Deck 6: Postclosing Integration: Mergers, acquisitions, and Business Alliances

Question

Differences in the way the management of the acquiring and target firms make decisions,the pace of decision-making,and perceived values are common examples of cultural differences between the two firms.

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An acquiring firm that focuses heavily on integrating a target firm,which represents a sizeable portion of its total operations,frequently sees deterioration in its own current operating performance.

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The management integration team's primary responsibilities should be to focus on achieving long-term profit goals,monitoring actual performance to the goals of the integration plan,and on cost management.

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In hostile takeovers,the employees that are on the post-merger integration team should come from the acquiring firm because of concerns that the target firm's employees cannot be trusted.

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Employee health care or disability claims tend to escalate just before a transaction closes,thereby adding to the total cost of the transaction.Who will pay such claims should be determined in the agreement of purchase and sale.

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Employees or so-called "human capital" are often the most valuable asset of the target firm.

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Rapid integration helps to realize the planned synergies and may contribute to a higher present value for the merger or acquisition.

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Focus on customers is generally considered a factor critical to the ultimate success or failure of the merger or acquisition.

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Revenue growth is often sacrificed in an effort to engage in aggressive cost cutting during the integration period.

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High employee turnover is rarely a problem during the integration of the target firm into the acquirer.

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Communication plans should be developed for all stakeholder groups except for suppliers,because they generally have a lower priority in the integration process.

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So-called contract related transition issues often involve how the new employees will be paid and what benefits they should receive.

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Developing staffing plans involves identifying staffing requirements and developing a compensation strategy,among other things.

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High employee defection during the integration period is an excellent way to realize cost savings?

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Divulging the true intentions of the acquiring firm to the target firm's employees should be deferred until it can be determined that such employees can be trusted.

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The management integration team's primary responsibilities should be monitoring the daily operations of the work-teams assigned to complete specific tasks during the integration.

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Integration is among the most important factors contributing to the success or failure of mergers and acquisitions.

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Co-locating employees from the acquiring and target firms is rarely a good idea early in the integration period because of the inevitable mistrust that will arise.

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Employees of both the target and acquiring firms are likely to resist change following a takeover.

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The integration process if done effectively can help to mitigate the potential loss of employees.

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Customers of newly acquired firms are usually slow to switch to other suppliers even if product quality deteriorates due to inertia.

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The extent to which compensation plans for the acquiring and acquired firms are integrated depends on whether the two companies are going to be managed separately or fully integrated.

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Pre-closing integration planning is likely to be easier in friendly than in hostile transactions.

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Following an acquisition,long-term contracts with suppliers can generally be broken without redress.

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Sharing common goals,standards,services,and space can be a highly effective and practical way to integrate disparate corporate cultures.

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When two companies with very different cultures merge,the new firm inevitably adopts one of the two cultures that existed prior to the merger.

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Decentralized management control usually facilitates the integration of a newly acquired business.

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The extent to which the sales forces of the two firms are combined depends on their relative size,the nature of their products and markets,and their geographic location.

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Merging compensation systems can be one of the most challenging activities of the integration process.

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Enabling the customer to see a consistent image in advertising and promotional campaigns is often the greatest challenge facing the integration of the marketing function.

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In building a new organization for the combined firms,it is important to start with a clean sheet of paper and ignore the organizational structures that existed prior to the merger or acquisition.

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It is crucial to focus on the highest leverage issues in implementing post-merger integration.True of False

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A newly merged company will often experience at least a 5-10% loss of current customers during the integration effort.

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A merger agreement should specify how the seller should be reimbursed for products shipped or services provided by the seller before closing but not paid for by the customer until after closing.

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Key stakeholders in the integration effort generally include employees,customers,suppliers,communities,and regulators.

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It is generally more important to respond to current issues as they arise in your communication plans even if it results in the appearance of a somewhat inconsistent theme throughout communications made to stakeholders.

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Plant consolidation rarely requires the adoption of a common set of systems and standards for all manufacturing activities.

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Benchmarking important functions such as the acquirer's and the target's manufacturing and information technology operations and processes is a useful starting point for determining how to integrate these activities.

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Benchmarking important functions such as the acquirer's and the target's manufacturing and IT operations and processes is a useful starting point for determining how to integrate these activities.

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Highly decentralized organizational structures generally expedite the integration effort more so than highly centralized structures.

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All of the following are generally considered stakeholders in the integration process except for

A) Suppliers
B) Employees
C) Competitors
D) Regulators
E) Customers

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The speed with which two firms are merged is an important factor determining the long-term success of the merger.

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Whenever possible,integration planning should begin before closing.

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Integration of a new business into an existing one rarely affects current operations of either business.

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Developing staffing plans requires which of the following?

A) Identifying personnel requirements
B) Determining the availability of skilled employees to fill these requirements
C) Developing compensation plans
D) A and B only
E) A, B, and C

Question

Which of the following is generally not true about communication during the integration period?

A) Communication should be as frequent as possible
B) Employees should be sheltered from bad news
C) The CEO of the combined firms should lead the effort to communicate to employees at all levels
D) Regularly scheduled employee meetings are often the best way to communicate progress to plan
E) The reasons for changing work practices and compensation must be thoroughly explained to employees

Question

Newly merged firms frequently experience a loss of existing customers as a direct consequence of the merger.

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Which of the following is not true about integrating business alliances?

A) Teamwork is the underpinning that makes alliances work.
B) Control is best exerted through coordination
C) Decisions are made at the top of the organization
D) Decisions are based on the premise that all participants to the alliance have had an opportunity to express their opinions.
E) The failure of one party to meet commitments will erode trust

Question

All of the following are generally true about creating new organizations except for

A) Learn from prior organizational strengths and weaknesses
B) Business needs should drive structure and not the reverse
C) Centralized organizations facilitate the pace of the integration
D) The structure employed during the integration must be the one used in the long-run
E) Senior managers should be given responsibility for selecting their own subordinates

Question

All of the following are true about the challenges of integrating firms with different corporate cultures except for

A) Cultural issues can run the gamut from dress codes to compensation
B) The acquired firm's overarching culture is generally rapidly accepted by the target firm's employees
C) Small companies are usually highly unstructured and informal
D) There are often differences in culture even between firms in the same industry
E) Integration may be inappropriate if acquirer and acquired firm's cultures are extremely different.

Question

Rapid integration is usually important for all of the following reasons except for

A) Minimizes employee turnover
B) Improves the morale and productivity of current employees of both the acquiring and acquired firms
C) Builds confidence in current employees in the competence of management
D) Dispenses with the need for pre-integration planning
E) Reduces customer turnover

Question

All of the following are often cited as factors critical to the ultimate success of the integration effort except for

A) Plan carefully, act quickly
B) The use of project management techniques
C) Early communication from the top of the organization
D) Salary and benefit reductions for many employees of the acquired company in order to realize cost savings
E) Making the tough decisions as early as possible

Question

Integration planning involves addressing human resource,customer,and supplier issues that overlap the change of ownership.

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Certain post integration issues are best addressed prior to the closing.These include all of the following except for

A) Who will pay for employee severance expenses
B) How will employee payroll be managed during ownership transition
C) What will be done with checks from customers that the seller continues to receive after closing
D) How will the seller be reimbursed for monies owed to suppliers for products sold prior to closing
E) Who will pay for health care and disability claims that often arise just before a business is sold?

Question

Which of the following represent commonly used techniques for integrating corporate cultures?

A) Employees are encouraged to share the same overall goals
B) "Best practices" in one department are employed in other departments
C) Multiple businesses share the same service such as the legal department
D) Employees are co-located
E) All of the above

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Staffing plans should be postponed to relatively late in the integration process.

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An effective starting point in setting up a structure is to learn from the past and to recognize that the needs of the business drive structure and not the other way around.

Question

Which of the following is not true about the primary responsibilities of the management integration team (MIT)?

A) The MIT should direct the daily operations of the individual work teams set up to implement certain activities.
B) Focus the organization on meeting ongoing business commitments and operational performance targets
C) The creation of an early warning system to determine when performance targets are likely to be missed.
D) Establish a rigorous communication program
E) Establishing a master schedule of what should be done by whom and by what date.

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The newly integrated firm must be able to communicate a compelling vision to investors.

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When news about the integration is bad,it is critical never to share it with employees.

