Question 4: What are the cultural aspects involved in a merger. Give sufficientexamples.

Answer: The value chains of the acquirer and the acquired, need to be integrated i n o r d e r t o achieve the value creation objectives of the acquirer. This integration process has threed i m e n s i o n s : t h e t e c h n i c a l , p o l i t i c a l a n d c u l t u r a l . The technical integration is s i m i l a r t o the capability transfer discussed above. The integration of social interaction andpo litical relationships represents the informal processes and systems which influencepeoples ability and motivation to perform. At the time of i n t e g r a t i o n , t h e a c q u i r e r should have regard to these political relationships, if acquired employees are not to feelu n f a i r l y t r e a t e d . A n i m p o r t a n t a s p e c t of integration is the cultural integration of the acquiring a n d acquired firms. The culture of an organization is embodied in its c o l l e c t i v e v a l u e systems, beliefs, norms, ideologies myths and rituals. They can motivate people andcan become valuable sources of efficiency and effectiveness. The following are the i l l u s t r a t i v e o r g a n i z a t i o n a l d i v e r s e c u l t u r e s w h i c h m a y have to be integrated d u r i n g post-merger period:Strong top leadership versus Team approach M a n a g e m e n t b y f o r m a l p a p e r w o r k v e r s u s m a n a g e m e n t b y w a n d e r i n g a r o u n d Individual decision versus group consensus decision Rapid evaluation based on performance versus Long term relationship based onl o y a l t y Rapid feedback for changes versus formal bureaucratic rules and procedures N a r r o w c a r e e r p a t h v e r s u s m o v e m e n t t h r o u g h m a n y a r e a s Risk taking encouraged versus one mistake you are out R i s k y a c t i v i t i e s v e r s u s l o w r i s k a c t i v i t i e s Narrow responsibility arrangement versus Everyone in this company is salesman (orcost controller, or product quality improver etc.) Learn from customer versus W e know what is best for the customerThe above illustrative culture may provide basis for the classification of organizationalculture. There are four different types of organizational culture as mentioned below: P we o r - The main characteristics are: essentially autocratic and suppressive ofc h a l l e n g e ; e m p h a s i s o n i n d i v i d u a l r a t h e r t h a n g r o u p d e c i s i o n m a k i n g Role - The important features are: bureaucratic and hierarchical; emphasis on f o r m a l rules and procedures; values fast, efficient and standardized culture service Task/achievement - The main characteristics are: emphasis on team commitment; t a s k d e t e r m i n e s organization of work; flexibility and worker autonomy; needs creativeenvironment P r o / up ot es ns p r - The important features are: emphasis on equality; seeks to nurturepersonal development of individual membersP o o r c u l t u r a l f i t o r incompatibility is likely to result in considerable f r a g m e n t a t i o n , uncertainty and cultural ambiguity, which may be e x p e r i e n c e d a s s t r e s s f u l b y organizational members. Such stressful experience may lead to their loss of morale,loss of commitment, confusion and hopelessness and may have a dysfunctional impacton organizational performance. Mergers between certain types can be disastrous. D i f f e r e n c e s i n c u l t u r e m a y l e a d t o p o l a r i z a t i o n , n e g a t i v e e v a l u a t i o n o f c o u n t e r p a r t s , anxiety and ethnocentrism between top management teams of the acquired an da c q u i r i n g f i r m s . I n

assessing the advisability of an acquisition, the acquirer mustconsider cultural risk in addition to strategic issues. The differences between thenational and the organizational culture influence the cross -border acquisitionintegration. Thus, merging firms must consciously and proactively seek to transformthe cultures of their organizations.

