Project on Mergers and Acquisitions

7/30/2019 Project on Mergers and Acquisitions

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Project Report On

Merger and Acquisition and its Effect in the Banking Sector

CONTENTS

I. Mergers and Acquisition and its effect in the Banking Sector 1

1. Objective ...1

2. Methodology .1

II. Introduction.2

1. History2

2. What is Merger?.................................................................................3

3. Acquisition..4

4. Merger Vs Acquisition5

5. Types of Mergers.5

6. Reasons for Mergers6

7. Process of Merger9

8. Challenges..11

III. Benefits of Mergers and Acquisitions14

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1. Achieving Cost Reduction.14

2. Increasing Revenues..15

IV. Mergers and Acquisition in the Banking Sector-A study from HR

Perspective.16

1. Review of Literature.16

2. HR Dimensions of Mergers and Acquisitions..17

3. Problematic Issues in Mergers and Acquisitions..18

4. HR role in Mergers and Acquisitions19

5. HR role before Mergers and Acquisitions.19

6. HR as an Internal Consulting Group..22

7. HR Impediments.23

V. Impact of Mergers and Acquisitions on employees and workingconditions..25

1. Ways to overcome impact of M&A on employees and working

conditions.28

VI. Employees Survey Findings.30

VII. Case Study on HR issues in Banking Merger.35

VIII. Difficulties in Bank Mergers.40

IX. Conclusion43

X. Suggestions48

XI. Annexure (Questionnaire for Survey)..50

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XII. References..54

I. Merger & Acquisition and its Effect in the Banking Sector

1. Objective

We are all aware of both the opportunities and obstacles inherent in the strategic

restructuring process. Any significant structural transition will impact the people

at all levels of the organization. As a result, a particular area of consideration that

holds both promise and peril is that of human resources, or HR. A highly

integrative restructuring - anything from a joint venture to a merger - is all about

transitions, and the needs, perceptions, concerns, fears and possibilities of people

all become magnified during transitions. If the organization's leadership does not

articulate its knowledge of the dynamics and emotions felt throughout the

organization, and provide a clear vision of the future and the path to get there,

then the likelihood that any strategic restructuring effort will be successful will be

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seriously diminished. This is especially true for mergers, where the degree of

change is greatest. Thus while these concepts are applicable to all forms of

strategic restructuring, we will look in most detail at the role of HR in mergers.

2. Methodology

This project will commence by giving background information on Merger and

Acquisition and further to the survey details and findings.

The effects of Merger and Acquisition among the bank employees will be carried out by

the way of survey method. A sample size of 20-25 employees will be taken to conduct

the survey. These respondents will be administered by a questionnaire which will contain

close ended questions. The responses will be compiled and a general conclusion will be

drawn regarding the satisfaction of employees with new merged entities.The project will

also take into consideration the role of the HR manager to retain employees after merger

and how he/she can make employees work in the changed atmosphere. I will also try to

find out different ways a merger/acquisition can be made successful.

II. Introduction

1. History

In 1987, Stephen Jaques Stone James merged with Mallesons and they named their new

firm as "Mallesons Stephen Jaques." At the time of the merger, Stephen Jaques Stone

James was one of the leading Sydney based firms and comprised 79 partners and 251

solicitors and Mallesons was one of the leading Melbourne based firms and comprised 37

partners and 83 solicitors. This merger happened as a result of advancement in

telecommunications and computer technologies and in addition, it was felt that the

merger of the two firms with their similar cultures, and with many shared clients would

give them the necessary depth of legal talent, and the level of technological support, to be

able to assist their key clients internationally, as well as in Australia.

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The European University Association is the outcome of the merger between the

Association of European Universities and the Confederation of European Union Rectors'

Conferences, which took place in Salamanca, Spain on 31 March 2001. The purpose of

the merger was to create a single organization, serving and representing the whole

university community in Europe, with a stronger voice and a more powerful presence.

Rite Aid's first store started in September 1962 as Thrif D Discount Center in Scranton,

Pennsylvania. From the beginning, the company grew rapidly through acquisitions and

the opening of new stores, expanding to five northeastern states by 1965. It was formally

named Rite Aid Corporation in 1968, the same year it made its first public offering and

started trading on the American Stock Exchange. Rite Aid acquired Perry Drug Stores,

the largest drugstore chain in Michigan in 1995 and it is the largest acquisition to date for

Rite Aid.

In June 1988, the acquisition of Tower Federal Savings Bank of South Bend, Indiana was

completed. The bank acquired two savings institutions in Michigan, which are the First

Federal Savings and Loan Association of Kalamazoo, and Peoples Savings Bank in

Monroe in 1989. In September 1991, Standard Federal entered the Ohio market, gaining a

significant presence in the northwest Ohio area through the acquisition of United Home

Federal Savings and Loan Association of Toledo in September 1991.

2. What is Merger?

A Merger is a tool used by companies for the purpose of expanding their operations

often aiming at an increase of their long term profitability. There are 15 different types of

actions that a company can take when deciding to move forward using M&A. Usually

mergers occur in a consensual (occurring by mutual consent) setting where executives

from the target company help those from the purchaser in a due diligence process to

ensure that the deal is beneficial to both parties. Acquisitions can also happen through a

hostile takeover by purchasing the majority of outstanding shares of a company in the

open market against the wishes of the target's board. In the United States, business laws

vary from state to state whereby some companies have limited protection against hostile

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takeovers. One form of protection against a hostile takeover is the shareholder rights

plan, otherwise known as the "poison pill".

In business or economics a merger is a combination of two companies into one larger

company. Such actions are commonly voluntary and involve stock swap or cash payment

to the target. Stock swap is often used as it allows the shareholders of the two companies

to share the risk involved in the deal. A merger can resemble a takeover but result in a

new company name (often combining the names of the original companies) and in new

branding; in some cases, terming the combination a "merger" rather than an acquisition is

done purely for political or marketing reasons.

Historically, mergers have often failed to add significantly to the value of the acquiring

firm's shares. Corporate mergers may be aimed at reducing market competition, cutting

costs (for example, laying off employees, operating at a more technologically efficient

scale, etc.), reducing taxes, removing management, "empire building" by the acquiring

managers, or other purposes which may or may not be consistent with public policy or

public welfare. Thus they can be heavily regulated, for example, in the U.S. requiring

approval by both the Federal Trade Commission and the Department of Justice.

3. Acquisition

An acquisition, also known as a takeover, is the buying of one company (the target) by

another. An acquisition may be friendly or hostile. In the former case, the companies co-

operate in negotiations; in the latter case, the takeover target is unwilling to be bought or

the target's board has no prior knowledge of the offer. Acquisition usually refers to a

purchase of a smaller firm by a larger one. Sometimes, however, a smaller firm willacquire management control of a larger or longer established company and keep its name

for the combined entity. This is known as a reverse takeover.

Drucker (1981) has identified 5 commandments for successful acquisitions.

Acquirer must contribute something to the acquired company.

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A common core of unity is required.

Acquirer must respect the business of the acquired company.

Within a year or so, acquiring company must be able to provide top management

to the acquired company. Within the first year of the merger, managements in both companies should

receive promotions across the entities.

In order to ensure successful acquisitions, it is important to focus our attentions on the fit

between the two firms. There are 3 types of fits to be considered strategic, financial and

organizational/cultural fits.

