Mergers and Acquisitions

The Critical Role of Stakeholders

Helén Anderson, Virpi Havila, Fredrik Nilsson, Helén Anderson, Virpi Havila, Fredrik Nilsson

• Publisher: Routledge
• Year: 2012
• ISBN:
  9781136278402
• Edition: 1
• Topic: Commerce
• Subtopic: Fusions & acquisitions

A merger or acquisition is usually a challenging endeavor with a single ultimate aim: to create value for the owner. However, stakeholder theory shows how such a narrow and one-sided focus is detrimental to value-creation in general – not only for other stakeholders within and outside the organization, but also for the owner. Especially in a merger or an acquisition, it is evident that there are many groups and individuals who have a stake in the success or failure of a business.

So far, the overwhelming majority of research in the field of mergers and acquisitions has focused on the merging organizations, and so researchers have mainly studied internal stakeholder groups, such as employees and managers. This book shows how different stakeholders, internal and external, may play a critical role during a merger or an acquisition process. The book builds on empirical examples that illustrate how various stakeholders play active roles throughout the different phases, and, thus, ultimately affect the outcome and the value formation process of the merger or the acquisition. There is still much debate on how and when to best measure the outcome of a merger or an acquisition. With its comprehensive focus on stakeholders, this volume explores why some mergers and acquisitions fail while others succeed.

1 A Stakeholder Approach to Mergers and Acquisitions

Helén Anderson, Virpi Havila, and Fredrik Nilsson

EXTENDING THE CONTEXT FOR MERGERS AND ACQUISITIONS

Research has shown that a business relationship between two companies is connected to other business relationships (e.g., Håkansson and Snehota 1989, 1995; Johanson and Mattsson 1988). In this way, for example, customers' customers and suppliers' suppliers may have an impact on a business relationship (e.g., Gadde and Mattsson 1987). This, in turn, means that companies are connected, both directly and indirectly, to each other and form networks of business relationships (Anderson, Håkansson, and Johanson 1994). These networks are constantly changing as a result of the continuous interaction between the business parties. Sometimes they may even change in a more radical way, for example, through mergers and acquisitions (Halinen, Salmi, and Havila 1999). Mergers and acquisitions may influence not only the merging/acquiring companies themselves, such as their employees, but also directly and indirectly other connected companies, such as the companies' suppliers and customers (e.g., Anderson, Havila, and Salmi 2001). Thus, many parties may affect, or become affected, by a merger or acquisition, that is, have a stake in it. In stake we include both claims of interest and influence of different kinds (Mitchell, Agle, and Wood 1997).

Even though each relationship and the stakes in each are unique, there are similarities due to the type of category the relationships represent. For example, Friedman and Miles (2002: 8) differentiate between stakeholder groups with either explicit or implicit contracts (e.g., top management and suppliers), and those with no contractual relationships (e.g., environmental activists and companies connected through common trade associations). In a merger or an acquisition, the two (or more) companies involved have shareholders, top managements, employees, suppliers, and customers. If they are located in different countries, at least two governments and their agencies and municipalities may have a stake in the merger or acquisition. Also, competitors may feel that they need to act, for example, by seeking a partner with which to merge. Thus, there are different categories of stakeholders that exert influence and are influenced in different ways, depending for example on the type of contracts between them and the merging/acquiring companies.

In their article, Friedman and Miles (2002) point out that despite the vast amount of books and articles focusing on the stakeholder concept, we still know little about how and why stakeholder relations change over time. Some years later, Lamberg et al. (2008) also note that the concept of stakeholder has most often been used in the study of stable stakeholder relationships, ignoring situations of turbulence. In this book, our focus is on situations where dynamics are at work, as at least two companies will be involved: the two merging companies, or the acquiring company and the target company (see Figure 1.1).

This type of situation may influence the acquiring and the target companies' relationships in a radical way. For example, relationships with suppliers and customers of the merging/acquiring companies may be terminated because of the merger/acquisition (Havila and Salmi 2000; Salmi, Havila, and Anderson 2001). On the other hand the companies' relationships may stay unchanged. The reason may be management skills in handling the situation or the view of stakeholders that they need not react if business continues as usual. All in all, this means that a merger or an acquisition is always challenging for management (Bower 2001).

As we focus on a context with at least two companies, it will always be necessary to consider stakeholders of the same stakeholder category in both the acquiring and target company. To illustrate the multiplicity and diversity of stakeholder relationships during a merger or an acquisition, we apply a multi-stakeholder approach. We argue that a merger or an acquisition involves several stakeholder groups of both the acquirer and the target company. These stakeholder groups perceive the pro's and con's from their own perspective and thus act and react accordingly. Their stakes are unlikely to be the same. Further, they will probably evaluate the benefits and drawbacks of the merger process, and thus the changing stakes, in different ways.

Figure 1.1 A merger or an acquisition involves at least two companies.

