Post-Merge Intergration

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What preliminary recommendations do you have regarding:
Q1. Autonomy of the target company within the buyer?
AOL and Time Warner merged claiming to be equal. “The transaction was spun to the world as a merger of equals, but in reality AOL, with its more valuable stock, was acquiring Time Warner” (Tim Arango 2010) meaning, this transaction can be viewed as AOL acquired TimeWarner.

Vancil (1979) describes target autonomy as “the extent to which the acquirer delegates or defers to the expertise of target managers over decision making within target functional activities” (cited in Zaheer, Castañer and Souder 2011,2). Puranam, Singh and Chaudhuri (2009) states: “The target’s routines and processes can be undermined by a lack of post-acquisition target autonomy” (cited in Zaheer, Castañer and Souder 2011,2). As Time Warner’s CEO Gerald Levin is the CEO of the merger, it can be viewed as a somewhat high level of target autonomy. Therefore it is important to achieve “desirable levels of target decision-making autonomy, particularly when the target brings new and thus unfamiliar elements to the combined firm” (Zaheer, Castañer and Souder 2011,2). However, seeing as AOL owns 55% and the AOL CEO Steve Case became chairman of the board, the autonomy appears to be in AOL’s favour. A merger or acquisition is regarded as complementary when the combination of two firms, i.e. Time Warner and America Online, is more valuable than the value of the firms separately (Zaheer, Castañer and Souder 2011). Zaheer, Castañer and Souder propose that “complementarity between target and acquiring firm is a specific condition that calls for high levels of both autonomy and integration because complementary targets bring elements unfamiliar to the acquirer” (2011,3). In acquisitions, complementarity occurs when components of the target, which for this merger would be internal technological components in traditional and digital media, “‘round out’ those of the acquirer to achieve joint value creation through coordinated management” (Zaheer, Castañer and Souder 2011,3). Milgrom and Roberts (1995) argue that “complementarity adds value by rounding out the firm with elements that are different but potentially mutually enhancing” (cited in Zaheer, Castañer and Souder 2011,3). Zaheer, Castañer and Souder argue that “the need for target autonomy stems from the fact that complementary acquisitions are motivated by accessing and preserving a target resource that is unfamiliar to the acquirer” (2011,20). They supported this argument with findings which suggested that “complementarity leads to both greater autonomy and integration for acquisitions targets” (Zaheer, Castañer and Souder 2011,20).

The target firm, Time Warner, is recommended to maintain somewhat of a high level of autonomy in this merger. Removing autonomy from Time Warner can lead to a series of negative consequences such as departure of key target executives for feeling marginalized, misunderstandings of local operating or marketing conditions due to cross-cultural differences, reduced emphasis on exploration activities in the target firm’s domain, and operational inefficiencies stemming from disrupted routines (Zaheer, Castañer and Souder 2011,4). Furthermore, lack of autonomy for AOL may lead to a decrease in flexibility and entrepreneurship which may lead to less value creation.

Q2. Speed of the integration process?
Research on post-merger integration (PMI) has revealed that speed and strategic planning are essential to prosperous M&A integration (Olie 1994; Homburg and Beceriu 2006). Very few M&A’s create shareholder value, this is because managers do not know how to make trade-offs between speed and careful planning (Homburg and Beceriu 2006). In order to maintain the value of a merger, managers need to control the integration process actively to achieve its stated strategic goals as quickly as possible. Pautler (2003) notes that the speed of a post-merger transition may not be...
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