CASE STUDY: KISSOFF MERGER

The need for efficiency and improvement in productivity is influencing different companies across the world to merge. The merging aims at ensuring that the companies develops synergy and utilizes economies of scale in serving the needs of their consumers. However, the situation of Kincade Industrial Sanitary Seating (KISS) and Occupational Fixtures and Fasteners (OFF) merging faces different challenges due to high number of employees and difference in culture. The new management plans to lay off a significant number of workers from OFF, which may be counterproductive. It is necessary that the president of the new merger consider conducting lay-off fairly. The employees need to be aware of criteria that the manager uses in laying off some of them and the method requires significant fairness. Further, it is necessary for the president to retain transformation leaders from both companies to help align the interests of employees to that of the new company. Effective transition period and considering the interest of different stakeholders during a merger is important, if KISSOFF is to achieve its objective. 

Table of Contents

Introduction 4

Research: Research of Literature on Mergers and Acquisition 5

Analysis: Critical Evaluation of the Literature and Application to the Case of KISSOFF 7

Recommendations to the New Merger President 8

Conclusion 10

Reference List 11

Case Study: KISSOFF Merger

Introduction 

In an effort to meet the changing needs of the customers, companies are gradually merging to increase their efficiency and ability to penetrate new markets. Through mergers and acquisitions, companies are able to increase their expertise and this boosts their service delivery to customers (DePamphilis, 2011, p.3). Further, acquisition allows companies to have a wide base of revenue that helps in supporting expansion of its activities across different market segments (Harvey, 2015, p.66). Kincade Industrial Sanitary Seating (KISS) and Occupational Fixtures and Fasteners (OFF) are forming a merger through acquisition. KISS deals with manufacture of leading toilet seats in Australasia while OFF makes other related peripherals. The merging of the two companies aims at expanding their market share and ensuring that they serve a relatively wide customer base. However, the two companies are different in size with KISS having its presence in more cities and have relatively high number of employees. There is also a difference in the relationship of employees with their management in the two companies. The merging of the two companies is facing challenges especially regarding the approach of handling their employees. Ideas to lay off a significant number of employees from OFF may be counterproductive in supporting progress of the merger under the new company president. It is important that the new CEO embrace a system that appreciates all employees during merger and does not demoralize the remaining workers due to laying-off their colleagues. 

Research: Research of Literature on Mergers and Acquisition

During takeovers, it is common to find the performance of the mergers going relatively low after acquisition due to different reasons. The situation is in contrast to the aim of mergers of maximizing shareholders value and improving overall performance. Researches carried in different takeovers in Europe show that; initial performance of individual companies are high that the median when they combine (Singh, 2012, p.1). Different studies support that trend and it originates from failure of management to utilize potential of partners in the mergers. During merging, the issue of integration faces the problem of varying work ethics and culture of the employees. When the cultures do not match, it takes relatively long before the employees from the two companies integrate to form a uniform workforce. During this period, the merger may suffer low productivity resulting to lowering profitability for the shareholders. The problem arises from poor flexibility of the management to adapt to changes that employees from the different companies portray. The inefficiency originates from administration and this nullifies the benefits that mergers aim to achieve (Singh, 2012, p.2). Unskilled execution and faulty planning further influence negative performance of mergers. The situation arises when the management is ambition is unreasonable. It is common to find management using different means to cut operational costs without regard on the potential impact on employees’ morale.  

Actually, mergers need to ensure that they utilize synergy in order to ensure that their results are more than their sum operations before the acquisition (DePamphilis, 2011, p.5). The objective is possible through benefits present due to economies of scale in form of speeding equipment depreciation and amortization. Through cash flows that are uncorrelated, mergers are able to benefit from financial strength where they support expansion and marketing. The impact is ability to serve a growing market and ensuring that products suit the changing preference of their clients. However, mergers fail because some are unable up tap the synergy and instead suffer from rising operational costs (DePamphilis, 2011, p.6). Indeed, such situation reduces the benefits that the shareholders achieve from their investment. Intangible assets are also a common consideration during mergers where the companies aim to embrace knowledge and expertise from their partners. Actually, knowledge drives innovation in mergers and this helps the organization to present products that are market specific. The human capital from the merging companies brings competencies and attributes that support the objective of their company. However, some mergers fail to use this intangible asset as they plan to minimize costs through layoffs plans.  During such activities, some competent workers are likely to leave the merger and this has a significant negative consequence on the new organization. 

