In the contemporary business world, the competition among business organizations to outdo the others is becoming very keen. Different management techniques and business strategies are adopted to garner the best resources; man, money and material, in order for the business to curve an edge for itself among it competitors.
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Some business organization in a bid to compete favorably with other blue chips and guilt edge companies, have resorted to merging with other companies. Business merger is used as a means of consolidating and strengthening the financial, managerial and material base of the merged organizations. In this view Steven and Louis (1990:17), has it that “A firm acquires another for the same reasons that one firm would merge with another or that one firm would enter into a joint venture with another firm. It is the debenture with another firm’s potential profitability through the use of or sharing of another firm’s expertise”.
In the aftermath of the merging process, sometimes, it is observed that negative factors that are detrimental to the effective and efficient operation of the organization would begin to surface. “Mergers are seldom hostile in nature…A merger like any other business activity, is not without its risks” (ibid:73).
In a bid for organizations that are merging to have a successful takeover, it is expedient that vital issues regarding the process of merging are adequately addressed. “Obviously, there are hundreds of issues that need to be addressed and hundreds of large and small decisions that need to be made in any merger process” (Shannon and Stephen, 2000:35).
This research study tends to base its focus on the human, economy and managerial effectiveness and efficiency of the merging organization. A case study of Sony/BMG would be use in the conduct of this research work.
- BACKGROUND OF THE CASE STUDY
The merger between Sony- BMG will be the second- largest record company in the world with 30 percent of the world music market and combined sales of more than $8 billion, according to Nielsen Soundscan, placing it just below Vivendi’s Universal Music Group and ahead of Warner Music Group and EMI Group. ( Keller 2004).
The five multinational music companies- Universal Music, Sony Music, EMI, Warner Music and Bertelsmann Music Group (BMG)- have been engaged in a collective courtship ritual for years. The decline in sales by more than a quarter since 1999, and even after swinging cost cuts, industry insiders feel that they need to merge in order to restore profitability. Hence, this brought no surprise at the announcement of Sony Music and BMG merger, the group wish to combine 25% share of the global recorded- music market and sales of 4.5 billion pounds- 5 billion ( $ 5.1 billion –5.7 billion). ( The Economist Print edition, 2003).
The BMG’s label including RCA, J Records, Jive and Arista, are home to Elvis Presley, Britney Spears, Justin Timberlake, Christina Aguilera….. and such America Idol alums as Kelly Clarkson, Rueben Studdard, Clay Aiken and Fantasia Barrino.
Sony’s Columbia and Epic Records rosters feature the like of Beyounce Knowles and Destiny Child, Jennifer Lopez, Michael Jackson, The Dixie Chicks, Celine Dion among others. (Kelly, 2004).
The Federal Trade Commission cleared the way for the merger of Sony and BMG. “The FTC approval,…..means that regulators believe the new companies, henceforth known as Sony- BMG, does not violate antitrust laws and that the merger can move on full-steam ahead”. (ibid).
According to a statement from Sony, “ Now with regulatory approvals behind us, we look forward to establishing a dynamic new company”. BMG echoes, “ we now look forward to creating a global recorded music company comprising many of the world’s most successful artists as well as a vast catalog of recordings” (ibid)
In the first half of 2003, Sony Music made a negligible profit of $2m on sales of $1.14 billion; BMG had an operating loss of 117m pounds on sales of 1 billion pounds. The companies have said they could make combined cost savings of $250m- 300m if they merge. (The Economist print edition, 2003)
- STATEMENT OF RESEARCH PROBLEM
The following observed problems are to be solved in this research work:
- What best procedure to adopt in business merger, that will make the business marriage a success?
- How can the takeover of the organization be managed in order to avert negative tone in the organization, which can distract managers and leave workers disgusted and feeling betrayed?
- Job security has always being the fear of workers in the course of a merger. How can a merger be conducted in order to alley this fear from their existing workers, or those they intend to employ.