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Case Study Short Essay Examination Questions
Alcatel Merges with Lucent, Highlighting Cross-Cultural Issues
Alcatel SA and Lucent Technologies signed a merger pact on April 3, 2006, to form a Paris-based telecommunications equipment giant. The combined firms would be led by Lucent's chief executive officer Patricia Russo. Her charge would be to meld two cultures during a period of dynamic industry change. Lucent and Alcatel were considered natural merger partners because they had overlapping product lines and different strengths. More than two-thirds of Alcatel's business came from Europe, Latin America, the Middle East, and Africa. The French firm was particularly strong in equipment that enabled regular telephone lines to carry high-speed Internet and digital television traffic. Nearly two-thirds of Lucent's business was in the United States. The new company was expected to eliminate 10 percent of its workforce of 88,000 and save $1.7 billion annually within three years by eliminating overlapping functions.
While billed as a merger of equals, Alcatel of France, the larger of the two, would take the lead in shaping the future of the new firm, whose shares would be listed in Paris, not in the United States. The board would have six members from the current Alcatel board and six from the current Lucent board, as well as two independent directors that must be European nationals. Alcatel CEO Serge Tehuruk would serve as the chairman of the board. Much of Ms. Russo's senior management team, including the chief operating officer, chief financial officer, the head of the key emerging markets unit, and the director of human resources, would come from Alcatel. To allay U.S. national security concerns, the new company would form an independent U.S. subsidiary to administer American government contracts. This subsidiary would be managed separately by a board composed of three U.S. citizens acceptable to the U.S. government.
International combinations involving U.S. companies have had a spotty history in the telecommunications industry. For example, British Telecommunications PLC and AT&T Corp. saw their joint venture, Concert, formed in the late 1990s, collapse after only a few years. Even outside the telecom industry, transatlantic mergers have been fraught with problems. For example, Daimler Benz's 1998 deal with Chrysler, which was also billed as a merger of equals, was heavily weighted toward the German company from the outset.
In integrating Lucent and Alcatel, Russo faced a number of practical obstacles, including who would work out of Alcatel's Paris headquarters. Russo, who became Lucent's chief executive in 2000 and does not speak French, had to navigate the challenges of doing business in France. The French government has a big influence on French companies and remains a large shareholder in the telecom and defense sectors. Russo's first big fight would be dealing with the job cuts that were anticipated in the merger plan. French unions tend to be strong, and employees enjoy more legal protections than elsewhere. Hundreds of thousands took to the streets in mid-2006 to protest a new law that would make it easier for firms to hire and fire younger workers. Russo has extensive experience with big layoffs. At Lucent, she helped orchestrate spin-offs, layoffs, and buyouts involving nearly four-fifths of the firm's workforce.
Making choices about cuts in a combined company would likely be even more difficult, with Russo facing a level of resistance in France unheard of in the United States, where it is generally accepted that most workers are subject to layoffs and dismissals. Alcatel has been able to make many of its job cuts in recent years outside France, thereby avoiding the greater difficulty of shedding French workers. Lucent workers feared that they would be dismissed first simply because it is easier than dismissing their French counterparts.
After the 2006 merger, the company posted six quarterly losses and took more than $4.5 billion in write-offs, while its stock plummeted more than 60 percent. An economic slowdown and tight credit limited spending by phone companies. Moreover, the market was getting more competitive, with China's Huawei aggressively pricing its products. However, other telecommunications equipment manufacturers facing the same conditions have not fared nearly as badly as Alcatel-Lucent. Melding two fundamentally different cultures (Alcatel's entrepreneurial and Lucent's centrally controlled cultures) has proven daunting. Customers who were uncertain about the new firm's products migrated to competitors, forcing Alcatel-Lucent to slash prices even more. Despite the aggressive job cuts, a substantial portion of the projected $3.1 billion in savings from the layoffs were lost to discounts the company made to customers in an effort to rebuild market share.
Frustrated by the lack of progress in turning around the business, the Alcatel-Lucent board announced in July 2008 that Patricia Russo, the American chief executive, and Serge Tchuruk, the French chairman, would leave the company by the end of the year. The board also announced that, as part of the shake-up, the size of the board would be reduced, with Henry Schacht, a former chief executive at Lucent, stepping down. Perhaps hamstrung by its dual personality, the French-American company seemed poised to take on a new personality of its own by jettisoning previous leadership.
:
Why do you think mergers,both domestic and cross-border,are often communicated by the
acquirer and target firms' management as mergers of equals?

Question

When corporate cultures are substantially different,it may be appropriate to

A) Integrate the businesses as rapidly as possible
B) Leave the businesses separate indefinitely
C) Initially leave the businesses separate but integrate at a later time
D) A or B
E) B or C

Question

The acquirer's sales force sells very complex software solutions to its customers.The target firm manufactures commodity hardware products.Customers of the two firms sometimes buy both products.The benefits of integrating the sales force of both the acquirer and target firms includes all of the following except for

A) Generates significant cost savings by eliminating duplicate sales representatives
B) Eliminates related sales support expenses
C) Minimizes potential customer confusion by enabling customers to deal with a single sales representative
D) Facilitates communication of a consistent brand image
E) Makes product cross-selling more effective

Question

Key management integration team responsibilities include all of the following except for

A) Building a master schedule of activities that need to be accomplished
B) Establishing work teams
C) Tracking the daily operation of the firms
D) Monitoring and expediting key decisions
E) Establishing a rigorous communications program

Question

Which of the following represent important decisions that must be made early in the integration process?

A) Identifying the appropriate organizational structure
B) Defining key reporting relationships
C) Selecting the right managers
D) Identifying and communicating key roles and responsibilities
E) All of the above

Question

Which of the following is not true about the recommendation that integration should occur rapidly?

A) All significant operations of the two firms must be integrated immediately.
B) Rapid integration helps to minimize customer attritition.
C) Rapid integration reduces unwanted employee turnover.
D) Rapid integration reduces employee anxiety.
E) None of the above

Question

Post-closing integration may be viewed in terms of a process consisting of the following activities

A) Integration planning
B) Developing communication plans
C) Creating a new organization
D) Developing staffing plans
E) All of the above

Question

The post-closing integration process consists of all of the following activities except for

A) Integration planning
B) Developing communication plans
C) Creating a new organization
D) Developing staffing plans
E) Identifying the acquisition vehicle

Question

Poorly executed integration often results in high employee turnover.The costs of such turnover include which of the following?

A) Declining morale among those that remain
B) Retraining costs
C) Declining productivity
D) Deteriorating customer service
E) All of the above

Question

Case Study Short Essay Examination Questions
Alcatel Merges with Lucent, Highlighting Cross-Cultural Issues
Alcatel SA and Lucent Technologies signed a merger pact on April 3, 2006, to form a Paris-based telecommunications equipment giant. The combined firms would be led by Lucent's chief executive officer Patricia Russo. Her charge would be to meld two cultures during a period of dynamic industry change. Lucent and Alcatel were considered natural merger partners because they had overlapping product lines and different strengths. More than two-thirds of Alcatel's business came from Europe, Latin America, the Middle East, and Africa. The French firm was particularly strong in equipment that enabled regular telephone lines to carry high-speed Internet and digital television traffic. Nearly two-thirds of Lucent's business was in the United States. The new company was expected to eliminate 10 percent of its workforce of 88,000 and save $1.7 billion annually within three years by eliminating overlapping functions.
While billed as a merger of equals, Alcatel of France, the larger of the two, would take the lead in shaping the future of the new firm, whose shares would be listed in Paris, not in the United States. The board would have six members from the current Alcatel board and six from the current Lucent board, as well as two independent directors that must be European nationals. Alcatel CEO Serge Tehuruk would serve as the chairman of the board. Much of Ms. Russo's senior management team, including the chief operating officer, chief financial officer, the head of the key emerging markets unit, and the director of human resources, would come from Alcatel. To allay U.S. national security concerns, the new company would form an independent U.S. subsidiary to administer American government contracts. This subsidiary would be managed separately by a board composed of three U.S. citizens acceptable to the U.S. government.
International combinations involving U.S. companies have had a spotty history in the telecommunications industry. For example, British Telecommunications PLC and AT&T Corp. saw their joint venture, Concert, formed in the late 1990s, collapse after only a few years. Even outside the telecom industry, transatlantic mergers have been fraught with problems. For example, Daimler Benz's 1998 deal with Chrysler, which was also billed as a merger of equals, was heavily weighted toward the German company from the outset.
In integrating Lucent and Alcatel, Russo faced a number of practical obstacles, including who would work out of Alcatel's Paris headquarters. Russo, who became Lucent's chief executive in 2000 and does not speak French, had to navigate the challenges of doing business in France. The French government has a big influence on French companies and remains a large shareholder in the telecom and defense sectors. Russo's first big fight would be dealing with the job cuts that were anticipated in the merger plan. French unions tend to be strong, and employees enjoy more legal protections than elsewhere. Hundreds of thousands took to the streets in mid-2006 to protest a new law that would make it easier for firms to hire and fire younger workers. Russo has extensive experience with big layoffs. At Lucent, she helped orchestrate spin-offs, layoffs, and buyouts involving nearly four-fifths of the firm's workforce.
Making choices about cuts in a combined company would likely be even more difficult, with Russo facing a level of resistance in France unheard of in the United States, where it is generally accepted that most workers are subject to layoffs and dismissals. Alcatel has been able to make many of its job cuts in recent years outside France, thereby avoiding the greater difficulty of shedding French workers. Lucent workers feared that they would be dismissed first simply because it is easier than dismissing their French counterparts.
After the 2006 merger, the company posted six quarterly losses and took more than $4.5 billion in write-offs, while its stock plummeted more than 60 percent. An economic slowdown and tight credit limited spending by phone companies. Moreover, the market was getting more competitive, with China's Huawei aggressively pricing its products. However, other telecommunications equipment manufacturers facing the same conditions have not fared nearly as badly as Alcatel-Lucent. Melding two fundamentally different cultures (Alcatel's entrepreneurial and Lucent's centrally controlled cultures) has proven daunting. Customers who were uncertain about the new firm's products migrated to competitors, forcing Alcatel-Lucent to slash prices even more. Despite the aggressive job cuts, a substantial portion of the projected $3.1 billion in savings from the layoffs were lost to discounts the company made to customers in an effort to rebuild market share.
Frustrated by the lack of progress in turning around the business, the Alcatel-Lucent board announced in July 2008 that Patricia Russo, the American chief executive, and Serge Tchuruk, the French chairman, would leave the company by the end of the year. The board also announced that, as part of the shake-up, the size of the board would be reduced, with Henry Schacht, a former chief executive at Lucent, stepping down. Perhaps hamstrung by its dual personality, the French-American company seemed poised to take on a new personality of its own by jettisoning previous leadership.
:
Most corporate mergers are beset by differences in corporate cultures.How do cross-border
transactions compound these differences?

