CASE STUDY ASTRA TECHNICAL STORE Wednesday, 9 February 2000, 7.15 a.m. Winter morming sun hasn’t risen yet when Mrs. Pire, the CEO of Astra, was fishing around in her bag for the keys to her Clio. And she was already late for work. She had an appointment with Mr, Gulid, the Head of Sales, to finalize their last-minute preparations and to harmonize their ideas. At around 10 a. m. they were facing what might just prove to be the most important meeting of their careers. It’s been 5 years since Mrs. Pire became Astra’s CEO. During that period she completed her master’s degree in economics and all those years she invested all her time and energy into the company and thus successfully continued the work ofa former CEO. The company managed to weather a serious crisis that followed the dissolution of Yugoslavia. After 1990 the company lost the majority of its outlets in the territory of ex-Yugoslavia and the situation was even further aggravated by denationalization, due to which the company suffered the loss of three more outlets in Slovenia. With the help of her colleagues Mrs. Pire succeeded in building an admirable company which employed 200 people and was engaged mostly in wholesale and retail of technical products, mass-market rubber and plastic products, flooring, personal protective gear and various chemical products. In some rubber, plastic and flooring programmes the company was even a market leader in the Slovenian market, which they managed to supply almost entirely. In that period they had particularly outstanding results in wholesaling, which in that year increased even by 30% comparing to the previous year. However, they still wanted to improve their performance, so they were about to complete the project ISO 9001 Certificate. The first to receive it was the Wholesale Department, which was at that time exclusively involved in wholesaling; retail outlets were to follow. That was almost imperative since retail sales have been declining steadily for a few years, on average by 3.5% per year. This last fact made Mrs. Pire quite worried. Since she was together with her colleagues unable to solve this complex problem, she sought professional advice fiom a management consultancy. The experts got down to business thoroughly, The project went under way in1999 and was named The Development of Modern Marketing and Sales Concept in Technical Store, Ljubljana. The project was envisaged to comprise two phases (cf. dix 1). When the first, analytical, phase was over, it became obvious that the company ome more and some less serious problems, especially with regard to costs and ibility, prices and the organization of marketing and purchasing activities. The analysis evealed that Astra Technical Store had a number of opportunities for a far better cmance of even its most successful outlets. Comparisons with successful retailers les area were much higher than in Astra ed that in those companies revenues per nical Store. At that time Astra had the majority of its outlets located in city centres and on average had relatively small sales areas. The trend of moving shopping centres to s° outskirts revealed the need to identify those outlets that had attractive location and d remain competitive. Those outlets should be further developed and selectively invested also revealed that starting whereas others should be gradually sold off. The analysis ries in Astra were too low and that salaries in other companies were at that time higher. at naturally influenced the motivation and loyalty of mostly younger staff, who had better ployment prospects. The employees were paid according to achieved targets and were only s. The existent incentive scheme a lesser extent involved in the company’s planning proce: ‘ually more punished rather than rewarded them. (cf. Appendix 2). The guidelines towards lutions to those problems were to be given in the second phase of the project. et, the excitements for the company and the board were far from over. Namely, that summer 1e member of the supervisory board representing Probanka announced that Probanka tended to increase its stake in the company. At the same time Poteza, a brokerage firm, tarted sending offers to shareholders to buy their shares. The shares were supposedly bought yut of speculative reasons, there were no rumours of a potential buyer. It was nevertheless 2vident that Poteza was buying Astra’s shares for a particular owner since it didn’t appear in Astra’s ownership structure. Was that new owner by any chance Probanka? Mrs. Pire was uncertain. Ownership structure started to change drastically (cf. Appendix 3). At that time the share’s nominal value almost fivefold outstripped its market value. The recent events caused Pire the company’s destiny has the latter to soar from 3,000 sit to 8,000 sit. Since to Mi always been of paramount importance, all the speculations about ownership stake made her feel very uncomfortable. Her company was too small to have any experiences in acquisitions. Furthermore, apart