- Business merger tends to bring together different organization with its own destined organizational culture. Any conflict between the purchasing firm and the purchased firm can have serious negative human capital impact and detrimental implications to the organization. How can these diversity in organization cultures be managed and married so as to promote a cordial and peace atmosphere in the newly merged organization.
- How would the business strategy of the merged company be conducted so as to take into cognizance the hitherto strategy each organizations had carried out so that it won’t be dysfunctional to the effective and efficient management of the business organization
- OBJECTIVES OF THE STUDY
- To proffer a feasible and pragmatic way of conducting business merge in order to make the business marriage a successful venture.
- To know the effect business merger tends to have on the human, economy and managerial aspect of the merging organization.
- Also, the research study tend to compare from the experience of different company that has merged, so as to see those factors responsible for its success or failure.
- The economy implications of business merger would be looked into. It is to determine whether business merger add to the economy buoyancy of the country, or its contribute to its depression.
- The research study also tend to find a workable methods and pattern in preventing and managing conflict arising from diversity in organizational culture: ways these can be married together for the effective operation of the organization.
- RESEARCH HYPOTHESIS
The following hypotheses are derived for this research study.
(1) H1: Business merger brings about negative tone, which distracts manager, and leave workers feeling disgusted and betrayed.
(2) H1: There is a positive relationship between workers fear for job security and their performance in a merged company.
(3) H1: Diversity in organization culture is dysfunctional to a successful business merger.
(4) H1: Diversity in inherent business strategy of merging organizations affects its effective and efficient management in the merged organization.
- SIGNIFICANCE OF THE STUDY
The significance of this research study to the generality of people include the following:
- The research tends to be beneficial to intending companies, who nurse the desire to merge. It will give them the insight into the proper procedure to follows in order for them to arrive at a successful merger.
- The research also would be as a point of reference to other researcher who have find their interest in researching in this line of research study
- Workers of merging firms tend to benefit from the research work, in the sense that they would know the resultant effects of business merger. And how to adjust to adapt to the new trend in the emerged organization.
- The research study would clarify the advantages, benefits and the negative implication of business merger. This will tend to alley the fear of people and also bring them to terms with the realities of the implication of the process.
- SCOPE AND LIMITATION OF THE STUDY
The scope of this research study would cover operations that concern business merger in contemporary times. The range will p to those since 1990 to the current year (2005).
The observed limitation to this research study boils down to the underlisted:
- The period of merger of SONY/BMG, is still in its early days. There is no long range of time or mature in which the case study would be studied to draw out the occurrence in the merged organization.
- The problem of allocating more time to this research work becomes very difficult, since other educational activities and personal function demand the timer sharing.
- Adequate funding of the research projects, in terms of visit to the case study, sourcing materials, and the general typing and binding of the research work is another limitation that is observed; since enough funds to adequately pursue this task is not readily available.
- Data collection from the case study and material sourcing to adequately conduct a good work is not easy to come by more effort need to be put to see that this come to pass.
- DEFINITION OF TERMS
BUSINESS MERGER: Business merger is an organizational reform and transformation, where two or more organization that hitherto operate as a different and separate entity, comes together to form a single organization, where resources are jointly managed in order to achieve set objectives and goals for the organization.
According to Steven and Louis (1990:73), “a merger can be considered to be a mutual agreement of sorts between two firms to join together to become one company”.
CORPORATE TAKEOVER: Corporate takeover is sometime use as a synonym for business merger, corporate takeover is the acquisition of a firm, by another firm which take control of the purchased firm
ACQUISITION: Is a structured transfer of one firm’s assets to another in an agreed upon and orderly manner. In many instances these assets are all – inclusive and constitute the acquired firm in its entirety. (Ibid: 117).
EFFECTIVENESS: Effectiveness is a term that can be defined as the ability of an organization to achieve its sets objectives and goals.