Question

Delay in integrating the acquired business contributes to which of the following?

A) Employee anxiety
B) Customer attrition
C) Employee anxiety
D) Deteriorating employee productivity
E) All of the above

Question

Panasonic Moves to Consolidate Past Acquisitions
¬¬¬¬¬¬¬¬¬¬¬¬¬¬¬¬¬¬¬¬¬¬¬¬¬¬¬¬¬¬¬¬¬¬¬¬¬Key Points:
• Minority investors may impede a firm's ability to implement its business strategy by slowing the decision making process.
• A common solution is for the parent firm to buy out or "squeeze-out" minority shareholders
______________________________________________________________________________
Increased competition in the manufacture of rechargeable batteries and other renewable energy products threatened to thwart Panasonic Corporation's move to achieve a dominant global position in renewable energy products. South Korean rivals Samsung Electronics Company and LG Electronics Inc. were increasing investment to overtake Panasonic in this marketplace. These firms have already been successful in surpassing Panasonic's leadership position in flat-panel televisions.
Despite having a majority ownership in several subsidiaries, Sanyo Electric Company and Panasonic Electric Works Company that are critical to its long-term success in the manufacture and sale of renewable energy products, Panasonic has been frustrated by the slow pace of decision making and strategy implementation. In particular, Sanyo Electric has been reluctant to surrender decision making to Panasonic. Despite appeals by Panasonic president Fumio Ohtsubo 's for collaboration, Panasonic and Sanyo continued to compete for customers. Sanyo Electric maintains a brand that is distinctly different from the Panasonic brand, thereby creating confusion among customers.
Sanyo Electric, the global market share leader in rechargeable lithium ion batteries, also has a growing presence in solar panels. Panasonic Electric Works makes lighting equipment, sensors, and other key components for making homes and offices more energy efficient.
To gain greater decision-making power, Panasonic acquired the remaining publicly traded shares in both Sanyo Electric and Panasonic Electric Works in March 2011 and plans to merge these two operations into the parent. Plans call for combining certain overseas sales operations and production facilities of Sanyo Electric and Panasonic Electric Works, as well as using Panasonic factories to make Sanyo products.
The two businesses were consolidated in 2012. The challenge to Panasonic now is gaining full control without alienating key employees who may be inclined to leave and destroying those attributes of the Sanyo culture that are needed to expand Panasonic's global position in renewable energy products.
This problem is not unique to Panasonic. Many Japanese companies consist of large interlocking networks of majority-owned subsidiaries that are proving less nimble than firms with more centralized authority. After four straight years of operating losses, Hitachi Ltd. spent 256 billion yen ($2.97 billion) to buy out minority shareholders in five of its majority-owned subsidiaries in order to achieve more centralized control.
Discussion Questions
1. Describe the advantages and disadvantages of owning less than 100 percent of another company.
2. When does it make sense to buy a minority interest, a majority interest, or 100 percent of the publicly traded shares of another company?
Case Study Short Essay Examination Questions
HP Acquires Compaq-The Importance of Preplanning Integration
The proposed marriage between Hewlett-Packard (HP) and Compaq Computer got off to a rocky start when the sons of the founders came out against the transaction. The resulting long, drawn-out proxy battle threatened to divert management's attention from planning for the postclosing integration effort. The complexity of the pending integration effort appeared daunting. The two companies would need to meld employees in 160 countries and assimilate a large array of products ranging from personal computers to consulting services. When the transaction closed on May 7, 2002, critics predicted that the combined businesses, like so many tech mergers over the years, would become stalled in a mess of technical and personal entanglements.
Instead, HP's then CEO Carly Fiorina methodically began to plan for integration prior to the deal closing. She formed an elite team that studied past tech mergers, mapped out the merger's most important tasks, and checked regularly whether key projects were on schedule. A month before the deal was even announced on September 4, 2001, Carly Fiorina and Compaq CEO Michael Capellas each tapped a top manager to tackle the integration effort. The integration managers immediately moved to form a 30-person integration team. The team learned, for example, that during Compaq's merger with Digital some server computers slated for elimination were never eliminated. In contrast, HP executives quickly decided what to jettison. Every week they pored over progress charts to review how each product exit was proceeding. By early 2003, HP had eliminated 33 product lines it had inherited from the two companies, thereby reducing the remaining number to 27. Another 6 were phased out in 2004.
After reviewing other recent transactions, the team recommended offering retention bonuses to employees the firms wanted to keep, as Citigroup had done when combining with Travelers. The team also recommended that moves be taken to create a unified culture to avoid the kind of divisions that plagued AOL Time Warner. HP executives learned to move quickly, making tough decisions early with respect to departments, products, and executives. By studying the 1984 merger between Chevron and Gulf Oil, where it had taken months to name new managers, integration was delayed and employee morale suffered. In contrast, after Chevron merged with Texaco in 2001, new managers were appointed in days, contributing to a smooth merger.
Disputes between HP and former Compaq staff sometimes emerged over issues such as the different approaches to compensating sales people. These issues were resolved by setting up a panel of up to six sales managers enlisted from both firms to referee the disagreements. HP also created a team to deal with combining the corporate cultures and hired consultants to document the differences. A series of workshops involving employees from both organizations were established to find ways to bridge actual or perceived differences. Teams of sales personnel from both firms were set up to standardize ways to market to common customers. Schedules were set up to ensure that agreed-upon tactics were actually implemented in a timely manner. The integration managers met with Ms. Fiorina weekly.
The results of this intense preplanning effort were evident by the end of the first year following closing. HP eliminated duplicate product lines and closed dozens of facilities. The firm cut 12,000 jobs, 2,000 more than had been planned at that point in time, from its combined 150,000 employees. HP achieved $3 billion in savings from layoffs, office closures, and consolidating its supply chain. Its original target was for savings of $2.4 billion after the first 18 months.
Despite realizing greater than anticipated cost savings, operating margins by 2004 in the PC business fell far short of expectations. This shortfall was due largely to declining selling prices and a slower than predicted recovery in PC unit sales. The failure to achieve the level of profitability forecast at this time of the acquisition contributed to the termination of Ms. Fiorina in early 2005.
Discussion Questions
1. Explain how premerger planning aided in the integration of HP and Compaq.
2. What did HP learn by studying other mergers? Give examples.
3. Cite key cultural differences between the two organizations. How were they resolved?
Case Study Short Essay Examination Questions
Integrating Supply Chains: Coty Cosmetics Integrates Unilever Cosmetics International
In mid-August 2005, Coty, one of the world's largest cosmetics and fragrance manufacturers, acquired Unilever Cosmetics International (UCI), a subsidiary of the Unilever global conglomerate, for $800 million. Coty viewed the transaction as one in which it could become a larger player in the prestigious fragrance market of expensive perfumes. Coty believed it could reap economies of scale from having just one sales force, marketing group, and the like selling and managing the two sets of products. It hoped to retain the best people from both organizations. However, Coty's management understood that if it were not done quickly enough, it might not realize the potential cost savings and would risk losing key personnel.
By mid-December, Coty's IT team had just completed moving UCI's employees from Unilever's infrastructure to Coty's. This involved such tedious work as switching employees from Microsoft's Outlook to Lotus Notes. Coty's information technology team was faced with the challenge of combining and standardizing the two firms' supply chains, including order entry, purchasing, processing, financial, warehouse, and shipping systems. At the end of 2006, Coty's management announced that it anticipated that the two firms would be fully integrated by June 30, 2006. From an IT perspective, the challenges were daunting. The new company's supply chain spanned ten countries and employed four different enterprise resource planning (ERP) systems that had three warehouse systems running five major distribution facilities on two continents. ERP is an information system or process that integrates all production and related applications across an entire corporation.
On January 11-12, 2006, 25 process or function "owners," including the heads of finance, customer service, distribution, and IT, met to create the integration plan for the firm's disparate supply chains. In addition to the multiple distribution centers and ERP systems, operations in each country had unique processes that had to be included in the integration planning effort. For example, Italy was already using the SAP system on which Coty would eventually standardize. The largest customers there placed orders at the individual store level and expected products to be delivered to these stores. In contrast, the United Kingdom used a legacy (i.e., a highly customized, nonstandard) ERP system, and Coty's largest customer in the United Kingdom, the Boots pharmacy chain, placed orders electronically and had them delivered to central warehouses.
Coty's IT team, facing a very demanding schedule, knew it could not accomplish all that needed to be done in the time frame required. Therefore, it started with any system that directly affected the customer, such as sending an order to the warehouse, shipment notification, and billing. The decision to focus on "customer-facing" systems came at the expense of internal systems, such as daily management reports tracking sales and inventory levels. These systems were to be completed after the June 30, 2006, deadline imposed by senior management.