Question 4: What are the cultural aspects involved in a merger. Give sufficientexamples.Answer: The value chains of the acquirer and the acquired, need to be integrated i n o r d e r t o achieve the value creation objectives of the acquirer. This integration process has threed i m e n s i o n s : t h e t e c h n i c a l , p o l i t i c a l a n d c u l t u r a l . The technical integration is s i m i l a r t o the capability transfer discussed above. The integration of social interaction andpolitical relationships represents the informal processes and systems which influencepeoples ability and motivation to perform. At the time of i n t e g r a t i o n , t h e a c q u i r e r should have regard to these political relationships, if acquired employees are not to feelu n f a i r l y t r e a t e d . A n i m p o r t a n t a s p e c t of integration is the cultural integration of the acquiring a n d acquired firms. The culture of an organization is embodied in it s c o l l e c t i v e v a l u e systems, beliefs, norms, ideologies myths and rituals. They can motivate people andcan become valuable sources of efficiency and effectiveness. The following are the i l l u s t r a t i v e o r g a n i z a t i o n a l d i v e r s e c u l t u r e s w h i c h m a y have to be integrated d u r i n g post-merger period:Strong top leadership versus Team approach M a n a g e m e n t b y f o r m a l p a p e r w o r k v e r s u s m a n a g e m e n t b y w a n d e r i n g a r o u n d Individual decision versus group consensus decision Rapid evaluation based on performance versus Long term rel ationship based onl o y a l t y Rapid feedback for changes versus formal bureaucratic rules and procedures N a r r o w c a r e e r p a t h v e r s u s m o v e m e n t t h r o u g h m a n y a r e a s Risk taking encouraged versus one mistake you are out R i s k y a c t i v i t i e s v e r s u s l o w r i s k a c t i v i t i e s Narrow responsibility arrangement versus Everyone in this company is salesman (orcost controller, or product quality improver etc.) Learn from customer versus W e know what is best for the customerThe above illustrative culture may provide basis for the classification of organizationalculture. There are four different types of organizational culture as mentioned below: P we o r - The main characteristics are: essentially autocratic and suppressive ofc h a l l e n g e ; e m p h a s i s o n i n d i v i d u a l r a t h e r t h a n g r o u p d e c i s i o n m a k i n g Role - The important features are: bureaucratic and hierarchical; emphasis on f o r m a l rules and procedures; values fast, efficient and standardized culture service Task/achievement - The main characteristics are: emphasis on team commitment ;t a s k d e t e r m i n e s organization of work; flexibility and worker autonomy; needs creativeenvironment P r o / up ot es ns p r - The important features are: emphasis on equality; seeks to nurturepersonal development of individual membersP o o r c u l t u r a l f i t o r incompatibility is likely to result in considerable f r a g m e n t a t i o n , uncertainty and cultural ambiguity, which may be e x p e r i e n c e d a s s t r e s s f u l b y organizational members. Such stressful experience may lead to their loss of morale,loss of commitment, confusion and hopeless ness and may have a dysfunctional impacton organizational performance. Mergers between certain types can be disastrous. D i f f e r e n c e s i n c u l t u r e m a y l e a d t o p o l a r i z a t i o n , n e g a t i v e e v a l u a t i o n o f c o u n t e r p a r t s , anxiety and ethnocentrism between top management teams of the acquired anda c q u i r i n g f i r m s . I n

assessing the advisability of an acquisition, the acquirer mustconsider cultural risk in addition to strategic issues. The differences between thenational and the organizational culture influence the cross -border acquisitionintegration. Thus, merging firms must consciously and proactively seek to transformthe cultures of their organizations