EFFICIENCY: Efficiency is the ability of an organization to optimally utilize its resources in the attainment of set goals and objectives. Thus, it is seen as the proportion in which output surpasses inputs, in the production process.
HUMAN RESOURCE: Human resources as used in this study signify the total workforce of an organization. i.e. the people working in a business organization.
- LITERATURE REVIEW/THEORETICAL FRAMEWORK
- LITERATURE REVIEW
“The business press is full of examples of how to merge two companies poorly. Success stories are harder to come by” (Shannon and Stephen, 2000:35), this goes to say that literatures on business merger concentrates more on those things that results in its failure, and little about on the procedure to take in making the marriage a success.
In the course of merging two firms, problems may arise after the merging process, due to diversity in operational culture. In this view, Steven and Louis (1990:117), puts it that “By their very nature, acquisitions are invasive. One firm, in essence, takes over the management and financial responsibilities of another firm. In many instances, it is necessary to restructure the acquired firm and to merge the two distinct corporate cultures into one. Also, with an acquisition comes unique problems and the requirement for unique strategies necessary to make the acquisition a success”.
According to Shannon and Stephen (2000:143), “Despite all the work that was done before the deal is sealed, it is often during integration planning and implementation that things begin to fall apart rather quickly”. The major reason behind this derailment is that no clear process has been identified in the first place. Managers in units to be consolidated are given a vague mandate to ‘make it work’, while still being expected to fulfill all of their previous duties (Ibid). In the view of Steven and Louis (1990:73),
Mergers are seldom-hostile min nature. Therefore, negative factors inherent in hostile takeovers are absent. The possibility of massive selloffs are usually not an issue. In addition to accept and support the merger than oppose it. There are, however, other factors common to merger, acquisition, and alliance activities that must be considered, such as power struggles between the firms, a clash of corporate cultures, organizational and reorganization issues, the effects of a new corporate direction, and entry into new or unfamiliar markets.
Despite the historical flood of acquisition activity, the track record for acquisitions has been poor, and the chances of a successful acquisition have been equally slim. Statistics show that more than 50 percent of all acquisitions will be resold with in three years of their purchase (Ibid. 117).
A merger, therefore like any other business activity, is not without its risks. Moreover, these risks can be managed and minimized. When studying merger activity, several common strategies tend to surface that characterize successful mergers; these include long term corporate commitment, inter alia. (Ibid. 73).
“Serious errors were made by managers who engaged in wide-ranging merger activity and by the investors who financed them. It is important for business leaders to understand what went wrong and low to avoid making similar errors in the future. It is also important for policy makes to understand what happened. Good policy is unlikely to grow from the barren soil of misunderstanding”.
According to the Economic Report of the President (1988:191), “Although extensive research has established that takeovers tend to be beneficial, not every take is successful in attaining its originally contemplated benefits, and there are many examples of takeovers that, in hindsight, appears to have been misguided… it is impossible to predict which takeovers will be unsuccessful, the takeover process must be evaluated in the aggregate, and cannot be assessed on the basis of isolated examples of failure or success”.
There are protagonists and critics of business mergers and takeovers. According to Work and Seamonds (1988: B-1), There are many who still defend takeovers. They include free-market economists who insist that buyouts force corporations to focus on results rather than size, to redeploy their assets, and to reduce their stifling bureaucracies. Economists argue that mergers of business producing the same or a similar product may result in increasing returns to scale and a decline in unit costs as the number of units produced increases.
This many economists believe that mergers are not only useful, but that they are, in fact, essential in a dynamic economy. Others who see merit in takeovers are arbitrageurs, raiders, greenmails, investment bankers who play chaperone or matchmaker, lawyers, speculators and short-terms shareholders. These groups sometimes help to turn merger or acquisition ordeals into feeding frenzies from which they, because of their privileged position or expertise, stand to realize handsome profits or fees.