4. Mergers vs. Acquisitions

These terms are commonly used interchangeably but in reality, they have slightly

different meanings. An acquisition refers to the act of one company taking over another

company and clearly becoming the new owner. From a legal point of view, the target

company, the company that is bought, no longer exists. Acquisition in general sense is

acquiring the ownership in the property. In the context of business combinations, anacquisition is the purchase by one company of a controlling interest in the share capital of

another existing company.

A merger is a joining of two companies that are usually of about the same size and agree

to meld into one large company. In the case of a merger, both companys stocks cease to

be traded as the new company chooses a new name and a new stock is issued in place of

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the two separate companys stock. This view of a merger is unrealistic by real world

standards as it is often the case that one company is actually bought by another while the

terms of the deal that is struck between the two allows for the company that is bought to

publicize that a merger has occurred while the company that is doing the buying backs up

this claim. This is done in order to allow the company that is bought to save face and

avoid the negative connotations that go along with selling out.

5. Types of merger

Mergers appear in three forms, based on the competitive relationships between the

merging parties. In case of-

Horizontal Merger- Horizontal mergers are those mergers where the companies

manufacturing similar kinds of commodities or running similar type of businesses

merge with each other. The principal objective behind this type of mergers is to

achieve economies of scale in the production procedure through carrying off

duplication of installations, services and functions, widening the line of products,

decrease in working capital and fixed assets investment, getting rid of

competition, minimizing the advertising expenses, enhancing the market

capability and to get more dominance on the market.

Vertical Merger- One firm acquires either a customer or a supplier. Vertical

mergers refer to a situation where a product manufacturer merges with the

supplier of inputs or raw materials. It can also be a merger between a product

manufacturer and the product's distributor.

Vertical mergers may violate the competitive spirit of markets. It can be used to

block competitors from accessing the raw material source or the distribution

channel. Hence, it is also known as "vertical foreclosure". It may create a sort of

bottleneck problem.

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Conglomerate Mergers - Conglomerate mergers encompass all other

acquisitions, including pure conglomerate transactions where the merging parties

have no evident relationship (e.g., when a shoe producer buys an appliance

manufacturer), geographic extension mergers, where the buyer makes the same

product as the target firm but does so in a different geographic market (e.g., when

a baker in Ahmedabad buys a bakery in Mumbai), and product-extension mergers,

where a firm that produces one product buys a firm that makes a different product

that requires the application of similar manufacturing or marketing techniques

(e.g., when a producer of household detergents buys a producer of liquid bleach).

6. Reason for mergers

M&A are to have several advantages. In general, mergers and other types of acquisition

are brought about in the hope of realizing an economic gain. For such an activity to be

justified the two firms involved must be worth more together than they were apart.

Deregulation, competition, technological advancement, reducing margins and other

developments have been changing the banking scenario in India. Some of the potential

advantages of mergers and acquisition include the following:

Achieving Size: It is a competition for reaching size of efficient operations. Size is

important for capital base. Implementation of Basel II norms is expected to put pressure

on capital for credit, market and operational risks and therefore relatively weaker banks

need to improve capital base for meeting Basel II norms and o remain in business. So

there could be some merger of weaker banks with the stronger banks. Whether size

always matter is matter of debate in the context of general impression of too big to fail

which is perhaps not always true. Too large size created complex problems.

Achieving economies of scale and scope: There is a view that there is a point of

saturation even for this. It is considered that economies of scale is accrue up to a

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point say USD 5 billion business and thereafter diseconomies start operating or

operating in systematic financial efficiency and shareholders values. Some

authors also argue that as the organization grows to large and too complex it

becomes difficult to achieve cost economies. So balancing act is needed using

technology advancement.

Greater Geographical Penetration: Larger reach for larger business.

Growth: Choice between organic growth and inorganic growth. Inorganic growth

is referred by firms which are dynamic and ready to capitalize on opportunities

because organic growth is very slow, steady and relatively consumes more time.

Financial Capability: To have a strong financials and operational structure

capable for greater resources/deposit mobilization.

Customer Base: Improves larger customer network which will enable larger

banking and financial services and products.

Diversification: One effective method of controlling risks inherits in banking

lending is to diversify operations across different geographic regions and different

types of customers. Mergers can help diversify such risks.

Technological Edge: Provision of different products like internet banking, phone

banking, ATMs and array of financial services and products to a large customer

base with savings in cost and operating expenses.

Synergy: It is a phenomenon where 2+2 => 5? This translates into the ability of a

business combination to be more profitable than the sums of the profits of the

individual companies that were combined which may be in the form of revenue

enhancement or cost reduction.

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Managerial Efficiency: Some acquisitions are motivated by a feeling that the

acquires management can better manage the acquire resources leading to rise in

the value of the target firm and elimination of inefficiencies.

Providing managers with new opportunities for career growth and advancement.

Strategic: Combining complementary business interests leading to consolidating

market position and market power on account of mergers.

Enhanced market image and brand name by obtaining proprietary rights to

products or services.

Increased Bargaining Power: In banking, bargaining takes place in three arenas

between bank and there regulators; between banks and their customers and

between acquiring institutions and target firms. On average in ten merger deals

studied acquirer customers fared much better than customers of target banks.

Target customers experienced significantly negative returns, while small credit

constrained corporations lost in market cap.

Focus on Priority Sectors: Through rural branch network- ICICI Bank of Madura

merger-opportunity for micro finance activities through SHGs.

Market Entry: Cash rich companies use acquisition as a strategy to enter a new

market territory on which they can build their platform.

Garnering Tax Advantages and Tax Shields: This plays a significant role in

acquisition if the distressed firm has accumulated losses and unclaimed depreciation

benefits on their books. Ambiguous and costly duty provisions differing from state to

state are observed to be pushing up the cost of acquisition. Therefore India inc wants the

government to extend the benefits of Sec 72 (a) of IT act which allows the company to

carry forward and set off the accumulated loses and unabsorbed depreciation in

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amalgamation as currently such a benefit is available only to a few sectors and among

banks only state owned banks enjoy the benefits.

7. Process of merger

In order to avoid the pitfalls and to make the merger activity successful, firms should

follow a systematic action plan for there M&A activity. The merger process consists of

following stages:

Defining the corporate strategy: A firm needs to first clearly define its corporate

strategy What business the firm is currently in? What business it intend to be

in? How does it wish to grow, and be known as?

Implementing the corporate strategy:Next, the firm should define a route or road

map to implement its corporate strategy whether it intends to use mergers or

joint ventures, or internal development as a strategy for its growth/diversification

plan. This stage clearly intales a detailed evaluation of the various alternatives

available with the firm in terms of M&A vis--vis internal development.

Target identification: If the firm finds it attractive to pursue the M&A route,

sufficient effort should be devoted to identification of the right kind of a target

form to merge/acquire. The parameter for identification should include the

financial consideration, business strengths and weaknesses, the specific resources,

competencies and capabilities the target firm will bring to the merger, market

power the merger will bring about, as all as the effort required in integrating the

two firms there structures, strategies, culture and processes.

Valuation of the merger: then, financial evaluation of the merger should begin.

The specific cost and the premium that firm would like to pay for acquiring

shares/management control of the target firm would again depend on the

projected synergies that the merger is likely to bring about.