To minimize confusion, Coty created small project teams that consisted of project managers, IT directors, and external consultants. Smaller teams did not require costly overhead, like dedicated office space, and eliminated chains of command that might have prevented senior IT management from receiving timely, candid feedback on actual progress against the integration plan. The use of such teams is credited with allowing Coty's IT department to combine sales and marketing forces as planned at the beginning of the 2007 fiscal year in July 2006. While much of the "customer-facing" work was done, many tasks remained. The IT department now had to go back and work out the details it had neglected during the previous integration effort, such as those daily reports its senior managers wanted and the real-time monitoring of transactions. By setting priorities early in the process and employing small, project-focused teams, Coty was able to integrate successfully the complex supply chains of the firms in a timely manner.
Discussion Questions
1. Do you agree with Coty management's decision to focus on integrating "customer-facing" systems first? Explain your answer.
2. How might this emphasis on integrating "customer-facing" systems have affected the new firm's ability to realize anticipated synergies? Be specific.
3. Discuss the advantages and disadvantages of using small project teams. Be specific.
Case Study Short Essay Examination Questions
Culture Clash Exacerbates Efforts of the Tribune Corporation to Integrate the Times Mirror Corporation
The Chicago-based Tribune Corporation owned 11 newspapers, including such flagship publications as the Chicago Tribune, the Los Angeles Times, and Newsday, as well as 25 television stations. Attempting to offset the long-term decline in newspaper readership and advertising revenue, Tribune acquired the Times Mirror (owner of the Los Angeles Times newspaper) for $8 billion in 2000. The merger combined two firms that historically had been intensely competitive and had dramatically different corporate cultures. The Tribune was famous for its emphasis on local coverage, with even its international stories having a connection to Chicago. In contrast, the L.A. Times had always maintained a strong overseas and Washington, D.C., presence, with local coverage often ceded to local suburban newspapers. To some Tribune executives, the L.A. Times was arrogant and overstaffed. To L.A. Times executives, Tribune executives seemed too focused on the "bottom line" to be considered good newspaper people.
The overarching strategy for the new company was to sell packages of newspaper and local TV advertising in the big urban markets. It soon became apparent that the strategy would be unsuccessful. Consequently, the Tribune's management turned to aggressive cost cutting to improve profitability. The Tribune wanted to encourage centralization and cooperation among its newspapers to cut overlapping coverage and redundant jobs.
Coverage of the same stories by different newspapers owned by the Tribune added substantially to costs. After months of planning, the Tribune moved five bureaus belonging to Times Mirror papers (including the L.A. Times) to the same location as its four other bureaus in Washington, D.C. L.A. Times' staffers objected strenuously to the move, saying that their stories needed to be tailored to individual markets and they did not want to share reporters with local newspapers. As a result of the consolidation, the Tribune's newspapers shared as much as 40 percent of the content from Washington, D.C., among the papers in 2006, compared to as little as 8 percent in 2000. Such changes allowed for significant staffing reductions.
In trying to achieve cost savings, the firm ran aground in a culture war. Historically, the Times Mirror, unlike the Tribune, had operated its newspapers more as a loose confederation of separate newspapers. Moreover, the Tribune wanted more local focus, while the L.A. Times wanted to retain its national and international presence. The controversy came to a head when the L.A. Times' editor was forced out in late 2006.
Many newspaper stocks, including the Tribune, had lost more than half of their value between 2004 and 2006. The long-term decline in readership within the Tribune appears to have been exacerbated by the internal culture clash. As a result, the Chandler Trusts, Tribune's largest shareholder, put pressure on the firm to boost shareholder value. In September, the Tribune announced that it wanted to sell the entire newspaper; however, by November, after receiving bids that were a fraction of what had been paid to acquire the newspaper, it was willing to sell parts of the firm. The Tribune was taken private by legendary investor Sam Zell in 2007 and later went into bankruptcy in 2009, a victim of the recession and its bone-crushing debt load. See Case Study 13.4 for more details.
Discussion Questions
1. Why do you believe the Tribune thought it could overcome the substantial cultural differences between itself and the Times Mirror Corporation? Be specific.
2. What would you have done differently following closing to overcome the cultural challenges faced by the Tribune? Be specific.
Case Study Short Essay Examination Questions
Daimler Acquires Chrysler-Anatomy of a Cross-Border Transaction
The combination of Chrysler and Daimler created the third largest auto manufacturer in the world, with more than 428,000 employees worldwide. Conceptually, the strategic fit seemed obvious. German engineering in the automotive industry was highly regarded and could be used to help Chrysler upgrade both its product quality and production process. In contrast, Chrysler had a much better track record than Daimler in getting products to market rapidly. Daimler's distribution network in Europe would give Chrysler products better access to European markets; Chrysler could provide parts and service support for Mercedes-Benz in the United States. With greater financial strength, the combined companies would be better able to make inroads into Asian and South American markets.
Daimler's product markets were viewed as mature, and Chrysler was under pressure from escalating R&D costs and retooling demands in the wake of rapidly changing technology. Both companies watched with concern the growing excess capacity of the worldwide automotive manufacturing industry. Daimler and Chrysler had been in discussions about doing something together for some time. They initiated discussions about creating a joint venture to expand into Asian and South American markets, where both companies had a limited presence. Despite the termination of these discussions as a result of disagreement over responsibilities, talks were renewed in February 1998. Both companies shared the same sense of urgency about their vulnerability to companies such as Toyota and Volkswagen. The transaction was completed in April 1998 for $36 billion.
Enjoying a robust auto market, starry-eyed executives were touting how the two firms were going to save billions by using common parts in future cars and trucks and by sharing research and technology. In a press conference to announce the merger, Jurgen Schrempp, CEO of DaimlerChrysler, described the merger as highly complementary in terms of product offerings and the geographic location of many of the firms' manufacturing operations. It also was described to the press as a merger of equals (Tierney, 2000). On the surface, it all looked so easy.
The limitations of cultural differences became apparent during efforts to integrate the two companies. Daimler had been run as a conglomerate, in contrast to Chrysler's highly centralized operations. Daimler managers were accustomed to lengthy reports and meetings to review the reports. Under Schrempp's direction, many top management positions in Chrysler went to Germans. Only a few former Chrysler executives reported directly to Schrempp. Made rich by the merger, the potential for a loss of American managers within Chrysler was high. Chrysler managers were accustomed to a higher degree of independence than their German counterparts. Mercedes dealers in the United States balked at the thought of Chrysler's trucks still sporting the old Mopar logo delivering parts to their dealerships. All the trucks had to be repainted.
Charged with the task of finding cost savings, the integration team identified a list of hundreds of opportunities, offering billions of dollars in savings. For example, Mercedes dropped its plans to develop a battery-powered car in favor of Chrysler's electric minivan. The finance and purchasing departments were combined worldwide. This would enable the combined company to take advantage of savings on bulk purchases of commodity products such as steel, aluminum, and glass. In addition, inventories could be managed more efficiently, because surplus components purchased in one area could be shipped to other facilities in need of such parts. Long-term supply contracts and the dispersal of much of the purchasing operations to the plant level meant that it could take as long as 5 years to fully integrate the purchasing department.
The time required to integrate the manufacturing operations could be significantly longer, because both Daimler and Chrysler had designed their operations differently and are subject to different union work rules. Changing manufacturing processes required renegotiating union agreements as the multiyear contracts expired. All of that had to take place without causing product quality to suffer. To facilitate this process, Mercedes issued very specific guidelines for each car brand pertaining to R&D, purchasing, manufacturing, and marketing.
Although certainly not all of DaimlerChrysler's woes can be blamed on the merger, it clearly accentuated problems associated with the cyclical economic slowdown during 2001 and the stiffened competition from Japanese automakers. The firm's top management has reacted, perhaps somewhat belatedly to the downturn, by slashing production and eliminating unsuccessful models. Moreover, the firm has pared its product development budget from $48 billion to $36 billion and eliminated more than 26,000 jobs, or 20% of the firm's workforce, by early 2002. Six plants in Detroit, Mexico, Argentina, and Brazil were closed by the end of 2002. The firm also cut sharply the number of Chrysler. car dealerships. Despite the aggressive cost cutting, Chrysler reported a $2 billion operating loss in 2003 and a $400 million loss in 2004.
While Schrempp had promised a swift integration and a world-spanning company that would dominate the industry, five years later new products have failed to pull Chrysler out of a tailspin. Moreover, DaimlerChrysler's domination has not extended beyond the luxury car market, a market they dominated before the acquisition. The market capitalization of DaimlerChrysler, at $38 billion at the end of 2004, was well below the German auto maker's $47 billion market cap before the transaction.
With the benefit of hindsight, it is possible to note a number of missteps DaimlerChrysler has made that are likely to haunt the firm for years to come. These include paying too much for some parts, not updating some vehicle models sooner, falling to offer more high-margin vehicles that could help ease current financial strains, not developing enough interesting vehicles for future production, and failing to be completely honest with Chrysler employees. Although Daimler managed to take costs out, it also managed to alienate the workforce.
What are the major cultural differences between Daimler and Chrysler?