from Mercator and some other large companies (Merkur, Sava,Autocommerce), no other Slovenian company was at that time really engaged in takeover activities. In September their competitor Chemo unexpectedly requested a meeting with Mrs. Pire Chemo was then by the number of employees and by its turnover approximately three-times larger than Astra. Their business activities were very similar to Astra’s, the only difference was that Chemo placed more emphasis (o paints and other chemical products, Mrs. Pire was slightly surprised by this request and she was even more taken aback by their offer for an alliance which was to take place in as soon as three months, that is if both parties managed to Mi reach a mutual agreement, of course. Mrs. Pire realised that major changes were looming ahead in retailing of technical goods. "Is it Chemo that is buying our shares?” she was in wondering. Namely, Chemo recently made a takeover bid for Mavrica, the company that i size comparable to Astra and predominantly specializes in selling paints, and managed to acquire 46% stake in the company. Mrs. Pir was once again faced with a complex problem and once again she sought help in management consultancy. The project went under way and the consultants presented three possible scenarios for Astra’s strategic development (cf. Appendix 4). It became evident that in the long term Astra Technical Store in the same form wouldn't be able to survive independently. Medium-sized retailers like Astra Technical Store should narrowly specialize in local markets and foc on filling niche markets or join a large global retailer. Slovenian retail sector was then still relatively scattered and had no competitive advantages over foreign competition. Some domestic companies (e.g. Mercator) were already performing benchmarking against the most successful foreign companies. With takeovers they were increasing their market power and benefiting from the economies of seale and consequently maximising their profits, creating differentiation and restricting competition. ‘The experts believe that the adjustment period would, despite the activities of those companies, last until 2006. In Slovenia vertical and horizontal alliances created some large global retailers which \il chains were should guarantee balanced and competitive retailing. Namely, European re swiftly entering the Slovenian market and securing their market shares (Interspar, Leclerc, Obi, Bauhaus, ete). Aggressive acqui ition activities of larger Slovenian companies were not aimed only at increasing their market power, but also represented one of the measures of discouraging unweleome takeover bids made by foreign companies.It was predicted that in the Slovenian market there would exist three to four retailers of technical goods. One or two would be Slovenian (Merkur and one other?) and two foreign (Baumax. Bauhaus, Obi.?). In addition, there would exist some other smaller companies that would fill niche markets. If Astra stayed independent, it should focus on the programmes that were successful and specialize into those where the company was one of the dominant players in the Slovenian market (rubber, plastic, flooring). It should thoroughly examine the profitability of individual programmes and eliminate those that were not lucrative enough. The prerequisite for independence is a precise definition of key sales programmes that enable specialization in supply and rationalization in purchasing. Remaining independent would also mean remaining small and the company would be unable to reap any benefits arising from economies of scale. That would weaken the company’s negotiating position with suppliers. customers and banks. Large retailers through concentration increase their negotiating power and are consequently sometimes even able to dictate conditions. High costs of logistics and information technology as key aspects of modern business conduct are another drawback of independence On the other hand, Astra with its good financial and market position (cf. Appendix 5) had strong basis for negotiations if it decided to enter any kind of alliances. It is true, though, that they were time-limited, since, as already mentioned above, large retailing systems were being established in the Slovenian market and foreign competition was already present as well. So for Astra the most plausible and also strategically the least insecure scenario was indeed an integration. Yet, also an integration, i.e. a takeover would have some negative and naturally also some positive influences on the company’s performance. (cf. Appendix 4, Scenario no. 3). Regardless of future developments in business environment, the company was advised to continue the process of proposed improvements of its performance (cf. Appendix 6). since that was of vital importance for establishing a more favourable negotiating position towards a bidder. Mrs. Pirc examined all possible scenarios and decided to reject Chemo’s offer, but, as it was suspected all along, she