According to Abbasi, Hollman and Murrey Jr. (1991), “proponents contend that mergers reduce stifling bureaucracies and promote efficiency in the allocation of resources and in the production of goods and services. Critics insist that mergers amount to no more than a shuffling of assets that markedly display the greed of raiders, speculators, arbitrageurs, and others”. Both proponents and critics usually fail to take into cognizance the resulting human dislocation, which inevitably follows a merger. (Ibid.)
Merger of companies has its devastating effects on the employees of these organizations. “Studies reveal that the real and poignant issues that affect workers were given scant attention during and after the acquisition process in may of the most recent mergers. As a result, many employees felt that the psychological contract, they counted on throughout their career had been broken by corporate takeovers and the human dislocation which followed it “ (Panos, 1989:44-47, Prokesch 1985: D-1).
Also in any business consolidation, the potential for wrenching operational change and a collision of organizational cultures between two previously separate and autonomous organizations is very strong. Any conflict between the purchasing firm and the purchased firm can have serious negative human capital impact and detrimental organizational implication. (Thierrien 1990, Magnet 1984:44, Sinetar 1981).
According to Abbasi, Hollman and Murrey Jr. (1991) “The ordeal of a takeover can distract managers and leave workers disgusted and felling betrayed” “An acquisition can imperil not only jobs but also the future security of those who stay” (Ibid). For an effective takeover management. Abbasi, Hollman and Murrey Jr. (1991) gave the following recommendations:
- End tax breaks for the acquiring corporation: this should help produce corporate restraints, help reduce the amount of foregone takes and ultimately lead to a healthier economic environment.
- Extend current antitrust laws or pass new antitrust laws to encompass unfriendly takeovers.
- Require a two or three month moratorium after the announcement of the intention of making an offer and the offer itself.
- Permit workers- the groups most likely to be directly affected by a take over – to have some voice in hostile takeover attempts.
- Establish a government-sponsored takeover panel to review takeovers.
- Empower the comptroller of the currency to restrict or to monitor commercial bank lending for unfriendly takeovers; inter alia.
- THEORETICAL FRAMEWORK
Theories are abstraction from the real world, in order to give explanation to phenomenon. In other words, it is a tested hypothesis, used to give explanation to the relationship between two or more variables.
According to Ravenscraft and Scherer (1987:1), During the hiatus between the conglomerate merger wave of the 1960s and the record merger activity of the early 1980s, a vigorous school of thought emerged that sought to explain the causes and efficiency benefits of mergers through the study of stock price behavior. One of the first contributions found the pattern of stock price c movements to support the hypothesis that “mergers are a mechanism by which the market system replaces incompetent management” (Mandelker, 1974:324), as quoted by Ravenscraft and Scherer, 1987:1).
Another school, straddling parts of academia, the consulting profession, and the business press, focused with growing skepticism on the fruits of past mergers. According to Louis (182:89), “most of the acquirers were lured into buying unstable companies, or into committing foolish mistakes that harmed stable ones”. Peter Drucker observed that two merger out of five are “outright disasters, “two” neither live nor die, “and one” worker” (See Ravenscraft and Scherer, 1987:1).
The quantitative survey research design would be use in the conduct of this research study. According to Odiagbe (1999:11), “survey is designed to answer question about fact description, conduction, and relationship. Although it is often enumerative in nature, it goes beyond the simple enumeration associated with census”. Thus, the survey design would make use of questionnaire as instrument for the collection of data from the respondents.
TOTAL POPULATION OF STUDY
The total population of study would encompass all workers of SONY/BMG Company. This will include clients that patronize the company.
SAMPLE SIZE AND SAMPLING TECHNIQUE
The same size to be adopted for this research would be 150. The sample would cut across both workers and clients to the company. The sampling technique to be adopted is the simple random sampling technique where all members of the total population have equal chance of being included in the sample without bias.