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Merger implementation: the tax, regulatory, the market issues dominate the next

stage of the merger process the merger implementation. In this stage, when the

merger is being implemented, depending upon the local laws, conditions and

share holder preferences, merger could happen through a stock swap, a tender

offer or any other method. Issues like registration of the merger, opting board and

share holder approval, announcement to the public and notifying the stock

exchanges are activities that form part of this stage of the merger activity.

Post merger integration: the final stage called the post merger integration

includes activity like asset striping (selling off those asset in the target company

that are not likely to add value to the merged/acquired firm); efforts at improving

the operating efficiency and setting up managerial system at the acquired firm;

efforts at stream lining the operations of the combined firm to ensure that the

projected synergies are reaped and initiatives in establishing the right kind of

corporate culture, providing the right management directions/leaderships and

ensuring the competitiveness of the combined firms.

8. Challenges

Increased Geographical locations, rural and semi branches: Urban branches

and level of competition, challenge to turn around the entities and managing rural

branches, be in term of staffing or business improvement are challenge so far.

However, the thrust of financial inclusion offers potential business model in terns

of developing longer term banking relationships in the hitherto unbanked areas

propelled by facility of appointing business facilitators and business

correspondents for banking operations.

Managing client base and customer orientation: Research has shown that a

customers decision to stay loyal to a particular bank is most often based on

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customer service rendered. The merged institution must prevent customer

attrition. The normal customer attrition rates for large US banks is found to be

about 15% and in some cases attrition rates exceeds to 30%. For example when

Fleet and Bank Boston merged in 1999 customer attrition in some markets

reached 25%.

Managing Systems and Software: Bigger Challenge.

Managing Human Resource: In fact this is the biggest challenge. Business

growth through people growth- a new paradigm stated by R.G Bhatnagar former

Chief General Manager State Bank of India in the context of people being an

organizations most important asset. He feels that the ability of the bank to meet

competition will depend upon the speed, quality and efficiency of delivery system

through a conducive work climate and responsive work force.

Dissimilarities in structures: A major task at re organization and re engineering

of world processes, systems and controls.

Problem of evaluation: In the normal course of operations banks would be

constantly looking for opportunities of inorganic growth. Banks which operate

with capital above the minimum levels have an edge over the other banks to the

extent that they would be able to seize an opportunity for merger/acquisition as

and when it is available without any loss of time. However it would be necessary

for such banks to improve their internal controls and risk management systems

before embarking on a path of inorganic growth.

Time factor: While merger make the balance-sheet look attractive in the short

terms the impact of the synergies that will flow from the merger will be visible

only over a long period of time.

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Trade unions representing the workers of the banking and insurance sector are

concerned about the possible job cuts resulting from the merger.

Implementation Issues: It is no wonder that more than half of all mergers fail to

deliver on their promise. The fact is that even mergers that make perfect strategic

sense often falter when it comes to implementation. Its notoriously difficult to

integrate organizations, processes and technology necessary to deliver success.

In a highly acquisitive market, the risk of mergers is only heightened. Due

diligence is conducted in short time frame as a result attention to the details of

`integration of operations, technology and culture is typically postponed until

after the deal is completed. Integration is critical to a success of merger. A

disciplined approach is needed to achieve integration of applications and

infrastructure. Otherwise it could end up with a patchwork of technology which

adds complexity and cost. Even more critical is the potential negative effect on

customers.

Merger alters Bank Rankings.

Merger and Acquisition are no substitute for poor asset quality, lax management,

indifference to technology up gradation and lack of integrated HR strategy.

Challenges to Regulator

Challenge to the regulator as the report of the committee on banking sector

reforms or narasimham committee stated that the RBI needs to devise suitable

tools or norms for financial institutions regulation or supervision consistent with

the nature of their operations.

Problem of large size: Regulation and supervision with appropriate tools for

supervision. The setting up of banks by financial institutions and non banking

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financial companies and setting up of insurance, merchant banking, mutual funds,

housing finance and investment companies either as subsidiaries or as joint

ventures will bring into focus the need for consolidated supervision.

Consolidated accounting and supervisory techniques would have to evolve and

appropriate firewalls need to build to address the risks underlying such large

organizations and banking conglomerates.

One of the concerns for policy makers: Makers are the possible impact of

consolidation on the transmission mechanism of monetary policy. The impact of

bank consolidation on the transmission of monetary policy is a multi dimensional

issue. According to most empirical studies an increase in banking concentration

trends to drive loan rates up in many local markets thereby probably hampering to

some extent the pass through from market to bank lending rates.

III. Benefits of Merger and Acquisition

1. Achieving Cost Reduction

Cost reduction through economy of scale- Consolidation helps in scaling up

operations thereby reducing per unit cost.

Cist reduction through economy of scope This is achieved through synergyinvolved in the ability to offer multiple products using the same infrastructure.

For example bank can offer insurance and investment products using their branch

network and thereby achieve economy of scope.

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Cost reduction through rationalization of manpower. The merged entity will be

able to identify the right person to man critical functions from a larger pool of

human resources.

Reduction in risk. The merged entity will be able to reduce credit risk through

spreading it across wider geographies or product range.

Cost reduction through possible reduction in tax obligations.

Cheaper sourcing of inputs with increases bargaining power with vendors and

suppliers.

Ability to enter new business areas which reduced initial cost as compared to a

new set up.

2. Increasing Revenue

A bigger entity will be able to serve large customers better. By offering more

services and taking a bigger share in the business of the customer the bank will be

able to increase the revenue per customer.

Product diversification will facilitate one stop shopping by the banks customers.

A larger customer base will generate more revenue.

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Greater visibility in the market place will enhance the ability to attract new

customers.

A bigger size and share in the market will boost the banks ability to raise product

price without loosing customers.

The merged entity will be able to take greater risk and reap it rewards.

IV. Merger and Acquisition in Banking Sector- A Study from HR

Perspective

1. Review of Literature

Mergers and acquisition are the most popular means of corporate restructuring. Suchrestructuring business has played an important role in the external growth of a number of

leading companies in the world. The first merger wave in United States occurred between

1890 and 1904. The second began at the end of the World War-I. The third merger wave

commenced in the later art of World War-II and continues to the present day. About two

third of large public corporations which have undergone merging. In India about 1180

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proposals for amalgamation of corporate bodies involving about 2400 companies were

filed with the high courts during 1976-1986.

It has also reflected that numerous reasons like deregulation, technological advances in

industries, high competition from abroad, midsized player strategy to avoid being

acquired are responsible for mergers. These factors suggest that most mergers are

designed to capture efficiencies which can be expected to lower costs, lower prices and

improve products for consumers.

In recent years a number of mega mergers have started taking place in India similar to in

western countries. Mostly economic forces are the driving cause behind such mergers and

acquisitions. It is quite relevant to focus the term merger in order to avoid a great deal in

confusion and disagreement regarding its precise meaning with other terms relating to

business combination.

The banking sector in India is undergoing a phase of transition. In order to lead in the

competitive business banks have become more technology oriented. And many of them

are adopting steps to enhance retail loan portfolio, reducing NPAs to improve their

performance. The smaller banks particularly the private sector banks have been occurring

in pursuit of better benefits partner. Mergers in the banking sector have been occurring in

pursuit of better benefits and expansion of business. The merging of Times Bank with

HDFC, Centurion Bank with Bank of Punjab all are mostly reviving the sick banks and

eventually for strengthening the banking sector.

