Strategic Management Of

Mergers
Presented by-
Yuchshenko Anastassiya
and Travinicheva Alina
AGENDA

A. STRATEGIC MANAGEMENT
B. STEPS OF STRATEGIC MANAGEMENT OF M&A
C. SOME DECISION STRATEGIES OF
1. ACQUIRER
2. TARGET
D. FAILURE OF M& A
1. MAJOR FACTORS
2. REASONS FOR FAILURE AT DIFFERENT STAGE
3. CASE : DAIMLER CHRYSLER MERGER
 A. Strategic management
“Strategic management is an ongoing process that evaluates and controls the
business and the industries in which the company is involved; assesses its
competitors and sets goals and strategies to meet all existing and potential
competitors; and then reassesses each strategy annually or quarterly [i.e.
regularly] to determine how it has been implemented and whether it has
succeeded or needs replacement by a new strategy to meet changed
circumstances, new technology, new competitors, a new economic
environment., or a new social, financial, or political environment.” (Lamb,
1984:ix)

Strategic management is the art and science of formulating, implementing and

evaluating cross-functional decisions that will enable an organization to achieve
its objectives. Strategic management, therefore, combines the activities of the
various functional areas of a business to achieve organizational objectives.
Strategic management in case
of mergers will cover the
various things management
should consider during the
merger process.

It will also cover what all things

should the management do to
get maximum out of the
mergers
B. Strategic Management of Mergers

1. Integration process
2. Cultural integration
3. Human capital Integration and
HR functions
4. Merger repair
5. Recommendation for success
1.INTEGRATION
i. Motives
ii. Threats
iii.Impact of mergers
iv. Steps in Mergers
v. Stages of Mergers
I. MERGER MOTIVES
 Growth and diversification
 Synergy
 Fund raising
 Increased managerial skill/technology
 Tax consideration
 Increased ownership liquidity
 Defense against takeovers
II. THREATS OF MERGERS..
 Monopolizing of industry
 Cost cutting through Lay-offs

 Poor synergy realization

 Induces complexity, duplication of people, processes and

technology
 There are various aspects which if not managed carefully
during a merger can become major pitfalls, for example,
issues of managing Intellectual Property, human
resources encompassing cultural diversity and
perspectives, technology platforms, supply chain
management, product/service delivery channels, etc.
iii. Impact Of Mergers And Acquisitions

1. On workers or employee:
- layoffs
2. On top level management:
- clash of egos
- variation in culture
3. On shareholders:
a) of acquiring firm
-most affected, they are harmed by the same degree to which
target firm shareholders benefitted
b) of target firm
-benefitted the most
-acquiring company usually pays a little excess than it what
should
iv. Steps in M&A

1. Pre Merger
1. Assessment/Due Diligence

2. Negotiation

2. Merger
1. Decision

2. Implementation

3. Post merger
1. Integration

Each stage is very critical from the point of view of a merger.

v. Stages Of Merger

1. Pre-merger stage: Both firms gather

information about the uncertain synergy gains of
merging. Information can be shared or kept
private.
2. Merger Stage: Managers of both firms decide
unilaterally (and sequentially) whether to merge.
Only when both firms agree to merge there is a
post-merger stage.
3. Post-Merger Stage: The two units of the new
firm decide unilaterally and simultaneously
whether to do an integration effort.
 2 Cultural Integration
Most integration initiatives fall short of reaching their goals
during implementation stage and follow-up.
• Organization culture comprises of : rules and policies, goals
and measures , rewards and recognition, staffing & selection,
Training & development, Ceremonies and event, Leadership
behavior, communication, physical environment .
• The company should
1. recruit and promote service oriented candidates,
2. train the workforce in techniques of service
3. Set goals that are based on service
4. Reward an recognize people for higher level of service
3 Human Capital Integration & HR Functions

• HR contribute strategically to enterprise

wide integration between manufacturing,
finance, R&D and marketing and sales
• Support business group transition
activities like staffing& selection
• Integrate new organisation
and process
 4 Merger Repair
You closed the deal over 2 years ago, but
organisation is still not operating as one
company. Merger repair refers to post deal
integration.
YOU NEED A MERGER REPAIR WHEN..