Question

Case Study Short Essay Examination Questions
Alcatel Merges with Lucent, Highlighting Cross-Cultural Issues
Alcatel SA and Lucent Technologies signed a merger pact on April 3, 2006, to form a Paris-based telecommunications equipment giant. The combined firms would be led by Lucent's chief executive officer Patricia Russo. Her charge would be to meld two cultures during a period of dynamic industry change. Lucent and Alcatel were considered natural merger partners because they had overlapping product lines and different strengths. More than two-thirds of Alcatel's business came from Europe, Latin America, the Middle East, and Africa. The French firm was particularly strong in equipment that enabled regular telephone lines to carry high-speed Internet and digital television traffic. Nearly two-thirds of Lucent's business was in the United States. The new company was expected to eliminate 10 percent of its workforce of 88,000 and save $1.7 billion annually within three years by eliminating overlapping functions.
While billed as a merger of equals, Alcatel of France, the larger of the two, would take the lead in shaping the future of the new firm, whose shares would be listed in Paris, not in the United States. The board would have six members from the current Alcatel board and six from the current Lucent board, as well as two independent directors that must be European nationals. Alcatel CEO Serge Tehuruk would serve as the chairman of the board. Much of Ms. Russo's senior management team, including the chief operating officer, chief financial officer, the head of the key emerging markets unit, and the director of human resources, would come from Alcatel. To allay U.S. national security concerns, the new company would form an independent U.S. subsidiary to administer American government contracts. This subsidiary would be managed separately by a board composed of three U.S. citizens acceptable to the U.S. government.
International combinations involving U.S. companies have had a spotty history in the telecommunications industry. For example, British Telecommunications PLC and AT&T Corp. saw their joint venture, Concert, formed in the late 1990s, collapse after only a few years. Even outside the telecom industry, transatlantic mergers have been fraught with problems. For example, Daimler Benz's 1998 deal with Chrysler, which was also billed as a merger of equals, was heavily weighted toward the German company from the outset.
In integrating Lucent and Alcatel, Russo faced a number of practical obstacles, including who would work out of Alcatel's Paris headquarters. Russo, who became Lucent's chief executive in 2000 and does not speak French, had to navigate the challenges of doing business in France. The French government has a big influence on French companies and remains a large shareholder in the telecom and defense sectors. Russo's first big fight would be dealing with the job cuts that were anticipated in the merger plan. French unions tend to be strong, and employees enjoy more legal protections than elsewhere. Hundreds of thousands took to the streets in mid-2006 to protest a new law that would make it easier for firms to hire and fire younger workers. Russo has extensive experience with big layoffs. At Lucent, she helped orchestrate spin-offs, layoffs, and buyouts involving nearly four-fifths of the firm's workforce.
Making choices about cuts in a combined company would likely be even more difficult, with Russo facing a level of resistance in France unheard of in the United States, where it is generally accepted that most workers are subject to layoffs and dismissals. Alcatel has been able to make many of its job cuts in recent years outside France, thereby avoiding the greater difficulty of shedding French workers. Lucent workers feared that they would be dismissed first simply because it is easier than dismissing their French counterparts.
After the 2006 merger, the company posted six quarterly losses and took more than $4.5 billion in write-offs, while its stock plummeted more than 60 percent. An economic slowdown and tight credit limited spending by phone companies. Moreover, the market was getting more competitive, with China's Huawei aggressively pricing its products. However, other telecommunications equipment manufacturers facing the same conditions have not fared nearly as badly as Alcatel-Lucent. Melding two fundamentally different cultures (Alcatel's entrepreneurial and Lucent's centrally controlled cultures) has proven daunting. Customers who were uncertain about the new firm's products migrated to competitors, forcing Alcatel-Lucent to slash prices even more. Despite the aggressive job cuts, a substantial portion of the projected $3.1 billion in savings from the layoffs were lost to discounts the company made to customers in an effort to rebuild market share.
Frustrated by the lack of progress in turning around the business, the Alcatel-Lucent board announced in July 2008 that Patricia Russo, the American chief executive, and Serge Tchuruk, the French chairman, would leave the company by the end of the year. The board also announced that, as part of the shake-up, the size of the board would be reduced, with Henry Schacht, a former chief executive at Lucent, stepping down. Perhaps hamstrung by its dual personality, the French-American company seemed poised to take on a new personality of its own by jettisoning previous leadership.
:
What are the major challenges the management of the combined companies are likely to face?
How would you recommend resolving these issues?

Question

Which of the following activities are likely to extend beyond what is normally considered the conclusion of the post-closing integration period?

A) Developing communication plans
B) Cultural integration
C) Integration planning
D) Developing staffing plans
E) None of the above

Question

Successfully integrated mergers and acquisitions are frequently those which

A) Communicate candidly and continuously
B) Appoint an integration manager and team with clearly defined goals and responsibilities
C) Establish well defined lines of authority
D) Focus on issues that have the greatest near-term impact
E) All of the above