The changes spurred on by advances in information and communication technologies and

in the expansion of the international trade the closed market organization was considered

as obstacle to economic modernization. In December 1997 102 countries signed an

agreement to free trade in financial services under the auspices of the World Trade

Organization. Like other economic sectors M&As in banking sector are a driving force

to meet the challenges of globalization.

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2. HR Dimensions of Merger and Acquisition

It is also confirmed that two thirds of mergers in the world end in failure because of staff

hostility and inability to integrate personnel and systems. Some failures are due to

differences in cultures and management. It has been found out that efficiency

improvements through merger were frequently overestimated.

Mergers and acquisition concentrated almost on the economic benefits with least

attention paid to the cultural aspects. Although the merger easily lends to globalization

yet the cultural differences have often been the root cause of causing disappointment

experiences. The acquisitions of the UKs Morgan Grentell Group and Germanys

Deutsches Bank have faced such difficulties. The barriers became more difficult due to

the wider cultural differences and distinctly different languages. The cultural aspects

constitute a significant obstacle to cross border combination even though the differences

tend to ease with time, education and cultural integration. And neglecting human issues is

also a frequent cause of failure.

In M&As the human factor is taken into account to the extent of only 5%. In neglecting

the human aspect M&As do not obtain results in keeping with the expectation.

3. Problematic Issues in M&A

HR Activities in M&A

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Consultation

Information

Notification

Compensation

Redeployment

Laws and Practices of the

Social Obligations

Merger

&Acquisition Demotivation

SocialDialogue

Co-Determination


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4. HR Role in Merger and Acquisition

Marriages Not Always Made in Heaven: Don't let anyone tell you that a merger or

acquisition is the union or marriage of two sets of employees. Outside of some of the

executives, it is more like two mind sets who have never dated, and now are thrown

together because of the wishes of stockholders or boards over whom they have had no

control.

Merger and acquisition often prove to be traumatic for the employees of the acquired

firm. The impact can range from anger to depression. The usual impact is high turnover,

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Pre- M&A Phase Involvement

Information

Sharing

Interest of

StakeHolders

M & A Phase Confidence

Building

Fear

Psychosis

Positive

Outcome

Post M & A Phase Change

Management

Training &

Development

Re skilling &

Cultural

Integration

A raisal

Financial Necessities________________________ Social Responsibilities

(Pre Combination.Combination.Solidification)


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decrease in moral, motivation and productivity leading to merger failure. Other issues in

this activity are the changes in HR policies, downsizing, layoffs, survivor syndromes,

stress on the workers, information system issues etc. the human resource issues that

become important in mergers and acquisitions activity are:

1. Human Resource Planning

2. Compensation Selection

3. Turnover

4. Performance Appraisal

5. Employee Development

6. Employee Relations

These activities present a different set of challenges for the human resource managers in

both acquiring and acquired organizations.

5. HR Role before the Merger

The HR leadership has an opportunity before the merger to ensure that both organizations

have a strategy mapped out in advance. Once the merger starts taking place, people will

often be too busy to keep a strategic perspective.

Before the merger takes place, the leaders of both organizations - at least, of the dominant

firm - should have a strategy mapped out, including communications to employees and

customers, where layoffs will take place (if any do), and how the cultures should be

merged. A SWOT (strengths, weaknesses, opportunities, and threats) analysis should be

done for the combined company. If possible, a brief culture survey (preferably done via

interviews as well as paper or Web/e-mail) should be undertaken in both companies to

discover what the cultural differences are.

Sometimes this will be obvious in some aspects -e.g. one culture values teams and

bottom-up innovation, the other favors command-and-control tactics - but not in others,

such as how and whether individuals and teams are rewarded for innovations, how failure

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is dealt with, whether conflict is addressed openly, etc. This will prevent disconcerting

delays between the announcement and the implementation of the merger/takeover.

If the real purpose of the merger is to acquire another companys assets, in terms of a

particular product or brand, its factories or patents, etc., that should be acknowledged and

dealt with up front. If employees are fooled at first by pleasant words, they will react

more strongly when those words become taunts.

Finally, before the merger or acquisition takes place, the leadership teams should

consider the non-financial issues. Will people in the two companies be able to work

together? Will acquiring a company, or merging with it, destroy the properties or drive

away the talent that made it worth having? Can a simple partnership, alliance, or even

stock ownership without integration provide more benefits than combining the two

companies?

These issues may be overlooked by the leadership teams just as they are often ignored

or downplayed by investment bankers who want to do the deal.

Some questions to ask the leaders, in person or via open-ended survey, are:

Are there viable alternatives to the merger (for example, greater integration with

suppliers, partnership deals, keiretsu)?

Is there a communication strategy to keep employees and customers informed?

Are the cultures for the two organizations compatible? Is there a plan for merging

the cultures? Will one be dominant, and, if so, how will people operating under

the other culture be brought on board?

What are each organizations key strengths, weaknesses, opportunities, and

threats?

What is each organizations strategy? How will they be merged?

One way to get the answers to these questions is to have an outside agency speak with

senior leaders, one at a time or, if that is not possible, to have them circulate a brief

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confidential survey and present the results at a facilitated meeting. Difficult questions, for

example whether there are alternatives to a merger, should be raised as early as possible.

The HR manager may need to raise the issue of culture - how people work, how they

think, what they value, and, of some importance, how they view the other organization. If

the acquired (or acquiring) organization is viewed with disdain, these issues must be

addressed up front. Likewise, severe cultural differences must be addressed. They can be

overcome with attention and work.

Some cultural differences are obvious (e.g. one culture values teams and bottom-up

innovation, the other favors command-and-control tactics) but others may be subtle (e.g.

how and whether individuals and teams are rewarded for innovations). Will acquiring a

company, or merging with it, destroy the properties or drive away the talent that made it

worth having? If the real purpose of the merger is to acquire another companys assets, in

terms of a particular product or brand, its factories or patents, etc., that should be

acknowledged and dealt with up front. If employees are fooled at first by pleasant words,

they will react more strongly when those words become taunts.

The HR leadership may, because of its skill and background, be placed in the

uncomfortable but important position of persuading corporate leaders to admit the truth to

themselves, and to employees.

6. HR as an Internal Consulting Group

HR is often one of a few units which can work as an internal consulting group during a

merger or takeover, along with quality or process engineering teams.

In this light, HR managers may be able to use management coaching skills to help

managers and executives to communicate effectively and completely, to address power

issues, and to deal with cultural issues. In some cases, HR may take a more active role; in

others, HR should act as a coach.

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Individual HR staffers need to understand their current skills and may need to update

their knowledge or practice with role playing to ensure that they are working as

constructively as possible. Process consulting skills are essential.

Some key issues in mergers follow.

Communication

As people look inwards to try to find their place in the merged company and attempt to

see their future in it - or outside it - productivity drops. The grapevine can become a

major source of headaches. Constant, consistent, and honest communication from leaders

and HR is essential.

Power and conflict

It is essential to bring conflict out to the surface and deal with power issues honestly. If

one group is obviously in charge, that should be admitted early on so people dont waste

time with second-guessing. Often, people get wrapped up in turf wars which are

destructive to both sides, rather than trying to figure out roles for both sides and have a

win-win situation.