1. Service is suffering
2. Customers are confused and defecting
3. Performance targets have not been achieved
4. Stock prices falling
5. Key integration activities are behind schedule
6. Analysts comments
7. The organisation cannot handle additional
acquisition
8. Key executives and employees are leaving and many
more.
 5 Key To M&A SUCCESS
 Conduct due diligence analyses in financial and human capital
related areas
 Determine require/desired degree of integration
 Speedy(not reckless) decisions
 Gain the support and commitment from senior managers
 Clearly defined approach of integration
 Select highly respectable and capable integration leader
 Dedicated capable people for the integration core team and
task force
 Use best practices
 Set measurable goals and objectives
 Continuous communication and feed back
C. DECISIONS strategies
1. For Acquirer :
a) If negotiations go successful- move on with
implementation step for friendly merger.
b) But if negotiations are not successful- Hostile takeovers,
Tender offers, Dawn Raid
2. For Target :
a) If happy with the deal , accept the offer OR
b) Negotiate the terms of Deal or
c) If the target finds the valuation to be very low or if there
is some unconscionable flaw in the deal then they may
reject the deal ,then dangers of hostile takeover arise.
 Tactics of acquirer
1. Hostile Takeover
This is an unfriendly
takeover attempt by a
company or raider that is
strongly resisted by the
management and the board
of directors of the target
firm. These types of
takeovers are usually bad
news, affecting employee
morale at the targeted firm,
which can quickly turn to
animosity against the
acquiring firm
Tactics of acquirer

2 Tender offer :An offer to purchase some

or all of shareholders' shares in a
corporation. The price offered is usually at a
premium to the market price. Tender offers
may be friendly or unfriendly. Securities
and Exchange Commission laws require any
corporation or individual acquiring 5% of a
company to disclose information to the
SEC, the target company and the exchange
 TAKEOVER DEFENSES BY TARGET CO.
1. Golden Parachute
This measure discourages an unwanted takeover by offering lucrative benefits to
the current top executives, who may lose their job if their company is taken over
by another firm. Benefits written into the executives’ contracts include items such
as stock options, bonuses, liberal severance pay and so on. Golden parachutes can
be worth millions of dollars and can cost the acquiring firm a lot of money and
therefore act as a strong deterrent to proceeding with their takeover bid.

2. Shark Repellent : Any one of a number of measures taken by a company to fend

off an unwanted or hostile takeover attempt. In many cases, a company will
make special amendments to its charter or bylaws that become active only when a
takeover attempt is announced or presented to shareholders with the goal of
making the takeover less attractive or profitable to the acquisitive firm.
3. Leveraged recapitalization : Payment of large debt financed dividend.
This strategy increases the firms financial leverage, thereby deterring
takeover attempt.

4. Macaroni Defence
This is a tactic by which the target company issues a large number
of bonds that come with the guarantee that they will be redeemed at a
higher price if the company is taken over. Why is it called macaroni
defense? Because if a company is in danger, the redemption price of the
bonds expands, kind of like macaroni in a pot! This is a highly useful
tactic, but the target company must be careful it doesn't issue so
much debt that it cannot make the interest payments.

5. People Pill : Here, management threatens that in the event of a

takeover, the management team will resign at the same time en masse.
This is especially useful if they are a good management team; losing
them could seriously harm the company and make the bidder think
twice
7. Poison Pill
With this strategy, the target company aims at making its own stock less attractive to
the acquirer. There are two types of poison pills. The 'flip-in' poison pill allows existing
shareholders (except the bidding company) to buy more shares at a discount.. The goal
of the flip-in poison pill is to dilute the shares held by the bidder and make the
takeover bid more difficult and expensive.
The 'flip-over' poison pill allows stockholders to buy the acquirer's shares at a
discounted price in the event of a merger. If investors fail to take part in the poison pill
by purchasing stock at the discounted price, the outstanding shares will not be diluted
enough to ward off a takeover.
An extreme version of the poison pill is the "suicide pill" whereby the takeover-target
company may take action that may lead to its ultimate destruction.

8. Sandbag
With this tactic the target company stalls with the hope that another, more favorable
company (like “a white knight”) will make a takeover attempt. If management
sandbags too long, however, they may be getting distracted from their responsibilities
of running the company.
9. White Knight
This is a company (the “good guy”) that gallops in to make a
friendly takeover offer to a target company that is facing a hostile
takeover from another party (a “black knight”). The white knight
offers the target firm a way out with a friendly takeover.

10. Scorched Earth Policy

An anti-takeover strategy that a firm undertakes by liquidating its
valuable and desired assets and assuming liabilities in an effort to
make the proposed takeover unattractive to the acquiring firm.
 FAILURE OF MERGER &
ACQUISITION

 Mergers and Acquisitions (M&As) have become the

dominant mode of growth for organizations seeking a
competitive advantage in an increasingly complex and
global business economy. Every merger, acquisition, or
strategic alliance promises to create value from some
kind of synergy, yet statistics show that the benefits that
look so good on paper often do not materialize.
Unfortunately, many mergers and acquisitions fail to
meet their objectives, which are typically to accelerate
growth, cut costs, increase market share or take
advantage of other synergies.
 WHY FAILURES?
• A global A.T.Kearney study suggests that 58 percent of all mergers,
acquisitions, and other forms of corporate restructuring fail to produce results
rather than create value.

