom products Pvt Ltd to acquire its front end sales
business for an undisclosed sum in May, 2014.
The company on May 14, 2014 has entered into a binding agreement with Ess Ess Bathroom
Products Pvt. Ltd and its promoters to acquire its entire front-end sales business including
brands, network and sales infrastructure, Asian Paints said in a filing to the BSE on Wednesday.
Ess Ess produces high end products in bath and wash segment in India and taking them over led
to a 3.3% rise in share price for Asian paints.
3. RIL- Network 18 Media and Investments
Reliance Industries Limited (RIL) took over 78% shares in Network 18 in May 2104 for Rs
4,000 crores. Network 18 was founded by Raghav Behl and includes moneycontrol.com,
In.com, IBNLive.com, Firstpost.com, Cricketnext.in, Homeshop18.com, Bookmyshow.com
while TV18 group includes CNBC-TV18, CNN-IBN, Colors, IBN7 and CNBC Awaaz.
4. Merck- Sigma Deal
One of the leading Indian manufacturers, Merck KGaA took over US based Sigma-Aldrich
Company for $17 billion in cash, hoping the deal will help boost its lab supplies business.
Sigma is the leading supplier of organic chemicals and bio chemicals to research laboratories and
supplies groups like Pfizer and Novartis with lab substances.
5. Ranbaxy- Sun Pharmaceuticals
Sun Pharmaceutical Industries Limited, a multinational pharmaceutical company headquartered
in Mumbai, Maharashtra which manufactures and sells pharmaceutical formulations and active
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pharmaceutical ingredients (APIs) primarily in India and the United States bought the Ranbaxy
Laboratories. The deal is expected to be completed in December, 2014.
Ranbaxy shareholders will get 4 shares of Sun Pharma for every 5 Ranbaxy shares held by them.
The deal, worth $4 billion, will lead to a 16.4 dilution in the equity capital of Sun Pharma.
6. TCS- CMC
Tata Consultancy Services (TCS), the $13 billion flagship software unit of the Tata Group, has
announced a merger with the listed CMC with itself as part of the groups renewed efforts to
consolidate its IT businesses under a single entity.
At present, CMC employs over 6,000 people and has annual revenues worth Rs 2,000 crores.
The deal was inked a few days back. TCS already held a 51% stake in CMC.
7. Tata Power- PT Arutmin Indonesia
Indias largest private power producer, Tata Power, purchased 30% stake in Indonesian coal
manufacturing firm for Rs 47.4 billion. Earlier this year, they sold off 5% of its stake in PT
Arutmin Indonesia (Arutmin) and PT Kaltim Prima Coal (KPC) for Rs. 250 billion due to falling
coal prices globally. It plans to sell the remaining 25% stake for $ 1 billion soon too.
8. Tirumala Milk Lactalis
The largest dairy player in the world, Groupe Lactalis SA, acquired the 18 year old Hyderabad
based Tirumala Milk products for a whopping Rs 1750 crore ($275 million)in January, 2014.
Founded in 1896 by D Brahmanandam, B Brahma Naidu, B Nageswara Rao, Dr N Venkata Rao
and R Satyanarayana, Tirumala is the second largest private dairy company in South India.
Lactalis acquired 100% of their shares.

Mergers and Acquisitions

9. Aditya Birla Minacs- CSP CX
Aditya Birla Nuvo Ltd (ABNL) owned ABNL IT & ITeS Ltd. was sold to a Canadian based
technology outsourcing firm marking Aditya Birlas exit for the IT industry.
The deal was chalked out with a group of investors led by Capital Square Partners (CSP) and CX
Partners (CXP) for $260 million (approximately Rs. 1,600 crore).
10. Sterling India Resorts- Thomas Cook India
Billionaire Prem Watsa owned Thomas Cook India bought the Sterling Resorts India for Rs 870
crores in , marking Thomas Cooks entry into the hospitality sector. Thomas Cook had earlier
acquired Ikya Human Solutions in 2013.

11. BMW
The Global Car Industry has many major collaborative and ownership links. Within these links
there are many factors that affects the market share of a car company, which include trying to
enter into the International Market, the role of technology in the industry; e.g. how technology
has changed over the years and what the effects of that change have resulted in; the impact of
social and legislative requirements that have to be followed and how the buyers of cars will
change and how it has varied over the years. In the case of BMW-Rover, given the increasing
dynamic of car industry.

Why some mergers succeed and why some fail?