Mergers have some significant influence on the psychological condition of employees who are uncertain about security of their jobs. Indeed, mergers have potential of unsettling and threatening some workers from either of the companies forming a merger (Vijaywargia, 2016, p.32). The employees suffer from stressors that originate from insecurity, job changes, job losses, compensation changes and status change. Studies shows that merger cause employees suffer from merger emotions syndrome such as denial, fear and anger (Vijaywargia, 2016, p.32). During the initial stages of merging, the workers assume that such information is rumors. Eventually, when the merger happens, the employees are preoccupied with fear of unknown and thoughts of how to cope if sacked. It is common to find employees grieving and showing signs of sadness from the realization that they are losing their company identify in the new merger. However, though the stages take relatively longer, the workers finally accept the new condition and environment. However, it is the role of new management t ensures that the entire process do not stress the workers but instead offer them a chance to settle in the new dispensation. Workers that feel that the merger recognizes their efforts get relieved and this boosts their morale in the new working environment. 

Analysis: Critical Evaluation of the Literature and Application to the Case of KISSOFF

During the merger of KISS and OFF there are different things that are likely to happen in line with the eventualities that occurs during mergers. The new company plans to lay off some of the workers from OFF and this may be counterproductive to units operations. Companies that hasten the process to lay off some employees during merger are likely to suffer from low productivity (Refsnes, 2012, p.13). Employees are some important input in driving the goals of the company and they strive to uphold profitability of their company. Therefore, plans to lay some employees from OFF may be detrimental to the progress of the new merger. The idea by the new president to shut some operational unit of OFF may also act negatively towards achieving increased productivity for the company. Synergy is one of the driving forces that make companies willing to form acquisitions. Through closing some operating units instead of turning them to production plants for toilet seats, the president will be failing in utilizing synergy. Utilizing some of the OFF production units as sites for toilet seats manufacturing would allow the company to increases its productivity. Further, the move would allow the company present customers in the new market segment with its products.

The total number of employees in both the companies is about 1000 and it is wrong to assume that laying-off employees will not affect morale of employees. It is the responsibility of the management to ensure that it protects the psychological nature of their employees during mergers (Reh, 2018, p.1). Employees, requires some assurance of security of their jobs even after takeoff to prevent issues of stress. The plans to lay off about half of the employees from OFF have potential of declining morale of the remaining employees. The situation further creates anxiety on the remaining workers and this affects their performance. Additionally, a plan of slashing allowances that the employees of OFF get when they join the new company is also misleading. The sudden change has potential to create resistance from the employees or issues of demonstrations. A good relation between the management and the employees is necessary for effective delivery of mandate of a company to the shareholders and the consumers (Reh, 2018, p.1).   The good will of employees from either of the companies in a merger is important to achieve productivity. It is detrimental for new management to think that superiority of KISS in the merger makes employees from OFF less important. 

Recommendations to the New Merger President

The president of KISS OFF requires having selection criteria of managers of the new company based on their competence. The competence of managers as leaders is an important driver of success of an organization ( Zahid & Shah, 2011, 48). Indeed, it is the president’s responsibility to ensure that managers that show transformational leadership style run the new outfit. Transformational leaders are able to inspire the vision of the organization to the employees who are willing to focus their efforts to achieving these goals (Brătianu & Anagnoste , 2011, p.321). Further, transformational leaders are able to share with the aspirations of the company and place company needs before own interests. Personal performance of the managers from the previous companies also need consideration and ensures that selected individuals had previously registered good productivity. However, laying some employees from OFF would negatively affect the morale of the employees who will feel unsure of their tenure security. However, as a leader, the president needs to use a system they perceive fair in laying off some employees. Indeed, it is important to consider giving opportunities to employees to apply for early retirement and give them compensation.

