The case “Can This Merger Be Saved?” shows the acquisition of two quite big companies: Synergon Capital and Beauchamp, Becker & Company. The both companies specialize in the financial services. The first one operates in the US and the second is in the UK.
According to the case, the Beauchamp acquisition can be considered as challenging. Let’s analyze what advantages and problems Synergon can encounter as a result of this deal. If we analyze the performance and management system of both companies, one can say that there is a lot of differences between business processes, which occur in companies.
It should be noted, that Synergon usually choose smaller and weaker companies than Beauchamp for acquisition. All its previous candidates were small companies with established market positions and poor management systems. In this case, Beauchamp does not match any criteria at all. It is a big company with a great history and high profitability, large base of loyal clients and low turnover rate of employees. Thus, it explains, why the Beauchamp acquisition is so challenging.
The management of Synergon makes several unacceptable decisions during the first months of cooperation with Beauchamp. They are as follows:
elimination of the Beauchamp’s Associate Bonus Plan. Another system, Synergon’s Big Bang Bonus Plan takes its place. It should be noted, that Synergon cares only for the senior management in comparison with Beauchamp that pays attention to the whole staff;
closing the cafeteria that is so popular among staff of Beauchamp, because provide free lunch to employees;
changes in cooperation with vendors;
introduction of multiple approvals before granting customer credit.
All of them lead to discontent and a lot of complaints from the staff of Beauchamp. In this case, cooperation and mutual understanding between companies is at risk. It should be noted, that desire of managers of Synergon to monitor all deals impacts on Beauchamp’s staff negatively and even can be a cause of the loss of clients.
Anyway, the Beauchamp acquisition can be salvaged. It needs to conduct regular bilateral negotiations on different aspects of workflow. The most important problem concerns differences in management type of companies and organization culture principles. Synergon Capital is example of rough culture. The company growth and achievement of set goals are in the first place before each manager. The staff of this company is characterized by the high level of turnover rate (21%). It says about a lot of disagreements between staff and leadership. The value of particular employee is minimal.
Beauchamp is opposite example. The management of this company follows the principles of collectivism more than individualism. Each employee is valuable for the company. It worries about its reputation as well as commercial goals. In this case, it needs to give Beauchamp’s management more rights in decision-making. On the other hand, monitoring by Synergon’s managers must be, but it must not destroy business processes and loyal customer base of Beauchamp which were formed for a long time period. Such way of further cooperation can salvage the Beauchamp acquisition and even improve its performance.
If I was in position of Nick, I would prepare in different aspects for the up-coming meeting with Julian Mansfield. Firstly, Nick and Julian need to identify all compliant and unresolved issues which happen with staff of both companies. Secondly, Nick must analyze current business processes of Beauchamp, determine their advantages and drawbacks. It may take much more time that one or two days, but it is an important step towards understanding of companies. Next point is connected with the current management style o Synergon. Nick should explain Julian the main principles of current real policy of Synergon even if it does not meet expectations of Julian.
The management style of Synergon is tougher than Beauchamp and some rules can be unacceptable for Julian. In this case, the following solution can be used for above mentioned issues: Nick can offer to revise management decision of Synergon, especially, in part of multiple approvals, because the majority of complaints concern that problem. Also, it can be possible to leave preferences of Julian and senior management regarding air tickets unchanged. At the same time, more rights in decision-making together with good knowledge of clients must be used in achievement target indicators by managers of Beauchamp. One can say that more rights of Beauchamp’s staff assume more responsibilities. In this case, Synergon’s management can control selective deals of Beauchamp and make corrections in its workflow if some of target indicators are not reached.
As we know, merger of such companies as Shell and BG Group has been finished on 15 February 2016 (Porzio). The companies announced their intention to conclude the deal in April 2015. It should be noted, that this merger of oil companies is the largest one among mergers and acquisitions in the global oil and gas industry, at least in the last decade. Let’s analyze the participants of the merger briefly.
BG Group is the third largest gas producer in the United Kingdom (Info.kpmg.us). The main directions of its activity are the exploration, production of hydrocarbons and production of liquefied natural gas (LNG). Another company, Royal Dutch Shell is one of the world’s largest oil and gas companies with offices in more than seventy countries around the world. The volume of oil production is more than three million barrels per day. In addition, the company is a leader in the LNG industry. At the same time, the company has shown the sharpest drop in revenues in 2015 year for the past thirteen years.
There are many issues which appear in the context of a merger of Shell and BG. For example, Royal Dutch Shell plans to cut 2,800 jobs worldwide after the closing of the transaction for the acquisition of BG Group. It should be noted that the transaction is particularly important, as the BG acquisition will allow Shell significantly get to windward of other competitors on the market of liquefied natural gas. But for this it is necessary to obtain the approval of antitrust regulators in China, Australia and Brazil, on which markets Shell is going to dominate.
In this case, one can say that Shell has made a compromise in this transaction. The complex process of integration must include huge reducing of staff and selling assets in around thirty billions of dollars (Connors). In addition, the corporation has promised to reduce its whole costs by 3,5 billion dollars till 2018. Reducing of staff is quite unpopular measure. The selling of assets was also a difficult decision of the management of Shell.
One more fact, which confirms that this merger is challenging, is resignation of current CEO of BG, Helge Lund. The integration of BG in the Shell is managed by Vidzheveno Hubert. He becomes acting director temporarily. Such changes indicate the presence of opposite points of view among the senior management of BG Group.
The final decision on the merger of the two corporations is taken at the meeting. It should be noted that the majority of shareholders does not make the decision for a long time. Some of them still doubt the wisdom of the deal. The main cause of it is decreasing of the price per barrel. Some specialist predicted that if the price of Brent had fallen to the level of 20 dollars per barrel, the acquisition would not have taken place.
Another problem is connected with that the acquisition occurs through the exchange of shares. It should be noted, that securities of Shell and BG Group become cheaper unequally and disproportionately. Thus, the shareholders of one of the companies could be at a loss as a result of this transaction. Despite such high risks, the majority of shareholders of both companies has voted in favor the merger.
Each of companies has some advantages of this transaction. For example, the main advantage of this merger for Shell is gas projects in several countries, including Brazil and Australia. Deposits of gas in Brazil play an important role for Shell. The shareholders of BG Group got 19% of the combined company.
The acquisition of BG Group has strengthened the strong position of Shell in the rapidly growing LNG market (WSJ News Graphics). The company Shell was more interested in this merger. It should be noted, that the company's stocks fell to 20%, because lower oil prices reduced its production to 1.4 billion barrels of the planned volume. Acquisition of BG Group allows Shell increase production by 20% and reserves by 25%. This deal means that Shell will not need to explore new fields in the near future or invest in expensive custom projects.
In conclusion one can say, that the process of integration of Shell and BG Group continued for about ten months. The final decision was made by shareholders at the meeting in companies. There were benefits of this transaction for Shell as well as for BG Group. On the other side, Shell agreed to compromise, because new gas projects were crucial for its further activity.
Connors, Will. "Shell Completes $50 Billion Acquisition Of BG". MarketWatch. N.p., 2016. Web. 17 Feb. 2016.
Info.kpmg.us,. "KPMG 2016 M&A Survey Report". N.p., 2016. Web. 17 Feb. 2016.
Porzio, Matt. "Looking Ahead: M&A Trends In 2016". Forbes.com. N.p., 2016. Web. 17 Feb. 2016.
WSJ News Graphics."Shell And BG Group: Drilling Down On The New Allies". WSJ. N.p., 2016. Web. 17 Feb. 2016.