Strategic Alliance between Companies - Term Paper Example

Contents Defining Merger and Acquisition 2 Rationale for entering into M&A 3 Challenges in M&A 4 HR Challenges in International M&A 4 Case Studies: International M&A with varying success levels and role of HR 6 UK based BP Plc and US based Amoco 6 Possible HR Interventions 7 UK based Shell Transport and Trading Company and Netherlands based Royal Dutch Petroleum Company 8 Possible HR Interventions 9 References 10 Bibliography 11 Defining Merger and Acquisition Merger and acquisition is a form of strategic alliance formed between two or more companies through the process of selling and buying between two companies in the form of acquisition and formation of a mixed entity in the form of a merger. Merger and acquisition helps the organization to grow in terms of its size and operation thereby gaining a competitive advantage. In case of a merger, the two companies that get merged enter into a mutual agreement of forming a mixed company that exists as the sole entity. The activity of merger is a form of strategic alliance which results in the formation of a single entity. There are no other entities created as a result of the merger. There is a light difference between the mergers and the acquisitions. In cases of an acquisition, the buying company takes over another company and gains control over the entire assets and the liabilities of the company that it has taken over. The acquirer controls the operations and administration of the newly formed entity as a result of acquisition. However, the target entity or the entity that has been acquired exists as a separate entity whose stakes are controlled by the acquirer (Gregoriou and Renneboog, 2007, p.68). The cases of international merger and acquisition are on the rise. Due to the effects of globalization and reduction of market barriers for foreign investments, organizations are looking to enter into international merger and acquisition in the foreign markets by either sell off or purchase or through the formation of a mixed entity. In case of international mergers and acquisitions, the single entity formed due to merging and acquiring is able to maximize the return on investments due to the share of expertise of the two entities in exploring the international market opportunities (Gaughan, 2007, p.35). Rationale for entering into M&A There are valid reasons for which the companies enter into international mergers and acquisitions. The rationale for the companies to enter into international merger and acquisitions are explained as follows. The companies operate in the domestic as well as foreign markets with a profit motive (Angwin, 2007, p.50). The various aspects of operation, marketing and sales, allocation of resources, planning and implementation are driven by the profit motives of the companies. Due to the saturation of the local markets and the need for expansion of the business for future growth leads to envisaging spreads of operations of the international markets. The impacts of globalization and the incentives offered for investments by the international companies lead to the plan of entering into international mergers and acquisitions (Sudi, 2003, p.36). The major reasons of opting for international mergers and acquisitions are mainly due to the consideration of returns against the possible risks in international mergers and acquisitions. The companies targeting international markets due to the potential demand of their products and services may not be conversant with the market characteristics and the local people. The political conditions of the international markets, fluctuation of economic conditions and the legal intricacies are the possible risk exposure of the companies. For this reason, the entities look for counter parts which have expertise in their probable areas of risk. On the other hand, the company offers its area of expertise in the field of product innovation, technology transfers, customer service, etc. There are however, other forms of strategic alliance in which the companies engage in the international markets. The most common among those are the joint ventures. Joint ventures are formed by the two companies by the contribution of stakeholder’s equity as well as sharing of assets and liabilities to form joint assets, joint liabilities and joint equity of the newly formed company. In international joint ventures, the companies from two different countries enter into a strategic alliance to take advantage of the market potentials that could be utilized by their joint efforts. The international joint ventures are an opportunity for expansion of the business of companies in the international markets. The international mergers and acquisition take place for the mutual benefits of both the companies who foresee a greater advantage in the long run (Berger, 2011, p.52). Challenges in M&A The challenges in mergers and acquisitions arise due to the conflict of interest of the companies engaged in the international merger. The companies engaged in the international merger have predefined objectives of growth in the long term. The agreement of sharing of assets and liabilities of the companies are done according to the goals of the organizations (Marr and Gray, 2012, p.31). The proportions of investments are also decided according to the balance sheet and the expected cash flows of the organization. The available finance and the liquidity of the companies are taken into consideration before entering into international mergers and acquisitions (Ruud, Frederikslust and Ang, 2008, p.79). The challenges in the international mergers and acquisitions arise due to non-fulfilment of the expected returns on investments. HR Challenges in International M&A The HR has a crucial role to play in making interventions in the areas of strategic and organizational fit between the entities involved in International Merger and Acquisition. The