Positive Thoughts For The Day

ROLE OF HUMAN RESOURCES IN MERGERS AND ACQUISITIONS

Introduction:

A merger is a combination of two companies to form a new company, while an acquisition is the purchase of one company by another with no new company being formed. A merger occurs when one firm assumes all the assets and all the liabilities of another. The acquiring firm retains its identity, while the acquired firm ceases to exist. A majority vote of shareholders is generally required to approve a merger. A merger is just one type of acquisition. One company can acquire another in several other ways, including purchasing some or all of the company’s assets or buying up its outstanding shares of stock. The term “acquisition” is typically used when one company takes control of another. This can occur through a merger or a number of other methods, such as purchasing the majority of a company’s stock or all of its assets.

Reasons for Mergers and Acquisitions:

The management of an acquiring company may be motivated more by the desire to manage ever-larger companies than by any possible gains in efficiency. There are a number of reasons why a corporation will merge with, acquire, or be acquired by another corporation. Sometimes, corporations can produce goods or services more efficiently if they combine their efforts and facilities. Collaborating or sharing expertise may achieve gains in efficiency, or a company might have underutilized assets, the other company can better use. Also, a change in management may make the company more profitable. Other reasons for acquisitions have to do more with hubris and power.

Regulation of Mergers and Acquisitions:

Mergers and acquisitions are governed by both state and federal laws. State law sets the procedures for the approval of mergers and establishes judicial oversight for the terms of mergers to ensure shareholders of the target company, receive fair value. Generally, state law tends to be deferential to defences as long as the target company is not acting primarily to preserve its own positions. Courts tend to be sceptical of defences if the management of a target company has already decided to sell the company or to bring about a change of control. Because of the fear that mergers will negatively affect employees or other company stakeholders, most states allow directors at target companies to defend against acquisitions. Because of the number of state defences now available, the vast majority of mergers and acquisitions are friendly, negotiated transactions.

Motives behind M&A

i) The following motives are considered to add shareholder value:

Economies of scale, increased revenue / increased market share, cross selling, synergy, taxes, geographical or other diversification and resource transfer.