didn’t have to wait long for the next potential buyer. Soon after the project had been completed, the representatives of Sava Kranj requested an appointment. time Mrs. Pire wasn’t really surprised by their takeover bid. She was aware that when Sava in 1997 sold its majority stake in tyre production to American Goodyear that meant that thecompany had enormous, at least for Slovenian cumstances, assets at its disposal. Sava and their new partner set up two joint venture companies: Sava Tires, which manufactures car tyres, and Goodyear EPE, which was established after joining three Sava’s and one Goodyear’s technical rubber programmes. Sava had a 40% stake in Sava Tires and a 25% stake in Goodyear EPE. Goodyear paid Sava as much as 120m $ for stakes in both companies, so Sava actually experienced some sort of a friendly takeover, in disguise of two newly established limited companies. Even though Sava sold its tyre production, it retained numerous other rubber programmes. Some of them were withdrawn since they weren't profitable enough, the others were reinforced, So at that time, at the end of 1999, a new Sava was beginning to emerge. They had plenty of plans. Sava’s development strategy was based on two directions: the first was the growth and development of selected rubber programmes, whereas the second was strategic alliances and acquisitions. In rubber production Sava was independently developing highly competitive programmes that were capable of fighting fierce European and world competition (e.g. scooter, motor-bicycle and moped tyres, Full Tyres, Profile, etc.) and some of them were due to their outstanding quality able to reach the most demanding customer segments. Through investments and strategic alliances they wanted to implement their plans for restructuring and development of manufacturing programmes and thus strengthen their position in those fields, ‘Their takeover activities in rubber produéts sector began with purchasing a minority stake in Kemiéna tovarna Moste and a takeover of Roll Invest, Zagreb. At that time Sava’s targets in Slovenia were predominantly companies in chemical-technical and rubber industry and in tourism. Sava was namely at that time taking over some tourist companies as well. It looked like one of the purposes of their takeover activities w so strengthening their rather weak retail network (in 1999 retailing accounted for only 2.8% of Sava’s total revenue). It was also common knowledge that Chemo, Astra’s competitor, was slowly, but steadily being taken over by Sava. So the company had considerable amount of experiences with takeovers. Sava’s negotiators informed Mrs. Pire and her colleagues about the share they had already acquired in Astra. (cf. Appendix 7). It was evident that they were trying to carry out a friendly fe Astra’s takeover, which was for them after all also much cheaper. But in that ca shareholders would receive less money than in case of a hostile takeover, despite the fact that share price already soared by approximately 60% and the rising trend seemed to continue"Well, afier all, isn’t it exactly the CEO the one that should maximize the owners’ profit?" Mrs, Pirc was wondering. However, she was aware that undertaking any defensive activities only in order to maximize the owners’ profit would be highly irresponsible. Firstly. one had to consider whether such integration would be reasonable. compare it to staying independent and only afterwards engage in potential defensive activities. The common practice was that successful hostile takeovers almost exclusively ended up with a dismissal of the target’s board of management, but Mrs. Pirc’s employment contract contained no stipulations regarding golden parachutes (cf. Appendix 10). However, this wouldn't stop Mrs. Pire from implementing any defensive measures if she together with her colleagues thought that would be in the company’s best interest. She was faced with a tough dilemma, Sava’s negotiators did assure her that if their offer was rejected, they wouldn’t launch a hostile bid and that friendly takeover was the only option. Nevertheless, the possibility of a hostile takeover still existed, since Sava at that time owned almost 1/3 of Astra’s shares, having bought a large stake from Probanka Maribor. Sava’s takeover conditions weren't harsh. After potential acquisition they wouldn’t interfere with the internal business conduct and neither the board of management nor the supervisory board would be replaced. Likewise, there were no demands to transfer the giro account or to abolish trademark Astra. In short, according to Sava’s representatives, Astra would stay practically independent, it would only get new owners. On the other hand, to Mrs. Pire Sava was a predominantly manufacturing company, where retailing was only a minor and rather subordinate segment of the company’s activities. Retailing was never given any high strategic priorities and there was always a shortage of operational priorities as well. Mrs Pire knew that after