KPMG, based upon detailed empirical research, identified six factors that lead to successful
mergers. These factors are: proper initial synergy evaluation, well thought out integration project

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planning, due diligence, gathering a capable management team, resolving cultural issues and
most importantly, good and transparent communications.
The big problem in measuring the failure of a merger is in determining the criteria that should be
met for a merger to be deemed so. Failure of a merger may stem from the information
asymmetries arising from the pre-merger period and the problems of cooperation and
coordination when recently merged [key-3]. Also the target company may only have a superficial
strategic fit and the failure may result from a flawed business and corporate strategy [key-19].
The following table from Carlton(1997), who cites Coopers and Lybrands (1992) study of 100
failed mergers, summarizes the key causes of success and failures of mergers:

11

Causes of Failures

Causes of Success

Target management attitudes

and cultural differences

Detailed post-acquisition integration

plans and speed of implementation

No post-acquisition
integration plans

Clarity of acquisition purpose

Lack of knowledge of industry

or target

Good cultural fit

Poor management of target

High degree of target management and

cooperation

No prior acquisition
experience

Knowledge of target and its industry

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Industry Case Studies

BMW AG. The Rover Company
The Rover Company was a British Car manufacturing company founded in 1878 as Starley &
Sutton Co. of Coventry and originally produced bicycles and motorbikes. It produced its first car
in 1904 under its now famous marque of the Viking Longship. After a string of mergers,
nationalisation and takeovers, it became a part of the British Leyland Motor Corporation in 1968.
The group was sold to British Aerospace in 1988 and in 1994, the control of the group was
passed to BMW of Germany.
BMW AG is a German automobile, engine and motorcycle manufacturing company which began
life as a aircraft engine company in the early 1900s. In 1923, it began manufacturing its first
motorcycles and started car production in the 1928 after acquiring the Eisenach vehicle factory
[key-9]. BMW acquired the Rover Company in 1994 for 800mn. After investing about 2bn
and getting no synergies, it sold the company in 2000 to Phoenix Consortium for 10.

The Acquisition
BMW had a number of motives behind the acquisition of the Rover company. The primary
among them was to grow. BMW wanted to increase their market spread while achieving a
greater volume spread [key-16]. They saw Rover, which came up for sale at the right time as the
perfect deal at that time. Rover had acquired significant cost advantages due to its association
with Japanese production methods. They also had the front-wheel driving and the 4 x 4
technology that BMW wanted to acquire. The price BMW paid was deemed to be a bargain as
the cost to develop the technology and the production methods from scratch were significantly
more.
Another major factor in the acquisition was the low level of cost in the British manufacturing
sector compared to the costs in Germany [key-15]. These costs, which were 60% lesser in
Britain, had the ability to substantially reduce BMW costs. Rover also has in its repository

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brands such as Mini and MG Rover, which offered BMW the chance to exploit new markets and
segments
.

Analysis
Behind the acquisition of Rover by BMW, there was certainly a strategic motive and proper
plans of gaining synergies. However, the acquisition was unsuccessful because they didnt plan
the entire process well. Palmer(2003) quotes both Kloss and Boorn in describing how the
strategic plan got stuck in the upper echelons of the hierarchy due to lack of communication and
coordination. BMWs integration plan suggested a three phase process in which the initial two
years were wasted in just providing financial help without any integration of the two
companies. It was 3-4 years before any concrete integration plans began and only in 1999 were
the two companies fully integrated [key-16].
Another important problem for this deal was the linguistic differences between the two
companies. Although BMWs top management could do business in English, the engineers and
the middle managers were unable to do so. This created a lack of communication problem which
eventually delayed the integration process. There were also substantial differences between the
business culture of BMW and Rover. As Batcheler(2001) points out, the German direct approach
was in contrast to the more relaxed approach followed by the British.
Sirower (1997) suggested that it is incorrect to judge the soundness of an acquisition based on
what it would have cost to develop that business from scratch. For this case, it seems to be this
same problem as BMWs decision was partly based on the substantial cost difference between
developing the technologies in house and buying it from Rover. BMW didnt achieve the
synergies and ended up spending 2bn and sold the company off to Phoenix Consortium for a
token sum of 10.

AkzoNobel N.V Imperial Chemicals Industries plc.