Culture

Organizational culture is an organizations shared values, beliefs, and preferred ways to

behave - is a key to success, and though many talk about it, few seem to have the skills to

grapple with culture and work with both organizations to assure a good fit. Many

organizations use a brief cultural fit survey to assist them during mergers.

Operations

Ideally, processes can be examined to see where true synergies lie. In many mergers and

takeovers, power relationships determine operational changes, rather than actual

efficiencies or quality concerns. By making changes with facilitated cross-platform

teams, HR can help to ensure that the better of the two organizations are preserved.

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7. HR Impediments

HR issues could prove to be a major impediment to bank mergers.

Treatment of employees of the transferor upon merger or acquisition could be a

major issue in consolidation. This issue was a challenge in the merger of New

Bank of India with Punjab National Bank.

The uncertainty during the mergers and its related activities may divert the focus

of the employees from productive work to issues like:

a) Job security

b) Changes in designation career path

c) Fear of working with new terms

d) Working in a new department

All the above factors may have a considerable impact on the performance of the

employees.

Rationalization of workforce utilization could be seen as logical corollary of

consolidation exercise. This could create anxiety among employees as to their

future in the bank. Fear of loss of job is valid though in the Indian context more so

in the public sector domain, retrenchment of any sort may have to be ruled out.

This gives rise to challenge of re tooling and re deployment. The skewed age

profile of employees in the public sector banks would make retraining a major

task. However we need to appreciate that HR issues in the process of

consolidation is a universal challenge and not a specific to banking sector.

The organizational culture also plays a major role in mergers as the organizationalpractices, managerial styles and structures largely are determined by

organizational culture. Each organization has a different set of beliefs and value

systems which may clash owing to the activities. The employees not only need to

leave their cultures but also have to accept a new culture. This may lead to stress

among the employees and may cause discomfort, lower commitment from the

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employees. This kind of changes in the cultures in the organizations may develop

the concept of us versus them attitude that may be detrimental to the

organization growth.

For example in every department there were two persons working in the same

position. Since no one thought about this problem there was intense politicking

among the legacy players fighting for the same space. The mergers and

acquisitions have found to have a serious impact on the performance of the

employees which is caused by the uncertainty in the environment, cultural

differences and differences in organizational structure and changes in managerial

styles.

If the compensation in the acquired firm is lesser compared to the acquiring firm

the acquisition will raise the expectations of the employees of the possible hike in

compensation which may be realistic. The pay difference can act as a demotivator

for the employees of the acquiring firm and may have some negative

consequences.

What ails banks the most apart from lack of professionalism and adequate

technology up gradation is the lack of a centralized human resource strategy.

Banks must therefore immediately evolve an integrated HR system wherein the

thrust should be growth with people.

V. Impact of Merger and Acquisition on Employees and Working

Conditions

Merger & Acquisition helps a Company to grow in a better way but it has a great impact

on the employees working in a company & on working conditions. The employees of the

companies merging and acquiring are mostly affected by M&A. Due to this reason, there

is mostly failure of M&A. To break the mindset of people working in companies

undergoing M&A and to convince them that merger is for common good & will help

them in their growth is normally an uphill task.

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When 2 companies who have different style of functioning merge, there is a clash

between the companies which pulls them together into different direction apart

from their aims & objectives and in the process endanger the advantages

envisaged both in the real life as well as in the scheme of amalgamation. Thus

M& A had a great impact on the individual or group working in company & on

work culture.

Company enters into M& A activity without recognizing the impact on the

organization and the overall affect on the human element within the two merging

company. when M&A activity do not meet corporate objectives it results in

Lost revenue

Customer dissatisfaction

Employers attrition issues

Many personnel issues such as salaries, benefits, pension of employees are also

affected due to M&A. Since the organizational structures are different,

differences in compensation packages and designation can take place normally.

There are ego clashes between the top management and subsequently lack of co-

ordination among them may lead to collapse of company after merger. This

problem is more prominent in cases of mergers between equals.

There is also a separation anxiety among the employees because they think some

of their co-workers will be leaving the company. The atmosphere ofapprehensions leads to company wide rumours. The employees loose faith in

their organization and tend to become demotivated.

Employees are the main victims when M & A takes place. They may be hurting

themselves by trying to cope with new changes. When they realize that their

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potential for future growth within the organization dwindles, they often become

withdrawn and frustrated which can affect productivity of the company severely.

M&A affects the CEOs of the company because they are the most creative and

talented people within the organization. The resultant loss of control devastates

these individuals. The stress level experienced by these executives often travels

through the chain of command, affecting subordinates as well.

Employees of the company are mostly scared by M&A that they will be given

step motherly treatment. This question is always in the minds of employees of the

transferor company. This fear of transfer and retrenchment, the loss of position in

the hierarchical level are some of the thoughts which always remain in the minds

of employees of both the company.

There is also lot of reorganization & restructuring in the company during the days

when M&A process is going on .The process of M&A by which company is

bought or sold can prove difficult, slow and expensive. This M&A transaction

typically require six to nine months and involve many steps. Locating parties

with whom to conduct transaction forms one step in the overall process and

perhaps it is the most difficult step in the transaction. This process of M&A has a

great impact on the work culture during those days as it disturbs whole

organization of the company.

In an acquisition the buyer assumes the dominant parent role and the acquired

company assumes the subordinate role, acting in the role of stepchild. Just as step

parents may deny stepchildren certain family resources acquired company may

also experience similar after an acquisition takes place. This situation is caused

due to lack of fit between the two organizations. Such lack of fit is an issue and it

has a great impact on the acquired company as it affects its work culture,

organization and mainly on the employees working in the company.

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The uncertainties of M&As shift the focus of employees from productive work

to issues related to interpersonal conflicts, layoffs, career growth with the

acquirer company, compensation etc .Moreover, employees are worried about

how they will adjust with new colleagues. The merger involves downsizing,

hence the first thing that comes to the mind of employees is related to their job

security. Merger also leads to change in the well defined career paths of

employees. Due to these reasons employees find themselves in completely

different situation with change in job profiles and work teams. This may have

negative impact on the performance of the employees.

Each company has its own set of values which may conflict with those of

acquired company. The employees may not be able to accommodate themselves

in new culture and thus may lead to cultural shock. Inability to adapt to new

culture increases stress level among employees and results in low job

performance. The need therefore is to follow structured approach in dealing with

cultural differences.

The employees face great uncertainty which in turn produces stress .Such stress

ultimately affects their perception and judgments. Due to stress among

employees by M&A ,the most common reactions displaced by them are as

follows:

a) Loss of identity.

b) Lack of information & anxiety.

c) Talent is lost.

d) Family repercussions

1. Ways to overcome impact of M&A on employees & working

conditions

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1. Firstly organization must effectively develop and implement assistance program for

displaced employees. Such program should include advance notification, severance pay

extended benefits, retaining program and outplacement activities.

2. Strong emphasis needs to be placed in determining whether the acquired firms

personnel is a good fit for the acquiring organization and to whether the mass lay off

can be avoided. Moreover communication from the executive team with employees in

the pre-acquisition phase needs to be consistent so that anxiety levels among the

personnel can be kept at low level.

3. Moreover a company not only needs to select a right target, but also must have

culture in place that accepts the acquisition as quickly as possible.