a potential acquisition this attitude might hinder taking effective business decisions regarding the company’s future. Also Astra’s sales range would probably be constrained since they would have to favour Sava’s products. "Wouldn’t it be better to join ranks with a retailer instead?" Mrs. Pire was contemplating. She was of course thinking of Merkur, Kranj, which in technical store managed to secure as much as 30% market share in the Slovenian market. Merkur was at that time a very active player since the company was just completing the acquisition of Kovinotehna. Also some foreign companies were interesting as potential white knights. In any case, if Sava’s offer was rejected, a swift and decisive action was necessary to find another acquirer.A hostile takeover could be slowed down a little since Astra’s employees, who were still majority owners, displayed very strong loyalty towards their company. A large majority of them would probably follow the recommendation by the board not to sell their shares. Another defensive measure could be a so-called leveraged cash-out. This is a special form of restructuring company’s capital structure where outside shareholders receive high single dividends in cash, whereas employee shareholders receive dividends in the form of bonus issue. Cash payments of dividends are mostly financed with new loans, which means that the company becomes highly geared: at the same time the proportion of shares owned by the employees increases as well. Astra was financially well-situated and could easily increase its gearing. Very high gearing which is the result of such restructuring can prevent leveraged buy-outs, i.e. buying a company’s shares with money borrowed on the security of the company’s assets. (cf, Appendix 9). All this would make a takeover much more expensive and because of that Sava would probably not attempt a hostile takeover. That improved Astra’s negotiating position regarding the key demands (cf. Appendix 9) they as a target company’ could have towards their friendly bidder, Sava. Mrs. Pire didn’t want to attend the morning meeting unprepared. She knew that articles of a Takeover Law, Article 2, Paragraph 3 do not apply to Astra’s shares (cf. Takeover Law). She was also firmly aware of some other facts. It was her decision. Under what conditions should she accept Sava’s offer? Should she reject it and lead Astra as an independent company, should she invite another bidder? It was a tough decision...APPENDIX 1 Phases of the project The Development of Modern Sales and Marketing Concept in Astra Technical Store, Ljubljana. Phase 1: © Analysis of purchase-sale business processes from the point of view of content, organization and qualifications of process carriers * Identification of operational business problems in cooperation with the employees. Phase 2 © Preparation of recommendations for improvements in the process. APPENDIX 2 A summary of the findings and conclusions of Phase I of the project The Development of Modern Sales and Marketing Concept in Astra Technical Store, Ljubljana. Costs and profitab e Astra Technical Store has numerous possibilities for even more profitable business performance of its most luct tive outlets. Benchmarking against other successful retailers show that the most successful companies have much higher sales revenues per sales area than Astra Technical Store. © Retail outlets are generally located in city centres and have on average relatively small sales areas. Given the trend of moving shopping centres to cities’ outskirts, the company should identify the outlets that have attractive market locations and are competitive enough. They should be further developed and selectively invested in, whereas other outlets should be gradually sold off. Optimization of the entire company’s business conduct is closely connected with the decisions regarding selective investments and divestments. It is generally believed that starting salaries are too low and that they are higher in other companies. This affects the motivation and loyalty of younger personnel that hasbetter employment prospects. The employees are rewarded according to achieved sales The existent targets and are only to a lesser extent involved into the planning proces incentive scheme actually more punishes than rewards the employees. ?rices * Inahighly competitive business environment there is always pressure to lower prices. The existing prices could be maintained with continuous expansion of the company’s sales range and incessant improvements of sales services. Astra Technical Store has no single price policy either in retailing or in wholesaling, which negatively affects customer satisfaction. Target market segments * The company does not perform a number of important marketing activities in an organized and systematic way: © market analysis, competition analysis, analysis of customers’ buying habits. © organised, focussed and effective marketing communication, © aesthetic aspect of selling: the outlets differ greatly in their appearance, ‘equipment and tidiness, © additional training of the employees as a part of sales support, etc. Purchasing © Purchasing function isn’t clearly positioned and doesn’t receive enough resources. ¢ A long-lasting conflict between retail outlets and wholesale department has negative effects on: © employees’ morale, © standards of customer service and acquisition of new customers, © the image of Astra Technical Store among customers. Astra’s basic problem is its too small market orientation and this is also the cause for other drawbacks: © conflict between retailing and wholesaling (“our-your buyers" philosophy, results), 2© appraisal system for units and individuals. remuneration system for units and individuals. APPENDIX 3 Ownership structure of Astra Technical Store as at 31 December 1997 Shareholder Number of Shares Slovenian Restitution Fund Ple (SOD) 4643 Capital Fund Ple (KAD) 4643 Slovenian Development Company Ple (SRD) 2205 Investment Funds: © Zlata Moneta PID Ple* 7262 © Ziati Medaljon PID Ple* 2024 Internal buyout 16 368, Internal distribution 9287 Total 46 432 * Investment Funds owned by Probanka in% 10.00 10.00 4.75 15.60 4.40 35.25 20.00 100Ownership structure of Astra Technical Store as at 31 December 1999 Shareholder Number of shares in% Sava Ple, Kranj 5176 ILS Slovenian Restitution Fund Ple 4643 10.00 Investment Funds: Small shareholders 25191 Total Zlata Moneta PID Plc* 11 422 24.60 46 432 100 *Investment Funds owned by Probanka APPENDIX 4 Three possible scenarios for strategic development of Astra Technical Store SCENARIO 1: Astra Technical Store Ple as an independent company Both European and Slovenian experiences show that when companies of a similar size as Astra (up to 200 employees) decide on their strategic development, they only rarely choose independence. Astra is namely too small to play a dominant role in the Slovenian market as an independent company (in terms of its investment capacities, capital, sales revenues, size of outlets), On the other hand, it is too big since predominantly small family enterprises prosper abroad. They employ up to 50 employees and fill niche markets. In case of independence Astra will have to become a specialized retailer and focus on the programmes that are already successful and where the company is one of market leaders in Slovenia (rubber, plastic, flooring). Likewise, it will have to reconsider profitability of individual programmes and eliminate those that aren’t profitable llenough, The prerequisite for independence is namely a very precise determination of key sales programmes that enable specialized supply and rationalized purchase. * Being independent means being small and in small business operations the company can not benefit from economies of scale. This also implies low level of negotiating power in negotiations with suppliers, buyers and banks. Large retailers namely through new alliances increase their negotiating power and in some cases they can even dictate their own conditions. Additional problem would be high costs of logistics and information technology as key aspects of modern business operations. «The strategy of optimizing company’s business processes leads to cost-cutting and is vital for the company’s independence. © Astra’s financial strength and its business influence will remain small, so the company will be much more susceptible to changed market conditions. CENARIO 2: Astra Technical Store as an initiator of integration processes « Another possible scenario is also Astra’s decision to become the central figure and the initiator of alliances in the field of techno-chemical retailing. Such role can be adopted. through both vertical and horizontal alliances. © Astra could optimize its central role in integration processes via mergers and acquisitions and by establishing intensive strategic partnerships. ¢ Astra Technical Store has so far secured a relatively favourable amount of investment capacity, regarding the company’s size. However, it’s also rather small with regard to geographical area and the company’s field of business. Acquisitions of majority stakes are financially very demanding. Astra’s capacity is regarding its size (capital, sales revenue) and accumulation (profit and depreciation) limited and ten times or more smaller in comparison with major Slovenian acquirers. * Such activities require experienced and highly-skilled personnel that can dedicate their time and energy exclusively to development and implementation of such projects. 