Q 2 What are the basic steps in strategic planning for a merger?Answer:Basic steps in Strategic planning in Merger : A n y m e r g e r a n d a c q u i s i t i o n i n v o l v e t h e following critical activities in strategic planning processes. Some of the essentialelements in strategic planning processes of mergers and acquisitions are as listed here below :1. Assessment of changes in the organization environment2 . E v a l u a t i o n o f c o m p a n y c a p a c i t i e s a n d l i m i t a t i o n s 3. Assessment of expectations of stakeholders4. Analysis of company, competitors, industry, domestic economy and international economies5. Formulation of the missions, goals and polices6 . D e v e l o p m e n t o f s e n s i t i v i t y t o c r i t i c a l external environmental changes7. Formulation of internal organizational performance measurements8. Formulation of long range strategy programs9. Formulation of mid -range programmes and short-run plans10. Organization, f unding and other methods to implement a l l o f t h e p r o c e e d i n g elements1 1 . I n f o r m a t i o n f l o w a n d f e e d b a c k s y s t e m f o r c o n t i n u e d r e p e t i t i o n o f a l l e s s e n t i a l elements and for adjustment and changes at each stage12. Review and evaluation of all the processesI n e a c h o f t h e s e a c t i v i t i e s , s t a f f a n d l i n e p e r s o n n e l h a v e i m p o r t a n t R e s p o n s i b i l i t i e s i n the strategic decision making processes. The scope of mergers and acquisition set thet o n e f o r t h e n a t u r e o f m e r g e r s a n d a c q u i s i t i o n a c t i v i t i e s a n d i n t u r n a f f e c t s t h e f a c t o r s which have significant influence over these activities. This can be seen by observingt h e f a c t o r s c o n s i d e r e d d u r i n g t h e d i f f e r e n t s t a g e s o f m e r g e r s a n d a c q u i s i t i o n a c t i v i t i e s . Proper identification of different phases and related activities smoothen the process ofi n v o l v e d i n m e r g e

Question 5:- Study a recent merger that you have read about and discuss the synergiesthat resulted from the merger.Answer: Synergy is the additional value that is generated by the combination of two or moret h a n t w o f i r m s c r e a t i n g o p p o r t u n i t i e s t h a t w o u l d n o t b e a v a i l a b l e t o t h e f i r m s independently. There are two main types of synergy: 1. O p e r a t i n g s y n e r g y 2. F i n a n c i a l s y n e r g y Operating Synergy O p e r a t i n g s y n e r g i e s a r e t h o s e s y n e r g i e s t h a t a l l o w f i r m s t o increase their operating income, increase growth or both. We would categorizeo p e r a t i n g s y n e r g i e s i n t o f o u r t y p e s : 1. Eoo i osat t a t m a y a r i s e f r o m t h e m e r g e r , a l l o w i n g t h e c o m b i n e d f i r m cnm r cl h x t o become more cost-efficient and profitable. Economics of scales can be seen in mergerso f firms in the same business For example :

two banks combining together to create al a r g e r b a n k . M e r g e r o f H D F C b a n k w i t h C e n t u r i a n b a n k o f P u n j a b c a n b e t a k e n a s a n example of cost reducing operating synergy. Both the banks after combination canexpect to cut costs considerably on account of sharing of their resources and thus a v o i d i n g d u p l i c a t i o n o f f a c i l i t i e s a v a i l a b l e . 2. Greater pricing power from reduced competition and higher market share, whichshould result in higher margins and operating income. This synergy is also more likelyto show up in mergers of firms which are in the same line of business and should bemore likely to yield benefits when there are relatively few firms in the business. Whent h e r e a r e m o r e f i r m s i n t h e i n d u s t r y a b i l i t y o f firms to exercise relatively higher price

Sikkim Manipal University - MBA - MF0011 Mergers and Acquisitions ============================== ============================= Semester: 3 Assignment Set: 2 ======================================== =============== ============================== ============================= PANKAJ CHOUREY Reg. No. 521036344 Page 7 of 10 reduces and in such a situation the synergy does not seem to work as desired. Anexample of limiting competition to increase pricing power is the acquisition o f universal luggage by Blow Plast. The two companies were in the same line of businessa n d w e r e i n d i r e c t c o m p e t i t i o n w i t h e a c h o t h e r l e a d i n g t o a severe price war andincreased marketing cos ts. After the acquisition blow past acquired a strong hold onthe market and operated under near monopoly situation. Another example is theacquisition of Tomco by H i n d u s t a n L e v e r . 3. Combination of different functional strengths , c o m b i n a t i o n o f d i f f e r e n t f u n c t i o n a l strengths may enhance the revenues of each merger partner thereby enabling each company to expand its revenues. The phenomenon can be understood in cases whereo n e c o m p a n y w i t h a n e s t a b l i s h e d brand name lends its reputation to a company withupcoming product line or a company. A company with strong distribution networkmerges with a f i r m t h a t h a s p r o d u c t s o f g r e a t p o t e n t i a l b u t i s u n a b l e t o r e a c h t h e market before its competitors can do so. In other words the two companies should get t h e advantage of the combination of their complimentary f u n c t i o n a l s t r e n g t h s . 4. Higher growth in new or existing markets, arising from the combination of the t w o firms. This would be case when a US consumer products firm acquires an emergingm a r k e t f i r m , w i t h a n e s t a b l i s h e d d i s t r i b u t i o n n e t w o r k a n d b r a n d n a m e r e c o g n i t i o n , and uses these strengths to increase sales of its products. Operating synergies cana f f e c t m a r g i n s a n d g r o w t h , a n d t h r o u g h these the value of the firms involved in themerger or acquisition. Synergy