• Similarly, a KPMG survey found that "83 percent of mergers were unsuccessful
in producing any business benefits regards shareholder value.

• A major McKinsey & Company study found that "61 percent of acquisition
programs were failures because the acquisition strategies did not earn a
sufficient return (cost of capital) on the funds invested".

• Between 55 and 77 percent of all mergers fail to deliver on the financial promise
announced when the merger was initiated.

• Even though most mergers and acquisitions are carefully designed, they still
face major challenges. Nearly two-thirds of companies lose market share in the
first quarter after a merger; by the third quarter, the figure is 90 percent. In the
first four to eight months that follow the deal, productivity may be reduced by up
to 50 percent.
And the majority of “FAILURE” IS ATTRIBUTED
TO….

1.The Human Factor &

2.The Cultural “Misfit”

REASONS FOR FAILURE AT DIFFERENT
STAGES OF MERGER
 Pre merger
1. Lack of research
2. Incomplete and Inadequate Due Diligence
3. Excessive premium
4. Size Issues
5. Striving for Bigness
6. Faulty evaluation
7. Merger between Equals
8. Mergers between Lame Ducks

 Merger
1. Lack of Proper Communication
2. Diversification
3. Diverging from Core Activity
 POST MERGER
1. Poor Cultural/organisation Fits
2. Ego Clash
3. Failure of Leadership Role.
4. Poorly Managed Integration
5. Inadequate Attention to People Issues
6. Loss of Identity
 CASE: Daimler Chrysler Merger Failure
• In 1926, the merger of two German automobile manufacturers Benz & Co. and
Daimler Motor Company formed Stuttgart-based, German company Daimler-Benz.
Its Mercedes cars were arguably the best example of German quality and
engineering.

• In 1998, Daimler-Benz and U.S. based Chrysler Corporation, two leading global car
manufacturers, agreed to combine their businesses in what was perceived to be a
'merger of equals'. Jurgen Schrempp, CEO of Daimler-Benz and Robert Eaton,
Chairman and CEO of Chrysler Corporation met to discuss the possible merger.

• The merged entity ranked third (after GM and Ford) in the world in terms of
revenues, market capitalization and earnings, and fifth (after GM, Ford, Toyota and
Volkswagen) in the number of units (passenger-cars and commercial vehicles
combined) sold.
.
• In 1998, co-chairmen and co-CEOs, Schrempp and Eaton led the merged company to
revenues of $155.3 billion and sold 4 million cars and trucks. But in 2000, it suffered
third quarter losses of more than half a billion dollars, and projections of even
higher losses in the fourth quarter and into 2001. In early 2001, the merged
company announced that it would slash 26,000 jobs at its ailing Chrysler division

• In May 2006, after a decade of disappointing results, Daimler finally sold Chrysler to
private equity firm Cerberus Capital for £3.74 billion.

• The Daimler Chrysler merger proved to be a costly mistake for both the companies.
Daimler was driven to despair, and to a loss, by its merger with Chrysler. In 2006, the
merged group reported a loss of 12 million euros.

• The good results this quarter have come after selling the Chrysler division in the U.S.
and cutting jobs at Mercedes-Benz Cars.

• Without Chrysler, Daimler reported profits of 1.7 billion euros (£1.3 billion) for the
fourth quarter and a net profit of 4 billion euros for the year (3.8 billion euros in
2006). Sales rose to 99.4 billion euros ($144.98 billion) from 99.2 billion euros, with
2.1 million automobiles sold globally.
 Inferences…
• Analysts felt that though strategically, the merger made good
business sense. But contrasting cultures and management
styles hindered the realization of the synergies.
• Daimler-Benz attempted to run Chrysler USA operations in the
same way as it would run its German operations.

• Daimler-Benz was characterized by methodical decision-

making. On the other hand, the US based Chrysler encouraged
creativity.

• While Chrysler represented American adaptability and valued

efficiency and equal empowerment Daimler-Benz valued a more
traditional respect for hierarchy and centralized decision-
making.
 REFERENCE
The Complete Guide To Mergers And
Acquisitions
PROCESS TOOLS TO SUPPORT M&A INTEGRATION AT EVERY LEVEL- by

Timothy J. Galpin & Marc Herndon

second edition
THANK YOU !!