Human capital is an important asset for any company and there is need to consider employees and make feel them feel part of the organization (Kansal & Chandani, 2014, p.210).. The president requires gathering the employees and making them understand the reasons for need to cut the number of employees. During, this period, he needs explaining the need of company to balance between costs and improving value for the shareholders. However, the employees need assurance that they will get compensation for the service they have given to the company. The compensation should assist them in starting life in a different setting and reduce any suffering that may occur after leaving the job. 

Sudden change in management and employees in mergers have potential to cause shock thus negatively affecting progress of an organization (Schade, 2014, p.8). The transition period after merging requires the employees getting conversant with the new environment and culture, which shapes their performance (Refsnes, 2012, p.15). Therefore, it is necessary that the management retain all employees from the two companies for some time to allow orientation and learning from each other. Further, the period enables the employees to learn different responsibilities and their role within the new set up. The laying off should be done gradually as the performance of the new organizations takes shape. The management can also opt to redeploy some employ to marketing activities where they create awareness of the new products to consumers. The impact is ability of the company to generate more revenues that offset the rising operational costs from the high number of employees. Additionally, the president needs to consider offering new terms of employment where employee performance determines whether to renew their contracts in future or not. The situation makes the employees work relatively hard and is less likely to oppose laying-off if their performance is below the expectation. 

Conclusion

Mergers are important for companies that want to expand their production and reach extensive market segments. However, without proper planning, different mergers suffer from failure where their performance is relatively low. Companies such as KISS and OFF require understanding the culture of each other in order to have relatively successful mergers. During mergers, employees suffer from stress due to uncertainty of losing their job and copping with the new environment. The merger between KISS and OFF faces different challenges such as reduction of number of employees and varying cultures. It is the responsibility of the president to ensure that the transition exercise for the company is friendly to the employees. This is achievable through engaging the employees throughout the process and making them understand the need for different changes. Further, it is important that the president consider retaining workforce from the two companies for some time. The period helps in orienting the workers about their new roles and helps achieve a relatively smooth transition. 

Reference List

Brătianu, C. & Anagnoste, S. 2011. The Role Of Transformational Leadership In Mergers And Acquisitions In Emergent Economies. Management & Marketing Challenges for the Knowledge Society. Vol. 6, No. 2, pp. 319 -326

DePamphilis, D. 2011. Mergers and Acquisitions Basics: All You Need To Know. Oxford: Elsevier Inc.

Harvey, S. K. 2015. The Role of Mergers and Acquisitions in Firm Performance: A Ghanaian Case Study. Journal of Applied Business and Economics. Vol. 17, No. 1, pp. 66-77

Kansal, S. & Chandani, A. 2014. Effective Management Of Change During Merger And Acquisition. Procedia Economics and Finance. Vol. 11, No. 1, pp. 208-217.

Refsnes, F. Ø. 2012. What Explains Mergers’ Success or Failure? The Role of Organizational Structures, Strategies and External Environments in Mergers – Empirical Evidence from two Contrasting Cases. Available at: https://www.duo.uio.no/bitstream/handle/10852/34374/Master-thesis-Refsnes.pdf?sequence=4 (accessed January 9, 2019).

Reh, J. 2018. Managing Mergers Successfully. The Balance Careers. Available at: https://www.thebalancecareers.com/managing-mergers-successfully-2275272 (accessed January 9, 2019). 

Schade, V. 2014. Successful Management of Mergers & Acquisitions: Development of a Synergy Tracking Tool for Post-Merger Integration. Hamburg: Anchor Academic Publishing 

Singh, P. 2012. Mergers and Acquisitions: Some Issues & Trends. International Journal of Innovations in Engineering and Technology (IJIET). Vol. 1, No. 1, pp. 1-9

Vijaywargia, T. 2016. Analyzing the Consequences of Mergers and Acquisitions on Human Resource. Global Journal of Commerce & Management Perspective. Vol. 5, No. 1, pp. 32-34. 

Zahid, N. & Shah, A. M. 2011. Mergers and Acquisitions in International Business. European Scientific Journal. Vol. 1, No. 1, pp. 43-56.