ROLE OF HUMAN RESOURCE DEPARTMENT IN MERGERS AND ACQUISITIONS by

NOMAN IQBAL

Research Proposal

Karachi, Pakistan MAY, 2011

Research Title: Role of Human Resource Department in Mergers and Acquisitions

Introduction (literature based):

Merger refers to the combination of two or more organizations to form a new organization with a new name and new identity. On the other hand, Acquisition refers to the purchase of a company by other company. The five basic stages of a merger or acquisition are; 1. Pre-Deal: Based on its growth strategy, the acquirer searches for an appropriate target or partner, assesses potential targets and develops a plan for executing the deal. 2. Initial Plan: The meeting of minds, offers, and initial plan; 3. Due-Diligence: The financial and other audits or due-diligence;
4. Integration: And combining the two entities to form a fundamentally cohesive and

productive new organization. 5. Implementation: This can take months or even years to complete, depending on the complexity of the deal and the size of the merging companies. HR executives and HR Department need to play a key role in the get-go-in mergers and acquisitions. It has been observed that organizations that pay attention early on to people issues beat the long odds of achieving shareholder value. Many companies report that the end result of their mergers is not that as they had perceived before. From the recent studies, it is evident that the success rate of merged companies is between 30 to 60 percent, depending on what criteria you measure. Most of the organizations loose 1-10% of their market value in the first year of their merger. Many deals fail to create expected value, according to a survey by Accenture and the Economist Intelligence Unit conducted in March 2006. The survey of 420 corporate executives from the United States, Germany, the United Kingdom, Sweden, Norway and Finland also found that over half of recent deals in which respondents had been involved were cross-border

transactions. (Retrieved from http://www.hrmguide.com/strategy/mergers.htm) Certainly, organizations realize very clearly that to be competitive in the global economy, rapid growth, flexibility, and efficiency are critical (Schuler & Jackson 2001), and Mergers and Acquisitions can provide them with these attributes. But studies that still a significant number of Mergers and

Acquisitions fail, these reported failure rates may vary anywhere from 50 to 80 percent depending upon the industry and nature of business (Tetenbaum et. al., 1999). It was reported in the third annual Mergers and Acquisitions summit (China Summit, 2006), that at least 50 percent of the Mergers and Acquisitions fail to achieve their original objectives, and over 80 percent of mergers are unsuccessful one year after the completion of the deal. Despite this, Mergers and Acquisitions continue to find favor with organizational leaders (Bryson, 2003), sometimes for the specific purpose of achieving competitive advantage (Porter, 1985) through achieving synergy between the involved companies (Cartwright & Cooper, 1995). Why does this happen? Although a multitude of factors can contribute to a disappointing merger or acquisition, success depends ultimately on the effective use of people. There is a lot to learn about managing various HR issues related to the human power of the organizations, not only the acquiring one but also the one which has been acquired. Some of these issues are Benefits Harmonization, Job Alignments, Lay Offs and Open Source and Core Availability. Benefits Harmonization refers to the alignment of the systems of pay and benefits of two companies that become one by merger, acquisition, or takeover. Job alignments refer to the creation of a harmonized job structure, including corporate titles, functional titles, and job descriptions in an efficient manner of documenting a firms existing organizational structure. Layoffs refer exclusively to a temporary interruption in work, a temporary suspension or permanent termination of employment of an employee or a number of employees for some business reasons. It might be due to downsizing or due to nonavailability of the job positions. Whereas, Open source is a kind of technology or software that helps organization to merge its data with the other organization. Whereas core availability refers to Human Capital, it shows whether the organization has core employees to carry out the process of merger and acquisition. From the due-diligence stage through the identification and appraisal of people to the management of

culture issues and communication, people issues impact every step along the way. Such issues are essential and integral to the process and must not be treated as an afterthought. Statement of the Problem: To Study the efficient role of Human Resource Department during mergers and acquisitions. Here we are going to study how Human Resource Department works and incorporate the various issues related to the employees of an organization during Mergers and Acquisitions like Benefits Harmonization, Job Alignments, Open Source & Core Availability and Layoffs. These all are very sensitive issues and are related to the Asset (Human Power) of an organization, so here we will study how and why they need special attention and proper procedure for successful implementation, the outcomes of this study and also, which variable has the most impact.

Theoretical / Conceptual Model/Framework to be used:

INDEPENDENT VARIABLES

DEPENDENT VARIABLE

Variables to be Studied: Dependent Variables Mergers & Acquisitions

Independent Variables Benefits Harmonization Job Alignments Lay Offs Open Source and Core Availability

Proposed Research Hypothesis: Ho: Benefits Harmonization of employees has a significant role in successful implementation of Human Resource Departments (HRD) responsibilities during Mergers and Acquisitions H1: Successful Application of Job Alignments by HRD has a significant role in Mergers and Acquisitions H2: Relevant successful management of Lay Offs by HRD has a significant role in Mergers and Acquisitions H3: Proper Implementation on Management Retention Issues by HRD has a significant role in Mergers and Acquisitions

Sources of Information: Primary Sources: This will be done through self-administered Questionnaires. Secondary Sources: These will include collection of data through Electronic media like Online Journals, a Research articles, magazines, online books, research papers and dissertations.

Sampling Technique & Procedure : A self-administered questionnaire would be administrated among the sample population through Simple

Random Sampling in various pharmaceutical companies where successful mergers or acquisitions have occurred. Sample Size: The number of respondents will be 125. Method of Data Collection & Procedure: A questionnaire would be administrated among the organizations where mergers or acquisitions have been implemented in which the role of HR department had a successful impact on various human related issues as mentioned variables for this thesis. The self-administered Questionnaire would be filled in by the Employees and Management. Instruments of Data Collection: Questionnaire would be made which will have questions regarding the role of HR Department while addressing the issues related to Benefits Harmonization, Job Alignments, Open Source & Core Availability and Layoffs. What is the criteria and how division of various benefits is done between the newly merged/acquitted companies? How employees react to it and what possible outcomes it brings?

Statistical Tests to be used: Multiple Regression test will be used to analyze the data. Possible Research Findings: The possible outcomes of the present research would be the Significance of Successful role of HRD in mergers and acquisitions, the proper conduction of lay-offs, the significance of restructuring of jobs, significance of Harmonization of various benefits and also, the variable which has the most impact. List of References:

Accenture and the Economist Intelligence Unit (2006). Mergers and Acquisitions [Online] http://www.hrmguide.com/strategy/mergers.htm Bryson, J. (2003). Managing risk in a merger. Employ Relations 25(1): 14-30.

Cartwright, S., and CL, Cooper. (1995). Organizational marriage: "Hard" versus "soft" issues? Personnel Review 24(3): 57-70. China Summit. (2006). 3rd Annual http://gicglobal.com/06m&acn.html Mergers & Acquisitions in China Summit.

Schuler, R., S. Jackson, and Y. Luo. (2004). Managing Human Resources in Cross-Border Alliances. London: Routledge. Tetenbaum, T. (1999). Beating the odds of merger and acquisition failure: Seven key practices that improve the chance for expected integration synergies. Organizational Dynamics 28(2): 22-36.