4. There is need for developing and executing effective employee communication,

particularly conveying the employees that how the transaction will impact

organizational members. Communication between the members of transferor and

transferee Company should be open, honest and strategic. Any information regarding

the progress of the deal or integration should always be shared among the members

because communication is very important throughout M&A process.

5. Finance and the Legal departments are essential for the successful implementation of

the integration plan. Therefore, the inputs from these departments should be taken into

consideration while working on the plan.

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VI. Employees Survey Findings

With a view to gain insights on what the employee feel after the merger of the particular

bank I have conducted a small survey by administrating a questionnaire for the same.

The major concern for the employees was the job security, compensation which bothered

them the most. It has also been found that the employees start to leave the company

within a very small period after the merger or acquisition has taken place.

The following graphs depict the different reasons which bother the employees after the

merger takes place.

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Sources of Information

05

1015

2025

formalsmall

groupnetwroks

grapevine

computeraided

communication

official

informationwas

provided

Forms of Communication

Employee

Survey

Sources of Information

Adequate Information from the Comapny

Yes

No

Training Effectivness

0

2

4

6

8

10

12

Strongly

Agree

Agree Neutral Disagree

Effect of Training

Employees

Survey

Trainig Effectivness

Employee Satisfaction with new Organization

02468

1012141618

Strongly

Agree


Employee Satisfaction

EmployeeSurvey

Employee Satisfaction

with new Organization

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Encouragment to Employees

Yes

No

Change in Responsibilty

0

5

10

15

20

Strongly

Agree



EmployeeSurvey


Salary Structure

02468

10121416

Strong

Negative

Impact

Weak

Negative

Impact

Neutral Strong

Positive

Impact

Weak

Positive

Impact

Impact

EmployeeSurvey

Salary Structure

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Career Growth Opportunities

02468

10121416

Strong

Negative

Impact

Weak

Negative

Impact

Neutral Strong

Positive

Impact

Weak

Positive

Impact

Career Growth

EmployeeSurvey

Career Growth

Opportunities

Impact on Job

0

2

4

6

8

10

12

14

Strong

NegativeImpact

Weak

NegativeImpact

Neutral Strong

PositiveImpact

Weak

PositiveImpact

Impact

EmployeeAnalysis

Impact on Job

Attrition Rate

0

2

4

6

8

10

12

14

16

First 3

Months

3 - 9

Months

1 Year It was

Constant

Period

EmployeeSurvey

Attrition Rate

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Job Security

0

2

4

6

8

10

12

14

Strong

Negative

Impact

Weak

Negative

Impact

Neutral Strong

Positive

Impact

Weak

Positive

Impact

Impact

EmployeeSurvey

Job Security

Change in Work Culture

02

4

6

8

10

12

14

Strong

Agree


Impact

EmployeeSurvey

Change in Work Culture

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Financial Success

0

2

4

6

8

10

1214

Strong

Agree


Impact

EmployeeSurvey

Financial Success

VII. Case Study on HR Issues in Banking Merger

History of Acquiring Bank

It is an Indian private sector bank providing both retail and corporate banking services.

The company was incorporated on 1994. it is promoted as a joint venture between two

multinational promoting companies. It has a network of ten branches. The main equity of

the bank is provided by two promoters. Merger is not new phenomena to this bank which

had a previous experience of bank based in north India.

History of Target Bank

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The year was 1940. A humble initiative was taken to serve the people of the region with

honesty, commitment and dynamism. And the bank was born. While the seeds of

expansion were sown in the 60s when three commercial banks merged with this bank the

turning point came in 1992 when a reputed group took substantial stake in equity bank.

Proposal between two Banks

On the merger proposal Managing Director and CEO Acquiring Bank said: Growing by

inorganic means is an important component of our strategy the proposed merger with the

target bank would further improve our franchise and customer proposition across the

country particularly in north India, Karnataka, Kerela and Maharashtra .

Managing Director Target Bank said: We have been evaluating various options to create

value for our stakeholders as well as employees and felt that the proposed merger was the

preferred option. It is a synergic fit in terms of product offerings and geographical

coverage.

Analyst said that the merger would help acquiring bank improve its reach in the south.

The merger would give acquiring bank an expanded retail presence in southern areas

particularly since acquiring bank has strong branch network across northern and western

states

Employee Point of View

A peoples conviction which was held against the merger of the target Bank with

Acquiring Bank demanded scraping of the secession and urged the Union Governement

to take steps to merge the bank with one of the public sector banks.

Lower level employees: as far as lower level employees are concerned the problem they

are facing is with the job security. Because modernized bank doesnt have any permanent

employees in lower level. Another concern for them is that whether the acquiring bank

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will keep up their assurance. Despite all these concerns also they are willing to take uo

any sort of job pressure.

Middle level employee: regarding the middle level employees they are not at all

concerned about the job security because the acquiring management has assured about

that. But the worry for them is that whether they would be transferred to distant places.

They are willing to work over south India.

The next concern for them is about pension factor under the acquiring bank management

there is no such pension scheme.

Apart from this the next problem which they think which would arise is about the job

pressure. Since the acquiring bank is a modernized bank the job pressure will be high.

As per the acquiring management they are ready to continue with employees those who

are below 40 years of age. Therefore employees above 40 years have a problem as

regards to continuity of their jobs.

Union Point of View

One union has opposed the proposed merger of these banks. Once merged the values,

culture and priorities so far followed by the bank will completely undergo a change and

profit making will be the only agenda in the future. Besides there was every possibility

that the rural and semi rural branches of the bank would either be closed down or

relocated the statement said:

a) United Forum of Bank Unions (UFBU): UFBU said in a statement that the merger

would lead to curtailments of social banking services. UFBU warned that the

proposed merger:

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Would lead to closure of rural branches of target bank.

Introduce the contract labour system leading to retrenchment of permanent staff.

It is pointed out that the proposed merger which is also a crisis- driven one would

not resolve the financial problems of these banks. The forum said in a statement here that the merger would make the bank which

had been providing excellent service to ordinary customers for the last over six

decades accessible only to big time corporate customers.

b) All India Bank officers Confederation (AIBOC): The AIBOC has opposed merger

of these two banks:

State security of AIBOC said in a statement that the contribution of Target bank

to the economy of the state had been significant. The bank has given due

importance to priority sector advances, agriculture financing and micro finace all

these years.

Once merged the values, culture and priorities so far followed by the bank will

completely undergo a change and profit making will be the only agenda in the

future.

Implications

The acquiring bank management can take up the following steps to overcome the above

impediments

Build employees self confidence through regular meetings.

Communicate the value of the organizations products and services and the role

the organization plays in the market place where it operates.

Must keep employees: The HR have to first identify the key employees in target bank.

Next they must quickly devise ways to safeguard those intellectual assets i.e. key

employees

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Pre merger meetings for culture: Once the merger is finalizing the top HR executives of

both banks should meet to prepare a plan for the merger of the human environment. Such

per merger talk should typically start with analyzing the existing culture of both

organizations.

The HR departments have to decide about the culture of the new organization. The two

banks have to work out their differences about some sort of agreement. Each of them has

to change to some extent and adjust to the merger.

The adjustment can be overcome by anyone of the following methods:

1. Cultural Integration The method involves relatively balanced give and take

managerial practice between merger partners and no strong imposition of cultural

change on their bank. In this method the cultures of both organizations are

preserved to a greater extent. This method is suitable in a related merger since an

exchange of cultural managerial information and practices would be when the two

organizations have much a common culture. Moreover the acquirers culture

should have more sub cultures within it so that new culture also becomes a sub

culture.

