A Restructuring Process in Companies - Assignment Example

Mergers and Acquisitions Introduction Merger & Acquisition can be said to be a restructuring process in which two companies decide to join with an aim to grow. Whereas growth is one of the main reasons which lead to one company merging with or acquiring other there can be many other reasons as well. Other reasons which necessitates going to the process of mergers and acquisitions are aimed at increasing profitability, increasing competitiveness, to diversify, fiscal consolidation etc. There is however a fine difference between merger and acquisition. In merger the identity of the two merging companies does not exist after merger and a new company is created. But in acquisition only the acquiring company remains after completion of the process. The acquisition of whatsapp by facebook is discussed in the following pages. The circumstances that resulted in the merger or acquisition for the selected company Whatsapp is a relatively new free mobile messaging service company which allows user to send messages to each other freely over the internet (It charges $1 as subscription charges after 1st year). It has a customer base of 450 million compared to facebook which has a customer base of 1.23 billion. Facebook is a giant in the area of social network and whatsapp has the potential to be a giant in the mobile messaging service domain. Facebook has recently completed its acquisition of Whatsapp for a whooping sum of $22 billion (Oreskovic, 2014). Among the big startup acquisitions that has taken place it ranks the biggest. Now the question arises why did facebook acquire whatsapp for such a whooping price? Among the many reasons some are: 1. Facebook and whatsapp both have the same mission to bring in more connectivity in the world. If they join hands they would be able to accomplish this task more efficiently. 2. Facebook will be able to expand its operation base in Europe and other developing economies whereas whatsapp will be able to expand its market base in America. 3. Internet and technology is a market that evolves very fast and Facebook CEO knows that too well. So he has decided to enter into new market space before it is late. 4. For whatsapp things couldn’t be better because facebook has said that it will allow whatsapp to grow independently and won’t interfere. So besides the cash and instant recognition whatsapp founders are also granted freedom of making decisions. Figure 1: Big tech Acquisitions (McCracken, 2014) Effects of the merger or acquisition:- Whereas Facebook has well established its presence in the social network where it has established itself as the market leader without any doubt, whatsapp on the other hand has all potentials to be a future leader in the mobile messaging service domain. In fact the growth rate of whatsapp in the first four years of operation is much higher that facebook had (A fact that was admitted by zuckerberg himself). Figure 2: Growth in first 4 years (Zolfagharifard & Woollaston, 2014) Although this deal is pretty recent and its actual future implications and ramifications can be known at a later stage but, this deal is going to prove a major milestone and is actually a master stroke by Facebook CEO Zuckerberg. Effects of this deal are. 1. Zuckerberg has the farsighted vision to establish his company’s foot prints in another domain before his company becomes irrelevant. 2. Through this deal Facebook has actually eliminated his competitor from a seemingly unrelated domain but still very relevant. Whatsapp has all the potential to become a much larger company that facebook in the future. 3. The facebook combined with whatsapp and instagram will now be the unanimous leader in all forms of social networking domain. 4. Through this deal facebook will be able to increase its popularity and reach amongst the people of developing countries. 5. Facebook hopes that with the help of whatsapp it will be able to actively pursue its internet. Org project which involves partnerships to make internet services affordable worldwide and thereby farther increasing its customer base. Organizational structure that has resulted from the merger or acquisition:- Whatsapp as a company is a very lean organization. It has only about 55 employees and about 32 of them are engineers. Whatsapp as a company has a very different business strategy than other startups and companies in the Silicon Valley. The main focus of its founders has been to build a messaging service that is free, clean and reliable. The company does not have marketing and a peer team and absolutely hates advertising. The company’s main motto and driving philosophy is no adds, no games and no gimmicks’. Whereas other messaging service companies have gone for games whatsapp has decided to stick to its motto. The fact that the strategy has worked for them is evident in the fact that within its 1st 4 years of operation it has about 450 million registered users. However now the company the company has been acquired and there is to be some effect on its organizational culture. Most of the merger and acquisition fails is due to the fact that the class of cultures between the employees of the two companies (Pamphilis, 2010, P.P. 43-47). But the positive side of the story is that, facebook CEO is very sensitive about the issue and has decided to handle this issue very carefully. Facebook has clearly stated that his company won’t be interfering in the ways in which things are run at Whatsapp and will give them freedom to do their work in their own way. The company that is whatspp will even continue to operate from the place it has been operating since it was founded. In addition one of the founders of whatsapp will be included in the board of Facebook (Dulaney, 2014). Whether or not the human resources management practices of the company were modified to reflect the outcome of the merger or acquisition? Whatsapp as a company is much different in its method of operation and organizational structure than Facebook. To start with Facebook is a startup company with just 4years in operation as compared to Facebook which is relatively older. Whatsapp has only 55 employees and does not believe in advertising. In fact it has a thump rule of no advertising, no games and no gimmicks. This model has worked for the company till now as it handles communications of its 450 million customer base without almost any flaws. Facebook has a relatively different mode of operation as it focuses on advertising. Facebook has a matrix type of organization structure with a well established marketing department. It can be also said pretty comfortably that its culture is pretty different from whatsapp. So while going into the process of facebook’s acquisition of whatsapp there was a chance for the organization cultures of the two companies to clash. But in his statement announcing the acquisition decision Zuckerberg has clearly stated that whatsapp will be allowed to have its own operational freedom and a freedom of continuing with its existing business model (Times of India. 2014). He has also emphasized that earning revenue is not a major concern and his company that is facebook will only help Whatsapp in expanding its customer base. Conclusion The report discusses the effects of mergers and acquisitions. Although merger and acquisitions is the easiest and fastest way to grow inorganically but it has more dimensions to it than can be seen from above. Margining of two companies but includes mingling and mixing of two cultures. So the merger and acquisition process should be properly designed all the stakeholders involved should be efficiently guided. In the report it was seen that the acquisition of whatsapp by facebook is a very positive deal and has all the possibilities of creating a huge impact in the IT market. References Dulaney, C. (2014). Facebook Completes Acquisition of WhatsApp. Retrieved from: http://online.wsj.com/articles/facebook-completes-acquisition-of-whatsapp-1412603898. McCracken, H. (2014). Facebook Buying WhatsApp for $19 Billion: Yup, It’s a Deal of Historic Proportions. Retrieved from: http://techland.time.com/2014/02/19/facebook-buying-whatsapp/?iid=tl-main-lead. Oreskovic, A. (2014). Facebooks WhatsApp acquisition now has price tag of $22 billion. Retrieved from: http://www.reuters.com/article/2014/10/06/us-facebook-whatsapp-idUSKCN0HV1Q820141006. Pamphilis, D. D. (2010). Mergers and Acquisitions Basics: All You Need To Know. Burlington: Academic Press. Times Of India. (2014). Facebook buys WhatsApp: CEO Mark Zuckerberg explains why. Retrieved from: http://timesofindia.indiatimes.com/tech/tech-news/Facebook-buys-WhatsApp-CEO-Mark-Zuckerberg-explains-why/articleshow/30714548.cms. Zolfagharifard, E. & Woollaston, V. (2014). Facebook completes its $22 billion acquisition of WhatsApp after European regulators give the green light. Retrieved from: http://timesofindia.indiatimes.com/tech/tech-news/Facebook-buys-WhatsApp-CEO-Mark-Zuckerberg-explains-why/articleshow/30714548.cms. Read More