results from complementary activities. This can beunderstood with the following example Example : Consider a situation where there aret w o f i r m s A a n d B . F i r m A i s h a v i n g s u b s t a n t i a l a m o u n t o f f i n a n c i a l r e s o u r c e s ( h a v i n g enough surplus cash that can be invested somewhere) while firm B is having profitableinvestment opportunities ( but is lacking surplus cash). If A and B c o m b i n e w i t h e a c h other both can utilize each other strengths, for example here A can invest its resourcei n t h e o p p o r t u n i t i e s a v a i l a b l e t o B . n o t e t h a t t h i s c a n h a p p e n o n l y w h e n t h e t w o f i r m s are combined with each o t h e r o r i n o t h e r w o r d s t h e y m u s t a c t i n a w a y a s i f t h e y a r e one. Financial Synergy W ith financial synergies, the payoff can take the form of eitherhigher cash flows or a lower cost of capital (discount rate). Included are the following:

A combination of a firm with excess cash, or cash slack, (and limited projecto p p o r t u n i t i e s ) a n d a f i r m w i t h h i g h - r e t u r n p r o j e c t s ( a n d l i m i t e d c a s h ) c a n y i e l d a payoff in terms of higher value for the c o m b i n e d f i r m . T h e i n c r e a s e i n v a l u e comes from the projects that were taken with the excess cash that otherwisewould not have been taken. This synergy is likely to show up most often whenl a r g e f i r m s a c q u i r e s m a l l e r f i r m s , o r w h e n p u b l i c l y t r a d e d f i r m s a c q u i r e p r i v a t e businesses. Sikkim Manipal University - MBA - MF0011 Mergers and Acquisitions ============================== ============================= Semester: 3 Assignment Set: 2 ======================================== =============== ============================== ============================= PANKAJ CHOUREY Reg. No. 521036344 Page 8 of 10

Debt capacity can increase, because when two firms combine, their earnings andcash flows may become more stable and predictable. This, in turn, allows themt o b o r r o w m o r e t h a n t h e y c o u l d h a v e a s i n d i v i d u a l e n t i t i e s , w h i c h creates a taxbenefit for the combined firm. This tax benefit can either be s h o w n a s h i g h e r cash flows, or take the form of a lower cost of capital for the combined firm.

Tax benefits can arise either from the acquisition taking advantage of tax lawsor from the use of net operating losses to shelter income. Thus, a p r o f i t a b l e f i r m that acquires a money-losing firm may be able to use the net operating losses oft h e l a t t e r t o r e d u c e i t s t a x b u r d e n . A l t e r n a t i v e l y , a f i r m t h a t i s a b l e t o i n c r e a s e its depreciation charges after an

acquisition will save in taxes, and increase itsvalue.Clearly, there is potential for synergy in many mergers. The more important issues arewhether that synergy can be valued and, if so, how to value it. This result has to beinterpreted with caution, however, since the increase in the value of the combined firmafter a merger is also consistent with a number of other hypotheses explainingacquisitions, including under valuation and a change in corporate control. It is thus a weak test of the synergy hypothesis. The existence of synergy generally implies thatt h e c o m b i n e d f i r m w i l l b e c o m e m o r e p r o f i t a b l e o r g r o w a t a f a s t e r r a t e after the mergerthan will the firms operating separately. A stronger test of synergy is to evaluate w h e t h e r m e r g e d firms improve their performance (profitability and growth) relative t o their competitors, after takeovers. On this test, as we show later in this chapter, manymergers fail