12Astra has no experiences with mergers or acquisitions. Its managers are actively involved in every-day operational business activities and the company also has no advisors to the board that could undertake such projects independently. Larger companies have no such problems. There is of course the possibility of hiring outside specialists (business consultants, legal advisors), however, they tend to be rather expensive, especially with regard to the size of the company and the size of transactions they would be involved in. Merging with companies of a similar size would result in a new company that would still remain relatively small and would in the short time (less than five years) be unable to become fully operational In Slovenia integration processes have been going on for more than five years. Experiences show that the process of complete integration of two companies takes a longer period of time, usually more than a year. Astra would only start with such activities, whereas some larger companies (Mercator, Merkur, Autocommerce) already perform post-merger activities and benefit from the synergies those mergers bring. When completing a takeover or a merger a company needs to obtain formal approvals from the Slovenian government, Securities Market Agency and Competition Protection Office. Larger and stronger companies also have larger public ind political strength and so they enjoy strong public and political support when it comes to completion of integration activities. We would advise the company not to acquire other companies independently due to the following reasons: © engaging in takeover activities would because of limited human and financial resources negatively affect other activities necessary for business rationalization, © Astra can seriously jeopardise its high financial as: financial stability since takeovers require ts. ° acquisitions of smaller companies wouldn’t significantly contribute to the company’s market power, given the market power of larger Slovenian acquirers.SCENARIO 3: A takeover of Astra Technical Store Ple Astra could be taken over by a company that: © is aretailer of technical goods, © isaretailer of chemical goods, ¢ isa manufacturing company, ¢ will be able to unite the whole sector of techno-chemical retailing, © will bea foreign strategic partner. Positive takeover aspeets will be reflected mainly in synergies arising from the integration processes. They can be divided into three groups: 1, Strategic synergie © diversification into new business areas, control of strategic geographical areas, © restriction of competition, i.e. increased competitiveness, * economies of scale in all key processes (purchasing, human resources, support functions). © support in know-how and development, as well as support in standardization of business processes. 2. Financial synergies: © increased financial strength, * savings in cash-flow costs (transaction costs), ¢ larger investment capacities, casier and more convenient raising of capital (short-term and long-term). © easier financing of working capital. 3. Operational synergies: * economies of scale, © joint logistics, joint information system, © joint accounting, financial, personnel and other departments, single retail network, 14* possibilities of access to new sales channels Joining sales staff often generates some inside and outside negative effects (cf. below), which, when managed inappropriately, can result in smaller market share following a takeover. ¢ The tendency for excessive redundancies. * Confliccompetitive mentality among employees. ¢ Inappropriate communication regarding current changes. * Too long integration of sales staff. | * Key personnel leaves the company and joins competition © Poorer customer service as a result of excessive disturbances. | + Now, post-merger sales staff isn’t as successful as in its best period prior to the merger. * Numerous companies lose their market share during and immediately after the merger. Company mergers require adequate management and contro] over post-merger activities, among which determining and ranging priority tasks and communication of the board with other employces are of utmost importance. Given the differences among potential bidders we would like to emphasise some other possible negative effects: * an acquirer is a retailer — relatively serious danger that unprofitable outlets are swiftly closed down and that less effective employees are made redundant, an acquirer is a manufacturing company — retailing becomes a subordinate business activity, 15© an acquirer is a foreign strategic partner — the abolishment of the company’s own brand, standardization of programmes, restrictive rationalizations. APPENDIX 5 Astra Technical Store Ple and its strengths: Financial posit The company is not burdened with debis ‘The company operates with a profit which represents 7% return on capital and is above Slovenian and field average. The company has no mortgages. The company has quality assets and owns the majority of its stores. Business processes The company has its own established and recognizable brand. The company has its own retail network. The company boasts a wide sales range, which attracts a large variety of customers. The company is specialized in some sales programmes and is a dominant market player (flooring, rubber, plastic, personal protective gear) ‘The company has good business relations with its business partners and is able to offer active sales (advice) to its