2. Assimilation When one culture dominates over the other the assimilation

method comes in to the scene. Here the dominant is not forced rather the members

of the acquired organization welcome it. When the employees of the organization

that their own culture is not able to achieve success this situation will arise. Then

they will become a part of the acquired organization

3. Separation When two organization remains separate with limited managerial

and cultural exchanges the method of separation is followed. The key to

separation is for the acquirer to allow its acquisition a high degree of

independence and only impose essential control systems. Under this method their

wont be any cultural exchanges.

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The acquiring banks management can give assurance to the employees of the target bank

in the following ways.

High growth opportunity

Job security

High incentives

Attractive life style

Good salary

Good benefits

Good work environment

Policies and procedures will be conducive

Clarity about the management expectations

Clarity about the schedule

Matching employee expectations with job specification

Giving identity

VIII. Difficulties in Bank Mergers

Threats and effects of merger and acquisition

The Indian banking industry expects consolidation to bring in several future benefits. But

many fear that the desire for size is leading to unhealthy creation of super banks. Sectoral

consolidation and reduction in competition do no give immediate benefits for customers

and staff who are directly affected by rationalization of jobs. A study by the Bank of

International Settlements reports the experience of majority of the mergers as

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disappointing with organizational problem almost inevitably underestimated and most

acquisitions over priced noting the creation of banks too big to fail. Such super banks

may encourage compliancy and also may lead to inefficiency. When such bank fails the

host government may be forced to use tax payers money to bail out such bank. As a result

such banks are encouraged to pursue imprudent credit and investment policies and may

also carry systematic risk along with them.

Merger also results in poor credit flow to small business segments and major share may

go to the corporate sector thus affecting the economic cycle. It is also found that larger

financial institutions tend to charge more and higher fees than smaller banks.

In majority of the cases merger related restructuring is accompanied by announcement of

closure of banks, unprofitable branches and also job cuts. Thus M&A process directly

affects the interest of employees. People from rural and suburban areas are the most

affected when the branches are closed in these areas.

A merger or takeover upsets the links between implicit and explicit contracts in a

company based on trust between managers and workers, between employer and

employees. Integration of links requires harmonization of various aspects of terms and

conditions of employment to ensure common practice in the combined organization that

may change existing human resource management.

Size Challenges and Final Balance of Opportunities and Threats

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Many banks experience post merger profitability below the industry average. The

reaction of the related parties to the merger announcements is significantly negative. The

success of merger depends on four factors that is profitability (ROA, ROE), credit

quality, asset mix and control of operating expenses. The performance and controllability

pose a challenge to the management in the merger process. Mist retail banks try to obtain

economies of scale by expanding either by extending their network or widening their

range of products and services. But there is no automatic link between size and

profitability. Sometimes this attempt to expand can produce opposite effects. The

complexity of operating large operations can nullify the benefits and losses related to top

heavy organizations are often underestimated. The lack of transparency of financial

activities and fragmented nature of debts and capital especially mega banks prevent

creditors, shareholders and regulators from imposing discipline.

Swap Ratio.

The other main problem in bank mergers is the swap ratio. Swap ratio means the

distribution of share in the ratio at which the share is distributed to the shareholders

sometimes the banks may not come to the agreement of share distribution.

Other Side of the Coin

1. Merger between two banks and for that matter between two entities would be of

any advantage only if it take into account the synergies and complimentaries of

the merging unit and provide opportunities for pooling strengths. The overall

reduction in cost of operations and the merged entity ensures improved

operational efficiency and greatly enhances its competitive abilities. Merger and

acquisitions the world over have therefore been primarily volume driven and

often in response to the competition or environmental necessities.

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2. the problem get compounded if of the two units merging one is already suffering

from serious operational deficiencies and is merging with another comparatively

larger unit merely to save its existence in a modifies form. In such a situation

while the weak unit merges its deficiency in the stronger unit the merged entity

does not get any opportunity to avail post merger advantages. As a result the

merged unit itself becomes weak and often losses its competitive abilities.

3. Closure has a number of negative externalities affecting depositors, borrowers,

other clients, employees and in general the areas served by the banks being

closed. Besides the misery that it will to the depositors a large number of the

borrowing clients of banks under closure also could run into difficulties and their

businesses may suffer causing substantial economic loss. The overall cost of

closure therefore is always high. This is an extreme option and would need to be

exercised only after all other options of successful restructuring have been ruled

out.

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IX. Conclusion

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A recent Forrester report predicts a major shakeout in the offshore IT industry and

recommends that even large players align with each other to prepare for a maturing

market. They predict consolidation, not just at the small company level, but among

companies of all sizes.

We have recently witnessed the acquisition of Mphasis by EDS, one of the more

significant deals in the offshore space. In an industry that is seeing consolidation at

various levels, it is relevant to examine both the motives behind this trend and, more

important, look at what it takes to create a successfully merged entity.

M&A drivers

It is important to understand the causes that motivate mergers and acquisitions as they

drive, to a great extent, the method of integration. Broadly speaking, M&A drivers could

be customer acquisition and top line growth, new market entry or competence building.

Scandent is an example of a company that has grown aggressively over the last two years

by almost single-mindedly following an acquisition strategy. Intelenet, a joint venture of

HDFC and Barclays, has similarly resorted to inorganic growth to create a significant

presence in the domestic market. Infosys, a more conservative player, has bought Expert

Information Services to strengthen its presence in Australia while TCS picked up

Comicron in Chile, South America.

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Having said this, the most often encountered motivation for an acquisition is competence

building. Wipro's acquisition of Spectramind, Nerve Wire and, more recently, Quantech

are all related to acquiring or augmenting competencies. Zensar's acquisition of

Hyderabad based OBT Global is yet another example of an instance where the company

strengthened its skills in SAP through this move.

A strategy

A fourth reason for M&As is to make a significant change to the business model.

Valtech's acquisition of Majoris and the EDS take over of Mphasis are examples of

companies using acquisition as a strategy to bring about a quick change to their existing

business or delivery models.

A contrasting example is one of Indecomm Global Services, a fast growing provider of

transaction processing services, acquiring Mortgage Dynamics, a leading US based

mortgage consulting firm. This acquisition would allow Indecomm to globalize its

business model and offer a more sophisticated set of services to its clients.

Clearly, there are many reasons for a buyer to seek out companies to acquire. On the flip

side, companies sell out either for size and scale benefits or simply for survival.

While most of the attention of observers and analysts and, sometimes, even the

management is on evaluating companies for M&As and assigning a value to the deal, few

companies pay equal importance to integrating the merged companies. Widely researched

statistics show that less than 20 per cent of takeovers globally have yielded superior

results to shareholders.

That's not all, we have seen many examples in the IT industry where M&As lead to

confusion at an employee level, ambiguous go-to-market strategies and often, lowered

customer satisfaction.

Good synergies

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In one instance of a US-based consulting firm acquiring an emerging IT services

company, the synergies were theoretically good the two companies addressed different

geographies; one was strong in consulting and the other had a well honed offshore

delivery model.

However, since the consulting company paid little attention to the real issues to be

addressed post acquisition, employee morale dipped and the company has seen plenty of

churn at all levels in its India operations. This has undermined the utility of the deal.