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AkzoNobel N.V is a Dutch multinational company, specializing in coatings and specialty
chemicals. The companys history can be traced back to the 17th century but the present entity
was created in 1994 by the merger of the Dutch company, Akzo and the Swedish company
Nobel.
ICI was formed when four British chemical companies merged in 1926. By 1970s, it had
expanded into continental Europe and the USA with a diverse variety of products ranging from
heavy chemicals to pharmaceuticals. It continued to grow meteorically throughout the 80s,
however, in 1993, owing to shrinking customer base and tough competition from abroad, it
began slimming down and sold off its pharmaceutical business as Zeneca. On January 2, 2008,
following the initial announcement in August, 2007, ICI was taken over by AkzoNobel N.V.

The Acquisitions
After AkzoNobel sold off its pharmaceutical business Organon in 2007, it became a much more
focused in the coatings sector, which was now considered to be the core business of the group
[key-12]. The chief executive of the group, Hans Wijers identified ICI as the next attractive
target because of the many strategic and financial benefits[key-1]. One of the most important
benefit was the possible creation of one of the largest coatings and specialty chemical company
in the World. Akzo was the global leader in industrial coatings and ICI was very strong in the
decorative paint market. Many solvents and chemicals are common to both the companies and
this gives tremendous synergy opportunities for the combined company [key-20]. The enlarged
Akzo Nobel group could also benefit from a diversified and broad geographic presence and
highly attractive platforms for growth in emerging markets[key-1].
At the time of the deal, the strategic synergies estimated by Akzo was 280mn. Financially, the
deal was expected to enhance the earnings to the shareholders, generate an internal rate of return
above Akzo Nobels WACC (8%) and create positive EVA in year three following the
transaction.
Akzo paid 670p for each ICI share and the deal was finalised for 8.0bn on January 2, 2008.
Akzo de-listed ICI from the London Stock Exchange on the January 3rd and sold off its adhesive

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and electronic material business to Hankel. The majority of the ICI businesses were integrated
into Akzo.

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Analysis
The acquisition of ICI by AkzoNobel was seen by the majority of the analysts as a good strategic
deal. ABN AMRO (as quoted in Pansari, 2009) said, we certainly believe in the strategic
rationale behind the ICI acquisition By acquiring ICI, AkzoNobel will be some 60% larger by
turnover than its nearest competitor. ICI Coatings offers an excellent complementary fit, both
in terms of geographical spread and in product mix. However, there was some doubts about
whether Akzo paid too much for the deal. Deutsche Banks comment (quoted in Pansari, 2009)
shows their skepticism, We welcome Akzos efforts to make the proposed deal more attractive
but still struggle with the numbers. With integration risk, execution risk and a lack of visibility
on ICI managements future role the risk/reward profile is not attractive enough But, the
acquisition has turned out to be successful with Akzo meeting all the synergy targets in time.
Akzo initially set a synergy target of 280mn by the end of 2010, which they updated to 340 mn
in 2008. As of 2009, they had delivered about 90% of the total value amounting to 300mn.
The main reasons for the success of Akzo were the presence of a well planned integration plan
and the rapid implementation of that plan. Unlike BMW, which took no steps to integrate Rover
in the initial two years, Akzo planned on a total integration in the first three years. They were
able to find a balance between the cultural and linguistic differences between the two companies
and were thus able to avoid communication problems. The author believes that all of MacDonald
and Beaviss (2001) key characteristics for a successful integration process namely a
comprehensive integration plan, rigorous cost/benefit/risk management control mechanisms,
dedicated leadership did exist in this deal. As a result of this successful deal, Akzo Nobel is very
well positioned now with market leadership positions in many markets, excellent geographic
spread of sales and profitability and strong ability to outspend the competition in technology and
innovation without negatively affecting the profitability.

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Employee Issues and Failure Of Mergers And Acquisitions Management

Globalization has demanded change in business practices because of its initiated competition