factors influencing organizational success and failure include political dynamics between the managers and the employees. The HR should undertake necessary research of the culture of the organizations getting merged and the work culture of the people. The HR has the duties and responsibilities to assess whether the organizations have similar work dynamics between the managers and the employees (Jolly, 2003, p.69). The aspect of retaining such work cultures after the international merger and acquisition and emphasis on the areas of corporate governance and corporate social responsibilities are important job roles of the employees to be enforced by the HR during the course of business operation. The strategic and organizational fit of the international mergers could be ensured by interventions and timely feedbacks on the conduct of the employees. These roles are performed by the HR which ensures that the managers uphold the responsibility and the employees execute their instructions in order to enforce implementation of strict corporate governance and plans of corporate social responsibility (Das, 2010, p.49). The HR also has the responsibility to meet the challenges posed by the several risk factors due to the political, social, economic, technological, legal and environmental conditions in the country in which the International Merger and acquisition has taken. The challenges that are faced by the HR in these cases are to correctly analyze the country risk due to events like the civil war, underperformance of the economy, legal and regulatory constraints, political disturbance, etc (Ulijn, Duysters and Meijer, 2010, p.67). The HR would be responsible in providing inputs on such risk exposures and enable strategic decision making for the international merger and acquisition. The HR also plays a vital function of providing timely feedback on the operational hazards that may be arising from the functions of the merged entity. Addressing these hazards is extremely important from the point of view of undertaking the social responsibility and ensuring that the society and the people are not affected by the operations of the merged entity (DePamphilis, 2011, p.63). This would affect the success level of the internationally merged entity in the long run. The aspect of corporate governance of the entity formed due to the international merger and acquisition is again another area of challenge for the HR. The HR would be responsible for ensuring that the people of the organization engage into fair practices of work culture, adhere to fair preparation and reporting of financial statements and work in line with the mission and vision of the organization. The timely intervention of HR in these areas of challenge help to create a healthy system of work culture; put a tight system of corporate governance in place and also fulfil the corporate social responsibility of the organization. Case Studies: International M&A with varying success levels and role of HR The activities of international merger and acquisition help the companies to gain competitive edge in the markets. The cases of international mergers and acquisitions that could be considered in this respect and having varying success levels are the acquisition of Amoco (US) by British petroleum (UK) and the merger between Shell Transport and Trading Company (UK) and the Royal Dutch Petroleum Company (The Netherlands) (BP Plc, 2013, p.1). UK based BP Plc and US based Amoco The acquiring of American oil giant Amoco by British Petroleum Plc. was agreed by both the companies as the formed entity would be the third largest oil company in the world. In this international acquisition, Amoco would be able to retain its identity whereas the stakes would be controlled by the British Petroleum Plc. BP Amoco formed as a result of the international merger and acquisition of the two companies are able to maximize the return on investments by leveraging on the expertise of both British Petroleum Plc in finding oil reserves and the expertise of Amoco in refining oil into chemical and refined oil products and then distributing the same to the consumers. Amoco was taken over by the British Petroleum Plc. for a deal of $48.2 billion. The company formed as a result of the takeover of Amoco by the British Petroleum Plc came to be known as BP Amoco. The acquisition of Amoco by the British Petroleum Plc. has been quite successful as it led to the increase in oil production by the formed entity. The British petroleum Plc. has been quite effective in exploring the oil reserves and in finding them (Stonehouse and Houston, 2012, p.73). The UK based company did not have the expertise to refine the extracted oil into oil products and marketing and distributing them. Amoco expertise in this field was shared as a result of which the formed entity out of the international merger and acquisition could increase the production oil and increase its revenue through effective marketing and distribution systems (Bruner, 2004, p.48). Possible HR Interventions The success level of the international merger and acquisition of Amoco by the British Petroleum Plc. have been blurred by the fact that BP Amoco has been tagged as one of the greatest polluters in the US markets. BP Amoco’s oil exploration in Angola wee also hit a few years ago by the civil war in that country. Thus despite the strategic alliance formed by the two companies, the success curve of the internationally merged company varied due to fluctuation of political environment in the markets of operation (Khatta, 2008, p.84). The role of HR might have made a difference in the case of BP Amoco as their success levels were affected by the operational hazards and prevailing conditions in the areas of operation. The HR could arrange to conduct a country risk analysis. The existing political disturbances and the fluctuation in the social conditions should be analyzed by the HR. This could provide