In my view, there are four important areas where integration efforts need to be focused

alignment of values and vision, especially among management; a unified go-to-market

strategy; people integration; and operations integration. The relative importance of each

would be determined by the level of integration being considered. Often, highly

simplistic approaches are taken.

For instance, compensation rationalization is equated with HR integration, while merging

Web sites and printing new business cards and signage are thought to be sufficient at a

marketing level.

Talking of marketing integration, it is also necessary to set practical expectations. In

another case of a multinational company acquiring an Indian company for extending its

delivery model offshore, the management's expectations on how soon the acquisition

would yield benefits for higher growth in bottom line were unrealistic.

Changing a business model needs to be preceded by a change in mindsets and this is an

important task of post merger integration. As we know, this cannot be done overnight and

therefore, it is prudent to put in place a series of measures to prove value and change

views. If this approach is not taken, it leads to dissatisfaction and doubts.

Integration tactic

The level of integration needed between the companies also decides the post merger

integration strategy.

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There are many cases where the acquired company keeps its original identity and more or

less continues to work independently. Suffice to say that these situations are easier to

handle.

Having spoken about the need for a clear post merger integration plan, let us now

examine the main ingredients of one (illustrated in the accompanying diagram).

Strategy and structure is probably, conceptually, the easiest and the most critical part that

has a bearing on the rest of the integration. However, if the acquisition does not have total

management buy-in, it may be a problem area too. Some of the key elements of this are

leadership consolidation, vision and business philosophy alignment, and cultural

alignment, consolidation of business reporting and organization structure definition.

Market integration is a more involved exercise and needs to consider issues covering a

broad spectrum brand integration (visual and messaging); sales force integration and

retraining; product and service integration; channel integration; and supplier integration

are key. If done well, this is one area that could lead to tremendous synergies and even

not so obvious cost benefits.

People integration, the most sensitive area, comprises compensation rationalization,

creation and deployment of a communication plan, devising employee retention

mechanisms as well as employee feedback processes.

Operational integration

Last, we have delivery or operational integration. This would include process and system

alignment, technology integration, consolidation of support functions and workplace

branding.

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While chalking out a post merger integration plan, it is a good idea to identify a team

comprising members from both organizations to anchor the initiative. Needless to say, the

top management should visibly support the initiative, and it is useful but not compulsory

to have external help.

It is also practical to be aware of typical challenges:

Maintaining day-to-day business continuity

Overcoming cultural differences including management style, company structure,

employee mind-set

Delivering the needed integration synergies in the first year and deliver sustainablesynergy benefits over the long-term

Creating and maintaining effective employee communication

And address these effectively through the plan. Finally, here are some pointers to a

successful integration

Quick and speedy integration

Swift leadership consolidation

Unambiguous and continuous communication to stakeholders

Setting up an empowered and small integration team

Top management commitment and involvement

Detailed plan with milestones and metrics to evaluate success

Identifying quickwins and displaying success

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In times to come, we will see more and more companies entering interesting partnerships.

Some will go all the way, others may have strategic, but more loosely coupled

relationships. However, the above approach will help in all such scenarios

X. Suggestions

Mergers and acquisitions in the banking sector is not an easy task. In different phases of

M&As implications of innovative strategies is a paramount importance. Greater the care

better the long term outcome. In no way should the HR issues be compromised. The

following are some of the suggestions:

The complexity of managing large operations can nullify the benefits and losses

related to organizations. The regulatory frameworks need to be revised more to

avoid complexity.

International Co Corporation is required to deal with cross boarder competition

problems effectively. It should be handled carefully.

In merger the interests of small countries have to be considered in terms of

accepting the rules of major countries.

The human capital should be centrally placed. It has to be given equal attention

like the economic and financial considerations. It would enable the M&A to be

more compatible and easier.

Communication of information between management and staff would help in

minimizing uncertainties of M&A. it would reduce organizational drift. The

employees should be informed in time regarding the post M&A phases. It would

minimize organizational conflict. Especially the feeling of fear, apathy and

demotivatitive issues can be minimized.

Suitable innovative HRD strategies should be designed to develop human capital

wit requisite skills in the increasing competition, Sectoral consolidation and

change in the nature of occupations.

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To meet the challenges and to remain competitive banks have to recruit specialist

in various fields. It depends on HR department of the concerned banks.

Talent management has to be institutalised.

Performance linked flexi time and such other strategies have to be developed.Care has to be taken to create a conducive work environment in such a way that

the bankers can take commercial decisions judiciously without any fear.

Cultural differences can spell out failure. Address then early in the process.

Evaluate cultural cues as rigorously as financial data. Assess areas such as

decision making style, execution discipline and leadership approaches

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XI. ANNEXURE

Questionnaire for the Survey

1. Name of your firm prior to Merger/Acquisition?

2. Name of your organization?

3. How many months have passed since the Merger/Acquisition?

4. What was your department in the organization (HR, Finance,

Operations, Technology, Others)?

5. Was your original company the dominant party in Merger/Acquisition?

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a) Yes

b) No

6. How did you have the information about the Merger/Acquisition?

a) Formal Small Group Networks

b) Grapevine

c) Computer Aided Communication

d) Official Information was Provided

7. Were you given adequate information about the Merger/Acquisition on

time?

a) Yes

b) No

8. Were you provided with any training for the transition?

a) Yes

b) No

9. The training provided, if any was effective:

a) Strongly Agree

b) Agree

c) Neutral

d) Disagree

10.Are you satisfied with the organization?

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a) Yes

b) No

11.To what extent you are satisfied with the Merger/Acquisition?

a) Very Satisfied

b) Satisfied

c) Neutral

d) Not Satisfied

12.Post the, Merger your organizations encouragement to employees to

innovate and take risk is:

a) Yes

b) No

13.There is change in your responsibilities/ role after Merger/Acquisition:

a) Strongly Agree

b) Agree

c) Neutral

d) Disagree

14.Was it anticipated or known?

a) Yes

b) No

15.What is the impact on your career growth opportunities?

a) Strong Negative Impact

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b) Weak Negative Impact

c) Neutral

d) Strong Positive Impact

e) Weak Positive Impact

16.What is the impact on Salary structure?



c) Neutral



17.What is the impact on the job security?



c) Neutral



18.What is the impact of Merger on your job/working team?



c) Neutral



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19.What was the period of maximum people leaving the organization?

a) First Three Months after the Merger

b) 3-9 Months after the Merger

c) 1 Year after the Merger

d) It was Constant

20.There is a change in the work culture of the organization following

Merger/Acquisition?

a) Strongly Agree

b) Agree

c) Neutral

d) Disagree

21.Is the Merger/Acquisition financially successful?

a) Strongly Agree

b) Agree

c) Neutral

d) Disagree

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Signature of the Employee:

Date:

XII. References

1. V.G. Chari, Banks Mergers and Acquisitions-Implications

and Impediments.SSIM-Excel Series

2. Strategic Management-IGNOU Module

3. http://en.wikipedia.org/wiki/Mergers_and_acquisitions

4. http://www.economywatch.com/mergers-

acquisitions/trends.html

5. Merger and acquisition by Bhagaban Das and Alok Kumar

Pramanik

6. Merger and Acquisition Security by Edward Holibozek and

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