(Schuler and Tarique, 2007). However, two streams can be found in the literature suggesting two
different views about this phenomenon of globalization. One view suggests that it is being
evolved to accomplish the power, politics, and wealth accumulation objectives and to do so, it
has been instilled through carefully planned strategies, plans and tactics (Chomsky, 1999;
Schuler and Tarique, 2007). Other view conveys a contrasting philosophy asserting that it is a
social phenomenon which is benefiting the people around the globe by reducing monopolies of
few (Castells,1996).
Though these two views convey two opposite messages stating it political fixture designed for
the purpose of gaining control of power, authority and wealth or a phenomenon which is
operating to benefiting the people around the globe has instigated challenges for the business
organization, somehow. Whether these are threats or opportunities, these are challenging
(Mourdoukoutas, 2006). This phenomenon has changed the face of the world economy, and
economic conditions of most of the countries are forcing the organization to change their
business strategies. The organizations are using various forms of collaborations and alliances
such as mergers, acquisitions and joint ventures inside and across the national boundaries in
order to survive through the threats or to grow on the new challenging opportunities provided by
globalization. Kogut and Singh (1988) state that collaborations such as joint ventures, mergers
and acquisitions are the source of sharing and spreading and sharing risks over partners firms.
According to Contractor and Lorange (1988) such collaborations "allow developing and
harnessing knowledge of the host organization". Choi and Hong (2002) suggest that
"collaborations can be for the purpose of knowledge or/and material flow".

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Change Management and Success of Collaborative Efforts
Organizational change usually is perceived or rightly believed to contain threat or challenging
opportunities of personal loss or rewards respectively as consequences of the change for the
stakeholders. Lorenzi and Riley (2000) state that these threats or risks can fluctuate from simply
disturbance of established routines to job insecurity if we talk about the internal stakeholders.
While Hall (2002) classifies the change as shot tem and long-term and states the trade-offs
between short and long run.
Use of the term "change management" has been widespread in management writings and
organizational studies (Ackoff, 1981, 1990). Interest of managers and researchers in change
management topic has been stimulated by the commentary of Peter Drucker (1999), stating
whether change can be managed at all or organizations are merely led or facilitated because of its
episodes. In the words of Lorenzi and Riley (2000)
"Change management is the process by which an organization gets to its future state, its vision.
While traditional planning processes delineate the steps on the journey, change management
attempts to facilitate that journey".
Consequently, implementing change instigates crafting a vision for change, and it proceeds
further by empowering and allowing individuals to work as agents in the process to
accomplishing that vision. These agents require realistic and future oriented strategies, plans and
tactics to make successful transformation. However, since managing change is not simple and
requires top managers to have a holistic approach which addresses all the major factors and
disturbances arising from them.

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Factors Requiring Attention

Kauser and Shaw (2004) that though employees' can affect the success of such collaborations,
however, there are plenty of factors that have more devastating impact on the success. In fact,
firms investing in such collaborations face various uncertainties, resulting in affecting the
intended outcomes. Gulati and Singh (1998) state that such uncertainties can stem from
numerous factors that can be critical in hampering success in the firms with different norms,
cultures, future plans and intentions. If these are the international joint ventures, various factors
such as difference in national cultures, varying labour market conditions, different political and
legal system can be crucial in defining success in collaborations (Bratton and Gold, 2007).
Unavailability of "timely and adequate allocation and sharing of resources" is one of the main
reasons that can cause some type of failure in such collaborative efforts and hence should be
given proper focus while addressing the change arising from collaborations (Boddy et al, 1998).
Given the dynamic and volatile business environment, timely and adequate allocation of
resources, including human, capital an information, are vital in the success of mergers and
acquisitions (Yan and Zeng, 1999). Earlier, Yan (1998) believed that bargaining power, control
and trust are the main factors that can play central role in the successful mergers and
acquisitions. Sirmon and Lane (2004) state that cultural compatibility should be taken care, while
going into such collaborations.
Lorange and Roos (1992) that these are the intentions of the collaborating firms that cause issues,
resulting in impeding the success. Lorange and Roos (1992) further state that difference in
objectives, and differing practices, norms, values also contribute towards failures. Fey and
Beamish (2000) suggest that varying intentions, lack of cultural compatibility, and differences in
objectives are the main factors that create uncertainties in employees, resulting in impeding the
success. Hennart et al, (1998) collaboration without clear identification of need and objectives of
collaboration, lack of concentration towards qualitative factors cause failures because it hinder
effective decision making.