MERGERS AND ACQUISITIONS: FREQUENT STRATEGIC ACTIVITIES

Although the number of mergers and acquisitions seems to increase and decrease in waves (Martynova and Renneboog 2008; Shleifer and Vishny 1991), they have always been common and frequently studied. For example, according to Cartwright and Schoenberg (2006), an acquisition was made every 18 minutes all year around in 2004. Normally no business day ends without news of a merger or an acquisition in the media. It may be rumours of well-known global companies acquiring shares in each other, or it may emanate from a press conference where the CEO and the chairperson announce a merger. Whether the information is based on facts or just rumours, it still makes the headlines. The reason is simple: few other decisions and actions by shareholders, boards of directors and top management have such an impact on the company's future, on market structure and on shareholder value. Researchers who focus on mergers between two (or more) companies, or on acquisitions where the acquiring company acquires a substantial part of the shares in the target company, often see the merger/acquisition as a strategic step. In this introductory chapter, we present a brief overview of this broad field of research.

The decision to merge or acquire a company is always preceded by some sort of planning, followed by a decision of the shareholders and the board of directors. The time period from the first thoughts of the need to acquire or merge until integration can be considered complete may be short, or it may take many years. Researchers have often studied the phenomenon as if it passed through different phases or stages, such as a pre-merger phase and a post-merger phase. In their review of the literature, Calipha, Tarba, and Brock (2010) found several different ways to split the process into phases. It is not clear, however, what activities belong to which phase. Moreover, speed in integrating the companies involved has been found to be beneficial in some situations, but not in all (Homburg and Bucerius 2006).

There has been considerable research on the motives for a merger or an acquisition; that is, researchers have tried to answer the question why companies merge with/acquire other companies (e.g., Chatterjee 1992; Seth, Song, and Pettit 2000; Trautwein 1990). Examples of typical motives are: to lower costs through economies of scale, acquire new technology or increase market share. Depending on the goal, mergers can be categorised according to different types (Ansoff and Weston 1962: 50–52): vertical mergers, where a company merges with its suppliers and/or its customers; horizontal mergers, where the company's competitors are acquired; and conglomerate mergers, where unrelated product lines are combined. However, as Bower (2001: 93) states: ‘The thousands of deals that academics, consultants and business people lump together as mergers and acquisitions actually represent very different strategic activities’. For example, if a company integrates upstream, that is, makes a former supplier company part of its own company, it changes at the same time the former indirect relationships with the supplier's suppliers into direct relationships. In the same way, a downstream vertical integration means that the former customer's customers become direct customers. In horizontal mergers, where former competitors integrate, the customers may not remain as loyal as expected (Lusch, Brown, and O'Brien 2011). This represents a totally different type of situation for the merging companies' managements than with a vertical downstream merger. The variety of perspectives and explanations is increased even further if we include the many forms of strategic alliances and partnerships (e.g., Ulijn, Duysters, and Meijer 2010).

The overwhelming majority of research in the field of mergers and acquisitions, however, has focused on the merging/acquiring companies. Consequently, researchers have primarily studied stakeholder groups within the merging companies, such as employees and managers (Birkinshaw, Bresman, and Håkanson 2000; Napier 1989; Raukko 2009). Stakeholder groups that are indirectly involved, such as the merging or acquiring company's suppliers and customers (if not in the role of target or acquirer), have received less attention from researchers; some recent exceptions are Holtström (2008) and Öberg (2008). Another, and still more recent, study of indirectly involved stakeholders is that of Clougherty and Duso (2011), who studied effects of horizontal mergers on non-merging rivals. More macro-level effects of mergers and acquisitions are treated in a study by Finkelstein (1997), who focused on inter-industry merger patterns, and in Dahlin (2007), who examined business networks. Even local communities and nations may have an interest in a deal involving a company that is important for their economic development (Kim 2006).

Over the years, researchers have identified many different challenges that the merging/acquiring companies' managers need to address. One challenge is how and when to communicate the decision so as to reduce uncertainty among employees (Appelbaum et al. 2000). For instance, Schweiger and Denisi (1991) found that realistic communication to employees was important. When the official announcement of the merger or acquisition is made, the chairperson of the board may explain the benefits of the merger to present and future customers, for example. Thus, one challenge is how to deal with media (Hellgren et al. 2002). Additional challenges identified during the integration phase are how to cope with cultural diff erences (Buono, Bowditch, and Lewis 1985; Larsson and Lubatkin 2001; Teerikangas and Very 2006) and how to manage knowledge transfer in cross-border acquisitions (Nummela 2011). The cultural dimension has gained extensive attention, as merger and acquisition activities often cross national borders (e.g., Söderberg and Vaara 2003).

Finally, the performance of the merged entity has received considerable attention from researchers. For example, Datta (1991) studied the impact of organisational differences between acquiring and target firms on postacquisition performance. Chatterjee (1992) examined cultural differences and shareholder value in related mergers, and Capron (1999) reviewed long-term performance in horizontal acquisitions. Most researchers seem to agree that the (financial) value of a merger or an acquisition is difficult to measure (Very 2011; Zollo and Meier 2008). Often value creation, or destruction, is discussed from the perspective of the owners (i.e., shareholders). It is much less common to discuss how value is created or destroyed for other stakeholders, such as employees, customers or suppliers. One reason is probably the difficulties of defining and measuring value creation for these types of stakeholders. The emphasis on multiple stakeholders in this book aims to open the way for such an extended evaluation.

A MORE COMPREHENSIVE VIEW OF MERGERS AND ACQUISITIONS

The aim of this book is to give the reader a broader view of mergers and acquisitions by considering the different stakeholder groups that may have a stake before, during, and after a merger or an acquisition. We argue that the use of a multi-stakeholder approach has many advanta...