customers. Management and employees The company is led by a good management that has so far run the company successfully and proved itself with good results Large motivation and loyalty of all employees. ‘The management is ready to implement the agreed company’s policy, willing to continue education and open to communication. Astra Technical Store Plc and its weaknesses:© Too small absolute investment capacity * Small outlets in city centres (in Slovenia there’s a trend of opening large shopping centres with huge parking facilities on cities” outskirts). * The company needs to determine which outlets have unattractive location and are unprofitable; sales range needs to be restructured. * Poor organization of concerted marketing efforts and of joint purchasing and sales activities. © The company has no single price policy. ¢ Too weak relations with other companies in the same field, manufacturing companies and companies that could complement Astra’s offer (various services, e.g. repairs, flooring installation, etc). * Too slow optimization of purchasing and other functions in the company. APP! DIX 6 Astra Technical Store Ple and its opportunities © More centralized purchasing © Changed system of responsibility and competence (e.g. smaller competences of store managers in purchasing and retail pricing) «Single and centralized price policy. * Single and centralized policy of marketing and promotional activities. © Changed remuneration system.APPENDIX 7 Ownership structure of Astra Technical Store as at 29 February 2000 Shareholder No. of shares in% Sava Ple, Kranj 15435 33.24 Investment funds: NED 1 Ple, Ljubljana 4.649 10.00 NED 2 Ple, Ljubljana 4.649 10.00 Small shareholders 19 507 42.01 Total 46 432 100.00 APPENDIX 8 A potential financial measure as part of anti-takeover defence against a hostile takeover bid for Astra Technical Store Ple. Leveraged cash-out (leveraged recapitalization) Leveraged cash-out is a special form of restructuring company’s capital structure where outside shareholders receive high single dividends in cash, whereas employee shareholders receive dividends in the form of bonus issue. Cash payments of dividends are mostly financed with new loans which means that the company becomes highly geared; at the same time the proportion of shares owned by the management increases as well. Very high gearing which is the result of such restructuring can prevent leveraged buy-outs, i.e. buying a company’s shares with money borrowed on the security of the company’s assets. (BeSter 1996: 109) This measure makes the company less vulnerable to a takeover, but on the other hand the company’s high gearing decreases its competitiveness since the company can no longer undertake the same amount of risks in its business operations (Be&ter 1996: 109).Source: Bester, Janez (1996) Prevzemi podjetij. Ljubljana: Gospodarski vestnik. APPENDIX 9 Management consultancy’s recommendations for Astra’s action in case of an obvious interest of a potential acquirer or strategic partner. The company should be well-prepared for negotiations with a bidder, © It is essential that the Management Board and the Supervisory Board are unanimous on all key aspects of the negotiations, including: © basic sales range and key market segments, © business objectives related to basic sales range and key market segments, © trademark, © the role of incumbent board in a new company, ©. the status of other employees, © employee ownership. * It is necessary to define key demands, e.g. demands regarding the trademark, basic sales range, employee ownership, ete. The company’s board must ensure appropriate communication with all employees regarding all major aspects of integration activities.APPENDIX 10 Golden parachutes Golden parachutes are separation provisions of an employment contract that compensate managers for the loss of their jobs under a change-of-control clause. The provision usually calls for a lump-sum payment or payment over a specified period at full or partial rates of normal compensation the manager was receiving before golden parachute was triggered. Additionally, stock options, sell back rights, bonuses, fringe benefits such as retirement plan, health and life insurance are also very common. According to agency problem theory, the rationale for golden parachutes is that they reduce the conflict of interest between managers (a successful takeover usually means the end of a manager’s career in a target company and the manager will do anything to prevent this, even at a loss for shareholders) and shareholders (who want to maximize their profits). Their purpose is to protect shareholders’ interests from unwanted managerial conduct in case of a takeover. Only exceptionally they are considered an effective takeover defence, i.e. when severance payments are extremely high and so the costs for a bidder required to pay them would be simply unacceptably high. (BeSter 1996: 45- 46). Source: BeSter, Janez (1996) Prevzemi podjetij. Ljubljana: Gospodarski vestnik