Question

Panasonic Moves to Consolidate Past Acquisitions
¬¬¬¬¬¬¬¬¬¬¬¬¬¬¬¬¬¬¬¬¬¬¬¬¬¬¬¬¬¬¬¬¬¬¬¬¬Key Points:
• Minority investors may impede a firm's ability to implement its business strategy by slowing the decision making process.
• A common solution is for the parent firm to buy out or "squeeze-out" minority shareholders
______________________________________________________________________________
Increased competition in the manufacture of rechargeable batteries and other renewable energy products threatened to thwart Panasonic Corporation's move to achieve a dominant global position in renewable energy products. South Korean rivals Samsung Electronics Company and LG Electronics Inc. were increasing investment to overtake Panasonic in this marketplace. These firms have already been successful in surpassing Panasonic's leadership position in flat-panel televisions.
Despite having a majority ownership in several subsidiaries, Sanyo Electric Company and Panasonic Electric Works Company that are critical to its long-term success in the manufacture and sale of renewable energy products, Panasonic has been frustrated by the slow pace of decision making and strategy implementation. In particular, Sanyo Electric has been reluctant to surrender decision making to Panasonic. Despite appeals by Panasonic president Fumio Ohtsubo 's for collaboration, Panasonic and Sanyo continued to compete for customers. Sanyo Electric maintains a brand that is distinctly different from the Panasonic brand, thereby creating confusion among customers.
Sanyo Electric, the global market share leader in rechargeable lithium ion batteries, also has a growing presence in solar panels. Panasonic Electric Works makes lighting equipment, sensors, and other key components for making homes and offices more energy efficient.
To gain greater decision-making power, Panasonic acquired the remaining publicly traded shares in both Sanyo Electric and Panasonic Electric Works in March 2011 and plans to merge these two operations into the parent. Plans call for combining certain overseas sales operations and production facilities of Sanyo Electric and Panasonic Electric Works, as well as using Panasonic factories to make Sanyo products.
The two businesses were consolidated in 2012. The challenge to Panasonic now is gaining full control without alienating key employees who may be inclined to leave and destroying those attributes of the Sanyo culture that are needed to expand Panasonic's global position in renewable energy products.
This problem is not unique to Panasonic. Many Japanese companies consist of large interlocking networks of majority-owned subsidiaries that are proving less nimble than firms with more centralized authority. After four straight years of operating losses, Hitachi Ltd. spent 256 billion yen ($2.97 billion) to buy out minority shareholders in five of its majority-owned subsidiaries in order to achieve more centralized control.
Discussion Questions
1. Describe the advantages and disadvantages of owning less than 100 percent of another company.
2. When does it make sense to buy a minority interest, a majority interest, or 100 percent of the publicly traded shares of another company?
Case Study Short Essay Examination Questions
HP Acquires Compaq-The Importance of Preplanning Integration
The proposed marriage between Hewlett-Packard (HP) and Compaq Computer got off to a rocky start when the sons of the founders came out against the transaction. The resulting long, drawn-out proxy battle threatened to divert management's attention from planning for the postclosing integration effort. The complexity of the pending integration effort appeared daunting. The two companies would need to meld employees in 160 countries and assimilate a large array of products ranging from personal computers to consulting services. When the transaction closed on May 7, 2002, critics predicted that the combined businesses, like so many tech mergers over the years, would become stalled in a mess of technical and personal entanglements.
Instead, HP's then CEO Carly Fiorina methodically began to plan for integration prior to the deal closing. She formed an elite team that studied past tech mergers, mapped out the merger's most important tasks, and checked regularly whether key projects were on schedule. A month before the deal was even announced on September 4, 2001, Carly Fiorina and Compaq CEO Michael Capellas each tapped a top manager to tackle the integration effort. The integration managers immediately moved to form a 30-person integration team. The team learned, for example, that during Compaq's merger with Digital some server computers slated for elimination were never eliminated. In contrast, HP executives quickly decided what to jettison. Every week they pored over progress charts to review how each product exit was proceeding. By early 2003, HP had eliminated 33 product lines it had inherited from the two companies, thereby reducing the remaining number to 27. Another 6 were phased out in 2004.
After reviewing other recent transactions, the team recommended offering retention bonuses to employees the firms wanted to keep, as Citigroup had done when combining with Travelers. The team also recommended that moves be taken to create a unified culture to avoid the kind of divisions that plagued AOL Time Warner. HP executives learned to move quickly, making tough decisions early with respect to departments, products, and executives. By studying the 1984 merger between Chevron and Gulf Oil, where it had taken months to name new managers, integration was delayed and employee morale suffered. In contrast, after Chevron merged with Texaco in 2001, new managers were appointed in days, contributing to a smooth merger.
Disputes between HP and former Compaq staff sometimes emerged over issues such as the different approaches to compensating sales people. These issues were resolved by setting up a panel of up to six sales managers enlisted from both firms to referee the disagreements. HP also created a team to deal with combining the corporate cultures and hired consultants to document the differences. A series of workshops involving employees from both organizations were established to find ways to bridge actual or perceived differences. Teams of sales personnel from both firms were set up to standardize ways to market to common customers. Schedules were set up to ensure that agreed-upon tactics were actually implemented in a timely manner. The integration managers met with Ms. Fiorina weekly.
The results of this intense preplanning effort were evident by the end of the first year following closing. HP eliminated duplicate product lines and closed dozens of facilities. The firm cut 12,000 jobs, 2,000 more than had been planned at that point in time, from its combined 150,000 employees. HP achieved $3 billion in savings from layoffs, office closures, and consolidating its supply chain. Its original target was for savings of $2.4 billion after the first 18 months.
Despite realizing greater than anticipated cost savings, operating margins by 2004 in the PC business fell far short of expectations. This shortfall was due largely to declining selling prices and a slower than predicted recovery in PC unit sales. The failure to achieve the level of profitability forecast at this time of the acquisition contributed to the termination of Ms. Fiorina in early 2005.
Discussion Questions
1. Explain how premerger planning aided in the integration of HP and Compaq.
2. What did HP learn by studying other mergers? Give examples.
3. Cite key cultural differences between the two organizations. How were they resolved?
Case Study Short Essay Examination Questions
Integrating Supply Chains: Coty Cosmetics Integrates Unilever Cosmetics International
In mid-August 2005, Coty, one of the world's largest cosmetics and fragrance manufacturers, acquired Unilever Cosmetics International (UCI), a subsidiary of the Unilever global conglomerate, for $800 million. Coty viewed the transaction as one in which it could become a larger player in the prestigious fragrance market of expensive perfumes. Coty believed it could reap economies of scale from having just one sales force, marketing group, and the like selling and managing the two sets of products. It hoped to retain the best people from both organizations. However, Coty's management understood that if it were not done quickly enough, it might not realize the potential cost savings and would risk losing key personnel.
By mid-December, Coty's IT team had just completed moving UCI's employees from Unilever's infrastructure to Coty's. This involved such tedious work as switching employees from Microsoft's Outlook to Lotus Notes. Coty's information technology team was faced with the challenge of combining and standardizing the two firms' supply chains, including order entry, purchasing, processing, financial, warehouse, and shipping systems. At the end of 2006, Coty's management announced that it anticipated that the two firms would be fully integrated by June 30, 2006. From an IT perspective, the challenges were daunting. The new company's supply chain spanned ten countries and employed four different enterprise resource planning (ERP) systems that had three warehouse systems running five major distribution facilities on two continents. ERP is an information system or process that integrates all production and related applications across an entire corporation.
On January 11-12, 2006, 25 process or function "owners," including the heads of finance, customer service, distribution, and IT, met to create the integration plan for the firm's disparate supply chains. In addition to the multiple distribution centers and ERP systems, operations in each country had unique processes that had to be included in the integration planning effort. For example, Italy was already using the SAP system on which Coty would eventually standardize. The largest customers there placed orders at the individual store level and expected products to be delivered to these stores. In contrast, the United Kingdom used a legacy (i.e., a highly customized, nonstandard) ERP system, and Coty's largest customer in the United Kingdom, the Boots pharmacy chain, placed orders electronically and had them delivered to central warehouses.
Coty's IT team, facing a very demanding schedule, knew it could not accomplish all that needed to be done in the time frame required. Therefore, it started with any system that directly affected the customer, such as sending an order to the warehouse, shipment notification, and billing. The decision to focus on "customer-facing" systems came at the expense of internal systems, such as daily management reports tracking sales and inventory levels. These systems were to be completed after the June 30, 2006, deadline imposed by senior management.
To minimize confusion, Coty created small project teams that consisted of project managers, IT directors, and external consultants. Smaller teams did not require costly overhead, like dedicated office space, and eliminated chains of command that might have prevented senior IT management from receiving timely, candid feedback on actual progress against the integration plan. The use of such teams is credited with allowing Coty's IT department to combine sales and marketing forces as planned at the beginning of the 2007 fiscal year in July 2006. While much of the "customer-facing" work was done, many tasks remained. The IT department now had to go back and work out the details it had neglected during the previous integration effort, such as those daily reports its senior managers wanted and the real-time monitoring of transactions. By setting priorities early in the process and employing small, project-focused teams, Coty was able to integrate successfully the complex supply chains of the firms in a timely manner.
Discussion Questions
1. Do you agree with Coty management's decision to focus on integrating "customer-facing" systems first? Explain your answer.
2. How might this emphasis on integrating "customer-facing" systems have affected the new firm's ability to realize anticipated synergies? Be specific.
3. Discuss the advantages and disadvantages of using small project teams. Be specific.
Case Study Short Essay Examination Questions
Culture Clash Exacerbates Efforts of the Tribune Corporation to Integrate the Times Mirror Corporation
The Chicago-based Tribune Corporation owned 11 newspapers, including such flagship publications as the Chicago Tribune, the Los Angeles Times, and Newsday, as well as 25 television stations. Attempting to offset the long-term decline in newspaper readership and advertising revenue, Tribune acquired the Times Mirror (owner of the Los Angeles Times newspaper) for $8 billion in 2000. The merger combined two firms that historically had been intensely competitive and had dramatically different corporate cultures. The Tribune was famous for its emphasis on local coverage, with even its international stories having a connection to Chicago. In contrast, the L.A. Times had always maintained a strong overseas and Washington, D.C., presence, with local coverage often ceded to local suburban newspapers. To some Tribune executives, the L.A. Times was arrogant and overstaffed. To L.A. Times executives, Tribune executives seemed too focused on the "bottom line" to be considered good newspaper people.
The overarching strategy for the new company was to sell packages of newspaper and local TV advertising in the big urban markets. It soon became apparent that the strategy would be unsuccessful. Consequently, the Tribune's management turned to aggressive cost cutting to improve profitability. The Tribune wanted to encourage centralization and cooperation among its newspapers to cut overlapping coverage and redundant jobs.
Coverage of the same stories by different newspapers owned by the Tribune added substantially to costs. After months of planning, the Tribune moved five bureaus belonging to Times Mirror papers (including the L.A. Times) to the same location as its four other bureaus in Washington, D.C. L.A. Times' staffers objected strenuously to the move, saying that their stories needed to be tailored to individual markets and they did not want to share reporters with local newspapers. As a result of the consolidation, the Tribune's newspapers shared as much as 40 percent of the content from Washington, D.C., among the papers in 2006, compared to as little as 8 percent in 2000. Such changes allowed for significant staffing reductions.
In trying to achieve cost savings, the firm ran aground in a culture war. Historically, the Times Mirror, unlike the Tribune, had operated its newspapers more as a loose confederation of separate newspapers. Moreover, the Tribune wanted more local focus, while the L.A. Times wanted to retain its national and international presence. The controversy came to a head when the L.A. Times' editor was forced out in late 2006.
Many newspaper stocks, including the Tribune, had lost more than half of their value between 2004 and 2006. The long-term decline in readership within the Tribune appears to have been exacerbated by the internal culture clash. As a result, the Chandler Trusts, Tribune's largest shareholder, put pressure on the firm to boost shareholder value. In September, the Tribune announced that it wanted to sell the entire newspaper; however, by November, after receiving bids that were a fraction of what had been paid to acquire the newspaper, it was willing to sell parts of the firm. The Tribune was taken private by legendary investor Sam Zell in 2007 and later went into bankruptcy in 2009, a victim of the recession and its bone-crushing debt load. See Case Study 13.4 for more details.
Discussion Questions
1. Why do you believe the Tribune thought it could overcome the substantial cultural differences between itself and the Times Mirror Corporation? Be specific.
2. What would you have done differently following closing to overcome the cultural challenges faced by the Tribune? Be specific.
Case Study Short Essay Examination Questions
Daimler Acquires Chrysler-Anatomy of a Cross-Border Transaction
The combination of Chrysler and Daimler created the third largest auto manufacturer in the world, with more than 428,000 employees worldwide. Conceptually, the strategic fit seemed obvious. German engineering in the automotive industry was highly regarded and could be used to help Chrysler upgrade both its product quality and production process. In contrast, Chrysler had a much better track record than Daimler in getting products to market rapidly. Daimler's distribution network in Europe would give Chrysler products better access to European markets; Chrysler could provide parts and service support for Mercedes-Benz in the United States. With greater financial strength, the combined companies would be better able to make inroads into Asian and South American markets.
Daimler's product markets were viewed as mature, and Chrysler was under pressure from escalating R&D costs and retooling demands in the wake of rapidly changing technology. Both companies watched with concern the growing excess capacity of the worldwide automotive manufacturing industry. Daimler and Chrysler had been in discussions about doing something together for some time. They initiated discussions about creating a joint venture to expand into Asian and South American markets, where both companies had a limited presence. Despite the termination of these discussions as a result of disagreement over responsibilities, talks were renewed in February 1998. Both companies shared the same sense of urgency about their vulnerability to companies such as Toyota and Volkswagen. The transaction was completed in April 1998 for $36 billion.
Enjoying a robust auto market, starry-eyed executives were touting how the two firms were going to save billions by using common parts in future cars and trucks and by sharing research and technology. In a press conference to announce the merger, Jurgen Schrempp, CEO of DaimlerChrysler, described the merger as highly complementary in terms of product offerings and the geographic location of many of the firms' manufacturing operations. It also was described to the press as a merger of equals (Tierney, 2000). On the surface, it all looked so easy.
The limitations of cultural differences became apparent during efforts to integrate the two companies. Daimler had been run as a conglomerate, in contrast to Chrysler's highly centralized operations. Daimler managers were accustomed to lengthy reports and meetings to review the reports. Under Schrempp's direction, many top management positions in Chrysler went to Germans. Only a few former Chrysler executives reported directly to Schrempp. Made rich by the merger, the potential for a loss of American managers within Chrysler was high. Chrysler managers were accustomed to a higher degree of independence than their German counterparts. Mercedes dealers in the United States balked at the thought of Chrysler's trucks still sporting the old Mopar logo delivering parts to their dealerships. All the trucks had to be repainted.
Charged with the task of finding cost savings, the integration team identified a list of hundreds of opportunities, offering billions of dollars in savings. For example, Mercedes dropped its plans to develop a battery-powered car in favor of Chrysler's electric minivan. The finance and purchasing departments were combined worldwide. This would enable the combined company to take advantage of savings on bulk purchases of commodity products such as steel, aluminum, and glass. In addition, inventories could be managed more efficiently, because surplus components purchased in one area could be shipped to other facilities in need of such parts. Long-term supply contracts and the dispersal of much of the purchasing operations to the plant level meant that it could take as long as 5 years to fully integrate the purchasing department.
The time required to integrate the manufacturing operations could be significantly longer, because both Daimler and Chrysler had designed their operations differently and are subject to different union work rules. Changing manufacturing processes required renegotiating union agreements as the multiyear contracts expired. All of that had to take place without causing product quality to suffer. To facilitate this process, Mercedes issued very specific guidelines for each car brand pertaining to R&D, purchasing, manufacturing, and marketing.
Although certainly not all of DaimlerChrysler's woes can be blamed on the merger, it clearly accentuated problems associated with the cyclical economic slowdown during 2001 and the stiffened competition from Japanese automakers. The firm's top management has reacted, perhaps somewhat belatedly to the downturn, by slashing production and eliminating unsuccessful models. Moreover, the firm has pared its product development budget from $48 billion to $36 billion and eliminated more than 26,000 jobs, or 20% of the firm's workforce, by early 2002. Six plants in Detroit, Mexico, Argentina, and Brazil were closed by the end of 2002. The firm also cut sharply the number of Chrysler. car dealerships. Despite the aggressive cost cutting, Chrysler reported a $2 billion operating loss in 2003 and a $400 million loss in 2004.
While Schrempp had promised a swift integration and a world-spanning company that would dominate the industry, five years later new products have failed to pull Chrysler out of a tailspin. Moreover, DaimlerChrysler's domination has not extended beyond the luxury car market, a market they dominated before the acquisition. The market capitalization of DaimlerChrysler, at $38 billion at the end of 2004, was well below the German auto maker's $47 billion market cap before the transaction.
With the benefit of hindsight, it is possible to note a number of missteps DaimlerChrysler has made that are likely to haunt the firm for years to come. These include paying too much for some parts, not updating some vehicle models sooner, falling to offer more high-margin vehicles that could help ease current financial strains, not developing enough interesting vehicles for future production, and failing to be completely honest with Chrysler employees. Although Daimler managed to take costs out, it also managed to alienate the workforce.
Identify ways in which the merger combined companies with complementary skills and resources?

