(5) The impact on, and reaction of, stakeholders to takeovers and mergers
Stakeholder
is an individual or group with a direct interest in the activities and
performance of an organization. They all have different levels of interest and
power to affect the business or they can be affected by the business, they
exert their influence to the organization depends on their power. Takeovers and
Merger involves a change in an ownership of a business organization, as for a
takeover it could be friendly or hostile. This essay will look at how this
business integration has impact on, and the reaction of these stakeholders.
Shareholder
is the main stakeholders in a business, they are the internal stakeholders,
which their decisions will have direct impact on the Business. Shareholders
main aims normally want the firm to achieve high profit leads to high dividends
to be paid, so their concerns would be the share price and the firm’s
performance of the grounds of mergers and takeovers. An example is the proposed
merger of Glencore and Xstrata. This Glencore proposed a ‘merger of equal’ deal to Xstrata to going to
form the world largest zinc producer, controlling 15% of the global market, and control 32% of the trade in
thermal coal, which fuels power stations. The proposed share-based deal will
offer Xstrata shareholders 2.8 new shares in Glencore. Despite being described
as a "merger of equals", the deal values Xstrata at £39.1bn, a
premium of almost 28% to its average price for the three months prior to the
bid approach. Glencore already holds a 34% stake in Xstrata. However, Xstrata’s
shareholders are not happy with the deal, looking at the figures, Glencore has
28.4bn of market capitalisation while Xstrata has 31.7bn, they will lose out in the short term due to the
share price as they thought its undervalues.
Assuming they do merged together, the impact of shareholder would
measure by the dividends and share price, yet if they will have the choice of
selling or exchanging their shares. In a long term, shareholders would benefit
in dividend if it perform well, which in this case, Xstrata and Glencore merger
rather focus on the long term benefits which is likely to perform better than
separated. Nevertheless, if it performs
badly, shareholders would suffer with lower value of shares, which will have a
negative impact on the shareholders’ funds.
Secondly, although employees are
the internal stakeholder, their opinion is not involved in the mergers and
takeovers, most of the time they will be worried about the impact of takeovers
and mergers on their job, could possibly change their salary, holidays, working
conditions, even redundancies as it happens follow with the M&A. Take Kraft
takeover Cadburys as examples, the workers of Cadbury fears that Kraft will cut
pay and conditions hence the Union demand a pay rise for the 6,000 staffs also
to assure that will not cut pay for irregular hours and benefits. As the workers of Cadburys already worried as
Kraft has already gone back on the promise it made before it bought Cadbury to
keep open the company's Somerset factory. Days after agreeing the deal, Kraft
went ahead with Cadbury's plans to close the factory, with the loss of about
400 jobs. Moreover Kraft had a proven track record of slashing jobs to help it
pay off debt: cutting 19,000 jobs and closing 35 sites between 2004 and 2008.
These all evidence first would damage Kraft’s reputation in the United Kingdom
and has soured its relationship with Cadbury employees, then would leads to
reduced motivation, hence their productivity, lateness and absenteeism and
result with rising cost, and if it is serious could lead to strike action,
political campaigns. All of above will have a negative for the acquiring
company. However, these redundancies are sometimes essential to the business
follow with the mergers and acquisition as to save costs and elimination of
duplication to cut cost in order to generate more profit and to be more
efficiency. Depends on how they offer the terms, to save cost the same time and
damage their reputation as much.
Another stakeholders would be customers. A firm change of ownership would
have a big impact on the customers, because the nature of the product might
change which is not the same it used to after being takeover, therefore could
easily link with falling in sales as the customer loyalty comes to test. As the
Boston Matrix would see: to change a cow
into a dog. Take Cadburys and Kraft as example, a British company taken over by
a American Company which is known for sales of cheese, one of the USP of
Cadbury is the British history, as now being taken over, it might lose its
reputation and could lead to disappointing the customer that take prides of the
British chocolates, hence Kraft might change the product as its might not have
the necessary knowledge of the taste and market in the UK. However, the main concern for the customer
would be the price of the product, a merger or takeovers more often to have a
benefit of Economics of scale such as bulk buying and it would leads to save
costs which would allow the firms to drop the selling price to attract more
customers and gain more sales. This is likely to benefit the customers as they
can pay less for the product, or afford to purchase more.
In conclusion, a mergers or takeovers often cannot satisfy all the
stakeholders, often to have a negative impact on the stakeholders, the
traditional shareholder approach showed that a mergers and takeovers often set
priority with the shareholders impact which is shareholder values, profit and
dividends. With this approach might lose out in the long term due to other
needs of the stakeholders cannot be satisfied like for the employees fear of
job losing and loss of customers loyalty.
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