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Looking at the above statements and assertions, it can be argued though employees related issues
can cause failures but it is the failure to manage change due to lack of vision to identify the
factors and manage them is the main reason. Employee related issues such, according to Hennart
et al, (1998), arise from lack of trust in the new working arrangements. If top management is able
to remove these issues by giving incentives, ensuring security and involving them in the entire
process of initiation and development of such collaborations, employees related issues can be
solved (Sirmon & Lane, 2004). Yan (1998) evidence that such failures are the result of
incomplete contracts because of improper decision-making on behalf of the people who are
supposed to manage change by efficiently responding to and reacting to changing business
environment through proper attention to various internal and external factors. Sirmon and Lane,
(2004) suggest that it is the lack of vision to predict the severity of change which can result from
the new business arrangements. These collaborations demand employees' new roles and hence,
human resource management should be well prepared to play its new roles in these changing
business arrangements along with their traditional roles of hiring, training etc. Inability to do so
means failure of collaborations whether it is mergers, acquisitions or joint ventures (Sirmon and
Lane, (2004) and in this regard, role of human resource management need to be changed due to
globalization and its wedged factors such as culture, political and social structures, economic
conditions, labour market conditions, market size. Human resource management role should be
sensitive to all the factors and effective in cross cultural environment, both organizational and
national (Scullion and Linehan, 2005).
For instance, national culture, defined by Hofstede (1980, 1991) as values, beliefs, and
assumptions distinguishing people of different societies from one another, with Power Distance,
Uncertainty Avoidance, Collectivism-Individualism, and Masculinity-Femininity dimensions
affect the HRM role and practices in this era of globalization, where companies are driven to go
limitless in terms of nationalities. For example, Budhwar and Boyne (2004) state that in India,
hiring and promotion is completed keeping in view religion, caste system, and culture. (Clark &
Pugh (2000) suggest that feminine culture of Netherland is not suitable to use hard HRM.
According to Hofstede (1983) and Blunt & Jones (1986), that Kenya's culture showing
uncertainty-avoidance dimension needs that organization should take care various ceremonies
such as funerals and marriages. Similarly, tensions arsing form different organizational culture
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(in case if it is different) and national culture requires more than traditional HRM role (Cooke et
al 2008).
This means that in case of international collaborations, these factors can cause serious problems
and hence organizations need to develop and deploy a policy that pay attention to these factors as
well to avoid future harms.
In case of mergers and acquisitions in different countries, political, legal, and social structures
influence HRM role and functions (Noe & Ford, 1992). Economic system of a specific country
with different governance structures is also hard on playing its cards to alter the HRM role and
practices in its own terms. Labor Market conditions, (Ali, 2000), market size (Tayeb, 2005) also
needs different motivational and promotional strategies as same standard for all markets cannot
work. Same quantitative target will not work for sales persons in London and Lancaster. Role of
unions is also important in shaping HRM decisions of selections, promotions, wages (Collins et
al, 1993), and motivation (Rosen et al, 1986)
It means that new business environment may require different business practices, demanding
different role of HRM and that is its role envisioned in strategic HRM (SHRM. Bratton & Gold
(2007: 56) define SHRM as "The HR polices and process that result from the global competitive
activities of multinational companies and that explicitly link international HR practices and
processes with the worldwide strategic goals of those companies" It means that HRM is no mere
an administrative facility but has received or expected recognition as a strategic business
collaborator. Companies are actively relating the HRM in the development and
implementation of both people and business strategies (Christina Evans, 2003). It means that
HRM needs to manage people and proactively support the overall management and decision
making of the organizational. According to Guest (2002) managing people includes ensuring
commitment from employees, building high trust and flexible roles, creating focus on values,
flattering hierarchical structure of the organization, and ensuring autonomy at national level and
enhancing self control. In the era of globalization, where new forms of organizations are
unavoidable, Christina Evans (2003) goes further to explain the HRM role stating that it
contributes to overall development of the organization through performance measures, agenda
building, translating strategic level strategies into HR deliverables. Holbeche (1999) suggests
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that role of HRM is strategic rather than operational, proactive rather than traditional reactive,
changing instead of stagnant, and of employee champion. Ulrich (2000) suggests that HRM role
in competitive world is turning knowledge into action.
Conclusion
The success or the failure of a merger or acquisition activity depends upon a lot of factors both
endogenous and exogenous. The presence of the right mix of people at the helm and the presence
of just a proper integration plan is not always enough. The speed of implementation has to be
there and the managers should be able to communicate properly their intentions to the lower
levels properly. Proper research into the acquired company and its activities are important for the
firms before going ahead with their merger plans. BMW made some key mistakes before going
ahead with the Rover deal regarding the speed of integration, communicating and lack of proper
research. Akzo on the other hand were well planned and their integration was swift and effective.
They overcame the communication and cultural problem and devised ways to create massive
synergies for the company.
From the study of mergers and acquisitions here, the author has been able to understand the key
factors necessary for a such deal and the how the theory developed in the literature review relates
to the practical real world problems.

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