What Is Merger and Acquisition and What Are Some Effects on Employees?

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What is Merger and Acquisition and what are some Effects on Employees?

Abrom B. Cooper

Global Management Perspective
Professor: Brenda Harper
May 9, 2010

This research paper is about Mergers and Acquisitions and the effects and consequences it has on employees. Mergers and acquisitions are sometimes referred to as takeovers or raid. In this paper, I will attempt to elucidate some of the reasons behind M&A and some of the effects it has on employees. There are a plethora of effects and consequences that mergers and acquisitions have on the workforce. However, this paper only delves into some of the more prevalent and perverse effects they have on the labor force.

Firstly, I will attempt to explain what is meant by mergers and acquisitions in the corporate world. Even though the two words (merger & acquisition) have slightly different meaning, but they are used synonymously since they produce the same effect. Another word that is also used interchangeably is takeover. Takeovers can be both friendly and hostile.

According to most research done, mergers and acquisition have a very negative and pervasive impact on the employee and how they view their company. Research has shown that mergers and acquisitions weaken the employee's confidence in the outlook of the company and could prompt many employees to leave the company. This research paper will provide evidence to support and substantiate these claims about the negative and some possible consequences mergers and acquisitions have on the workforce.

What are Mergers and Acquisitions?
According to Merriam-Webster.com dictionary, merger is the absorption by a corporation of one or more others or the combining of two or more organizations. Wikipedia defines mergers and acquisitions (abbreviated M&A) as the "aspect of corporate strategy, corporate finance and management dealing with the buying, selling and combining of different companies that can aid, finance, or help a growing company in a given industry grow rapidly without having to create another business entity" (Wikipedia, 2010). Mergers and acquisitions are also known as takeover or buyout. A takeover or acquisition can be friendly or hostile. In the case of a friendly acquisition, takeover, or merger, the companies involve usually work together because the merger is believed to be beneficial. The bidding company generally makes a tender offer by informing the board of directors of the target company of its intentions. The board of directors can either reject the offer or recommend the offer to the shareholders for approval.

On the other hand, a hostile takeover or acquisition is most often implemented against the wishes of the board of the target company. A hostile takeover usually occurs when an offer to buy is rejected by the target company's board of directors because the board either dislikes the terms or it believes that the merger or acquisition would not benefit them. When either the bidding company pursues the merger after being rejected by the board or the bidding company sidesteps the board entirely, a hostile takeover is imminent (Conjecture Corporation, 2003-2010).

Albeit used synonymously, there is a distinction between mergers and acquisitions as regards corporate finance. An acquisition occurs when one company takes over another and becomes the new owner. During an acquisition, the target company ceases to exist, the acquiring company assumes all debts, liabilities, and assets of the target company and the acquiring company stock continues to be traded (D. DePamphilis, 2010). Conversely according to DePamphilis (2010), a merger takes place when two organizations agree to form a single new company rather than been separately owned and operated. This kind of merger is referred to as "merger of equals" (D. DePamphilis, 2010). DePamphillis (2010) argued that the firms involve in this kind of merger are most often comparable in size,...
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