DATA COLLECTION METHODS
In the course of conducting this research both the primary and secondary data would be utilize the primary data would be derived through self-administered questionnaires. While the secondary data would be gotten from textbooks, journal publications, Newspapers and magazines articles, seminar presentations, government gazettes and internet publications.
DATA ANALYSIS AND INTERPRETATION
Simple percentage would be use to classify the responses of the respondents in a tabular form and interpretation would be given to this. Chi-square (X2) would be used to test the research hypotheses the Chi-square (X2) decision rule would be:
- Accept the null hypothesis (Ho), when the X2 calculated value < the X2 table value. Hence reject the alternate hypothesis (HI)
- Accept the alternate hypothesis (HI) when the X2 calculated value > the X2 table value. Hence, reject the Null hypothesis (Ho)
ETHICAL IMPLICATIONS OF THE RESEARCH STUDY
The basic general assumption people have on business merger induced the following:
- It is assumed that business merger would make the merged companies to have financial, material and managerial increase to enable it competes favorably with its competitors.
- It is also assumed that merger would result to the lost of jobs as a result of the restructuring that will take place in the merged organization.
- It is also believed that merger and takeovers tend to have psychological effects on the workers, this may dislocate and make them put up defensive behavior to the work.
In line with the above highlighted assumptions on merger, the research tend to focus more on the results and findings it will derive form its data analysis and findings from the research. Thus, the assumption would be relegated to the backseat as the research work proceeds. Comparison will be done after the research findings are uncovered. Also data for the research would not be falsified. The privacy of the respondents would be respected.
Abbasi, S.M, Hollman, K.W. &Murrey, Jr.,J.H.(1991), “Merger Mania: Human and Economic Effects”. Review of Business. Vol. 13, 1-2.
Anders, George (1988), “With Leveraged Buy- Outs in Spotlight, Here Are Answers to Common Questions”, Wall Street Journal, October 28, p. B-1.
Economic Report of the President (1985) p. 191.
Keller, Julie (2004), Feds Ok Sony- BMG Merger. http://www.eonline.com/News/Items/ 0,1,14617,00html (6th June,2005)
Loius, Authur, M. (1982) “ The Bottom Line on Ten Big Mergers”, Fortune, May 3, p. 89.
Magnet, Myron (1984) “Help! My Company Has Just Been Taken Over”, Fotune, July 9, p.44.
Odiagbe, Martin (1999) A Handbook of Research Methods, Seminar Presentation & Term Paper Writing. Lagos: Summit Publishing Enterprises. P.11.
Panos, John, E. (1989), “ Taking the Humane Approach to Post acquisition Layoffs”, Mergers and Acquisitions, March- April, pp. 44-47.
Pickens,jr. T.B. (1988), “Takeovers :A Purge of Poor Management”, Management Review, January pp. 52-54
Prokesch, Steven,E. (1985), “ People Trauma in Mergers”, New York Times, November. P.D-1.
Ravenscraft, D.J & Scherer, F.M. (1987), Mergers, Sell-Offs and Economic Efficiency. Washington, DC: The Brookings Institution, p.1.
Shannon, R. Wall & Stephen, J. Wall (2000) The Morning After : Making Corporate Mergers Work after the Deal Is Sealed. Cambridge, MA: Perseus Books ,p. 35, 143.
Sinetar, Marsha (1981), “ Mergers, Morale and Productivity,” Personal Journal, November, pp. 863-66.
Steven, A.D.& Louis, E.V.N. (1990), Strategic Corporate Alliances: A study of the Present, a Model for the Future. New York: Quorum Books. Pp. 73,117.
The Economist Print edition 92003) “ Britney, Meet Michael”, http://www.economist.com/displaystory.cfm?storyid=22022914 (7th June, 2005)
Therrien, Lois (1990), “ The Best and Worst Deals of The/80,s”, Business Week, January 15, pp.52-57.
Work,C.P.& Seamonds,J. (1985), “What Are Mergers Doing to America?” U.S News and World Report, July 22, pp.48-50.
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