Question

Case Study Short Essay Examination Questions
Alcatel Merges with Lucent, Highlighting Cross-Cultural Issues
Alcatel SA and Lucent Technologies signed a merger pact on April 3, 2006, to form a Paris-based telecommunications equipment giant. The combined firms would be led by Lucent's chief executive officer Patricia Russo. Her charge would be to meld two cultures during a period of dynamic industry change. Lucent and Alcatel were considered natural merger partners because they had overlapping product lines and different strengths. More than two-thirds of Alcatel's business came from Europe, Latin America, the Middle East, and Africa. The French firm was particularly strong in equipment that enabled regular telephone lines to carry high-speed Internet and digital television traffic. Nearly two-thirds of Lucent's business was in the United States. The new company was expected to eliminate 10 percent of its workforce of 88,000 and save $1.7 billion annually within three years by eliminating overlapping functions.
While billed as a merger of equals, Alcatel of France, the larger of the two, would take the lead in shaping the future of the new firm, whose shares would be listed in Paris, not in the United States. The board would have six members from the current Alcatel board and six from the current Lucent board, as well as two independent directors that must be European nationals. Alcatel CEO Serge Tehuruk would serve as the chairman of the board. Much of Ms. Russo's senior management team, including the chief operating officer, chief financial officer, the head of the key emerging markets unit, and the director of human resources, would come from Alcatel. To allay U.S. national security concerns, the new company would form an independent U.S. subsidiary to administer American government contracts. This subsidiary would be managed separately by a board composed of three U.S. citizens acceptable to the U.S. government.
International combinations involving U.S. companies have had a spotty history in the telecommunications industry. For example, British Telecommunications PLC and AT&T Corp. saw their joint venture, Concert, formed in the late 1990s, collapse after only a few years. Even outside the telecom industry, transatlantic mergers have been fraught with problems. For example, Daimler Benz's 1998 deal with Chrysler, which was also billed as a merger of equals, was heavily weighted toward the German company from the outset.
In integrating Lucent and Alcatel, Russo faced a number of practical obstacles, including who would work out of Alcatel's Paris headquarters. Russo, who became Lucent's chief executive in 2000 and does not speak French, had to navigate the challenges of doing business in France. The French government has a big influence on French companies and remains a large shareholder in the telecom and defense sectors. Russo's first big fight would be dealing with the job cuts that were anticipated in the merger plan. French unions tend to be strong, and employees enjoy more legal protections than elsewhere. Hundreds of thousands took to the streets in mid-2006 to protest a new law that would make it easier for firms to hire and fire younger workers. Russo has extensive experience with big layoffs. At Lucent, she helped orchestrate spin-offs, layoffs, and buyouts involving nearly four-fifths of the firm's workforce.
Making choices about cuts in a combined company would likely be even more difficult, with Russo facing a level of resistance in France unheard of in the United States, where it is generally accepted that most workers are subject to layoffs and dismissals. Alcatel has been able to make many of its job cuts in recent years outside France, thereby avoiding the greater difficulty of shedding French workers. Lucent workers feared that they would be dismissed first simply because it is easier than dismissing their French counterparts.
After the 2006 merger, the company posted six quarterly losses and took more than $4.5 billion in write-offs, while its stock plummeted more than 60 percent. An economic slowdown and tight credit limited spending by phone companies. Moreover, the market was getting more competitive, with China's Huawei aggressively pricing its products. However, other telecommunications equipment manufacturers facing the same conditions have not fared nearly as badly as Alcatel-Lucent. Melding two fundamentally different cultures (Alcatel's entrepreneurial and Lucent's centrally controlled cultures) has proven daunting. Customers who were uncertain about the new firm's products migrated to competitors, forcing Alcatel-Lucent to slash prices even more. Despite the aggressive job cuts, a substantial portion of the projected $3.1 billion in savings from the layoffs were lost to discounts the company made to customers in an effort to rebuild market share.
Frustrated by the lack of progress in turning around the business, the Alcatel-Lucent board announced in July 2008 that Patricia Russo, the American chief executive, and Serge Tchuruk, the French chairman, would leave the company by the end of the year. The board also announced that, as part of the shake-up, the size of the board would be reduced, with Henry Schacht, a former chief executive at Lucent, stepping down. Perhaps hamstrung by its dual personality, the French-American company seemed poised to take on a new personality of its own by jettisoning previous leadership.
:
Explain the logic behind combining the two companies.Be specific.

Question

Which of the following factors affect customer attrition that normally accompanies post-merger integration?

A) Customer uncertainty about on-time delivery
B) More aggressive pricing from competitors
C) Deteriorating customer services
D) Deteriorating product quality
E) All of the above

Question

Case Study Short Essay Examination Questions
Alcatel Merges with Lucent, Highlighting Cross-Cultural Issues
Alcatel SA and Lucent Technologies signed a merger pact on April 3, 2006, to form a Paris-based telecommunications equipment giant. The combined firms would be led by Lucent's chief executive officer Patricia Russo. Her charge would be to meld two cultures during a period of dynamic industry change. Lucent and Alcatel were considered natural merger partners because they had overlapping product lines and different strengths. More than two-thirds of Alcatel's business came from Europe, Latin America, the Middle East, and Africa. The French firm was particularly strong in equipment that enabled regular telephone lines to carry high-speed Internet and digital television traffic. Nearly two-thirds of Lucent's business was in the United States. The new company was expected to eliminate 10 percent of its workforce of 88,000 and save $1.7 billion annually within three years by eliminating overlapping functions.
While billed as a merger of equals, Alcatel of France, the larger of the two, would take the lead in shaping the future of the new firm, whose shares would be listed in Paris, not in the United States. The board would have six members from the current Alcatel board and six from the current Lucent board, as well as two independent directors that must be European nationals. Alcatel CEO Serge Tehuruk would serve as the chairman of the board. Much of Ms. Russo's senior management team, including the chief operating officer, chief financial officer, the head of the key emerging markets unit, and the director of human resources, would come from Alcatel. To allay U.S. national security concerns, the new company would form an independent U.S. subsidiary to administer American government contracts. This subsidiary would be managed separately by a board composed of three U.S. citizens acceptable to the U.S. government.
International combinations involving U.S. companies have had a spotty history in the telecommunications industry. For example, British Telecommunications PLC and AT&T Corp. saw their joint venture, Concert, formed in the late 1990s, collapse after only a few years. Even outside the telecom industry, transatlantic mergers have been fraught with problems. For example, Daimler Benz's 1998 deal with Chrysler, which was also billed as a merger of equals, was heavily weighted toward the German company from the outset.
In integrating Lucent and Alcatel, Russo faced a number of practical obstacles, including who would work out of Alcatel's Paris headquarters. Russo, who became Lucent's chief executive in 2000 and does not speak French, had to navigate the challenges of doing business in France. The French government has a big influence on French companies and remains a large shareholder in the telecom and defense sectors. Russo's first big fight would be dealing with the job cuts that were anticipated in the merger plan. French unions tend to be strong, and employees enjoy more legal protections than elsewhere. Hundreds of thousands took to the streets in mid-2006 to protest a new law that would make it easier for firms to hire and fire younger workers. Russo has extensive experience with big layoffs. At Lucent, she helped orchestrate spin-offs, layoffs, and buyouts involving nearly four-fifths of the firm's workforce.
Making choices about cuts in a combined company would likely be even more difficult, with Russo facing a level of resistance in France unheard of in the United States, where it is generally accepted that most workers are subject to layoffs and dismissals. Alcatel has been able to make many of its job cuts in recent years outside France, thereby avoiding the greater difficulty of shedding French workers. Lucent workers feared that they would be dismissed first simply because it is easier than dismissing their French counterparts.
After the 2006 merger, the company posted six quarterly losses and took more than $4.5 billion in write-offs, while its stock plummeted more than 60 percent. An economic slowdown and tight credit limited spending by phone companies. Moreover, the market was getting more competitive, with China's Huawei aggressively pricing its products. However, other telecommunications equipment manufacturers facing the same conditions have not fared nearly as badly as Alcatel-Lucent. Melding two fundamentally different cultures (Alcatel's entrepreneurial and Lucent's centrally controlled cultures) has proven daunting. Customers who were uncertain about the new firm's products migrated to competitors, forcing Alcatel-Lucent to slash prices even more. Despite the aggressive job cuts, a substantial portion of the projected $3.1 billion in savings from the layoffs were lost to discounts the company made to customers in an effort to rebuild market share.
Frustrated by the lack of progress in turning around the business, the Alcatel-Lucent board announced in July 2008 that Patricia Russo, the American chief executive, and Serge Tchuruk, the French chairman, would leave the company by the end of the year. The board also announced that, as part of the shake-up, the size of the board would be reduced, with Henry Schacht, a former chief executive at Lucent, stepping down. Perhaps hamstrung by its dual personality, the French-American company seemed poised to take on a new personality of its own by jettisoning previous leadership.
:
In what way would you characterize this transaction as a merger of equals? In what ways
should it not be considered a merger of equals?

Question

Successfully integrated M&As are those that demonstrate leadership by candidly and continuously communicating which of the following?

A) A clear vision
B) A set of values
C) Unambiguous priorities for each employee
D) A & B only
E) A, B, & C

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Deck 6: Postclosing Integration: Mergers, acquisitions, and Business Alliances

True

An acquiring firm that focuses heavily on integrating a target firm,which represents a sizeable portion of its total operations,frequently sees deterioration in its own current operating performance.

True

In hostile takeovers,the employees that are on the post-merger integration team should come from the acquiring firm because of concerns that the target firm's employees cannot be trusted.

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