important inputs to the management for strategic investments in the area of oil exploration, marketing and distribution. BP Amoco would have avoided investment in the regions that are affected by civil war, political upheaval in order to mitigate the impacts on their operation. The HR also carries the responsibility to ensure that BP Amoco gives due attention to the corporate social responsibility. The HR should take initiative for refinement of operational efficiency and reduce the level of pollution in the society. All these initiatives are likely to improve the success level of BP Amoco. UK based Shell Transport and Trading Company and Netherlands based Royal Dutch Petroleum Company The international merger between the UK based Shell Transport and Trading and the Royal Dutch Petroleum Company resulted mainly because of countering the dominant position of American oil companies like Rockefeller’s Standard Oil. The merged entity that resulted out of the merger provided 60% share to the Dutch company and 40% share to the British. The merged entity is headquartered in the Netherlands with its registered office in UK (Shell Global, 2013, p.1). The success of the international merger could understood by the wide spread increase in the operations of the entity across several markets in the world (Handlechner, 2008, p.53). The merged entity functioned under four different business groupings, namely upstream international division, upstream American business, downstream business division and the projects and technology division (Conrow, 2003, p.86). These divisions have undertaken important roles in exploring crude oils from the wells and then marketing and distributing them in the international markets of Europe, America, Africa, Asia, etc. The success in operations and business of The Royal Dutch Shell Plc was affected by the reports on overstating of oil reserves by the company that lead to the loss of confidence among the investors. The company incurred a 17 million pound sterling fine in this case which was imposed by the Financial Services Authority. The operations of the entity led to controversies in the areas of oil spills in freshwater, environmental pollution, health and safety hazards in Argentina, Netherlands, etc. Possible HR Interventions The international mergers and acquisitions of Shell and Royal Dutch Petroleum Company, Amoco and British Petroleum Plc. faced the challenges due to the difference in work culture, deviation from regulatory requirements and interference of political parties in their countries. The timely intervention of HR is extremely crucial in analyzing the political scenario and the relative cost and benefits of the merger. The quality of corporate governance should be enforced by the HR in order to ensure that there is no overstating of performance. The intervention of HR in this case in ensuring fair practices in the organization would have enabled Shell to avoid the fines imposed by the regulatory authorities. HR should timely intervene to remove the adverse impacts of oil operations of the company like the oil spills in fresh water, health hazards, etc. These are actions to perform the corporate social responsibility which could be catalyzed by the timely intervention of HR. References BP Plc. 2013. About BP. [Online]. Available at: http://www.bp.com/en/global/corporate/about-bp.html. [Accessed on 21 Aug, 2013]. Shell Global. 2013. About Shell. [Online]. Available at: http://www.shell.com/global/aboutshell.html. [Accessed on 21 Aug, 2013]. Sudi, S. 2003. Creating Value From Mergers And Acquisitions. Pearson Education India; India. Gregoriou, G. N and Renneboog, L. 2007. International Mergers and Acquisitions Activity Since 1990: Recent Research and Quantitative Analysis. Elsevier; USA. Berger, A. 2011. Applied Research Methods - Mergers and Acquisitions (M&A). GRIN Verlag; Germany. Ruud, Frederikslust, A. V. and Ang, J. S. 2008. Corporate Governance and Corporate Finance: A European Perspective. Routledge; USA. Marr, B. and Gray, D. 2012. Strategic Performance Management. Routledge; USA. Angwin, D. 2007. Mergers and Acquisitions. Wiley; USA. Gaughan, P. A. 2007. Mergers, Acquisitions, and Corporate Restructurings. John Wiley & Sons; USA. Ulijn, J. M., Duysters, G. and Meijer, E. 2010. Strategic Alliances, Mergers and Acquisitions: The Influence of Culture on Successful Cooperation. Edward Elgar Publishing; UK. Stonehouse, G. and Houston, B. 2012. Business Strategy. Routledge; UK. Bruner, R. F. 2004. Applied Mergers and Acquisitions, University Edition. Wiley; UK. DePamphilis, D. 2011. Mergers, Acquisitions, and Other Restructuring Activities: An Integrated Approach to Process, Tools, Cases, and Solutions. Academic Press; USA. Khatta, R. S. 2008. Risk Management. Global India Publications; New Delhi. Handlechner, M. 2008. Risk Management. GRIN Verlag; Germany. Conrow, E. H. 2003. Effective Risk Management: Some Keys to Success. AIAA; America. Jolly, A. 2003. Managing Business Risk. Kogan Page Publishers; USA. Das. T. K. 2010. Researching Strategic Alliances: Emerging Perspectives (Hc). IAP; USA. Bibliography Underhill, T. 1996. Strategic Alliances: Managing the Supply Chain. PennWell Books; USA. Das. T. K. 2012. Management Dynamics in Strategic Alliances (Hc). IAP; USA. Yoshino, M. M. Y. and Rangan, U. S. 1995. Strategic Alliances: An Entrepreneurial Approach to Globalization. Harvard Business Press; USA. Coleman, W. D. 1988. Business and Politics: A Study of Collective Action. McGill-Queen's Press; Canada. Fitzroy, P. and Herbert, J. M. 2007. Strategic Management: Creating Value in a Turbulent World. John Wiley & Sons; USA. Reuvid, J. (2012). Managing Business Risk: A Practical Guide to Protecting Your Business. Kogan Page Publishers; USA. Jenster, P. V.,  Hayes, H. M. and Smith, D. E. (2005). Managing Business Marketing & Sales: An International Perspective. Copenhagen Business School Press DK; Denmark. Read More