announcement merger companies Vela Bahri. *Size companies *Reasons merger * process merger ( time ) * happened stock prices shareholders reaction *After completed merger results merger? status change? *Roles top manager merger.
Vela Bahri Merger
Information from the announcement of the merger
The announcement of this important merger was made on June 27, 2012 by Saudi Aramco and the National Shipping Company of Saudi Arabia. The announcement revealed the fact that the two companies signed a non-binding memorandum of understanding, in order to pursue the merger of the fleet and operations of Bahri and Vela International Marine Limited, which is a wholly owned subsidiary of Saudi Aramco.
The objective of the merger is represented by developing a larger and more diversified national shipping company. By joining their forces, the two companies expect to become a force in the shipping activity. Their intention is to successfully address the shipping activity by expanding it on international level. Therefore, it is important to identify the effects that this merger is likely to have on the shipping activity worldwide. This is because by developing a larger shipping company, the activity of other companies in the field is likely to be significantly affected. Their entire strategy should change in their attempt to not let this merger threaten them. However, the shipping activity in the Arabian area will be significantly influenced by this merger.
Size of the companies
Bahri is the fourth largest owner of very large crude carriers on international level. The company has After the merger, Bahri will have 77 vessels in its fleet, of which 32 very large crude carriers, 20 chemical tankers, 5 product tankers, 4 roll on roll offs, and 16 vessels under construction. In addition to this, Bahri is one of the most important companies in the region. The company engages much of the human capital in the Kingdom.
Bahri is also able to develop a platform intended to foster economic growth in the region. The activity of the company generates enormous incomes to the state's budget. Therefore, the country has every interest to support this company and the merger between Vela and Bahri.
Reasons of the merger
There are several reasons that determined the merger between these companies. Vela and Bahri are important companies in the Kingdom, but their size does not allow them to successfully address the international business environment individually. Therefore, they saw this merger as an opportunity. They decided to join forces in order to be able to reach this objective. The presidents of the two companies expect that this merger will create a new global leader in the shipping industry.
However, this is a difficult objective to reach. This is because there are important players on this market that have a size that allows them to address it on international level, and that know what groups of interest to support in order to maintain their activity. This merger allows Saudi Aramco to address maritime transport needs that are determined by its attempt to address the international market. In addition to this, the company wants to keep its current customers. This is also the case of Bahri (Hellenic Shipping News, 2012). The two companies cannot reach this objective on their own. Therefore, they understood the necessity of the merger. In other words, they understood that it is better to join forces instead of competing against each other.
The merger also means that Bahri becomes the exclusive provider of very large crude carriers to Saudi Aramco and there are also under discussion several projects regarding the expanding of the cooperation between the two companies on the maritime sector. In addition to this, the two companies aim at improving economic conditions in the region. This is because the expanded activity of the companies following the merger is likely to sustain economic growth.
The process of the merger
Basically, the merger between Bahri and Vela is not much different from other merger processes. Initially, the merger started with the discussion between the representatives of the two companies. The merger is the result of a long process of negotiations. This is because although these companies joined their efforts, this does not mean that they agreed on everything from the beginning. Each of these companies was interested in maximizing its benefits from the merger. Some of the issues required by each party were probably not acceptable by the other party.
Therefore, the representatives had to negotiate the benefits obtained by each company. This is a difficult objective to reach. This is because the interests of the stakeholders affected by the merger had to be under attention. The most important categories of stakeholders affected by the merger between the two companies are represented by customers, employees, shareholders, managers, the state's authorities, the society, and others.
Bahri must pay Vela $1.3 billion in total, of which $832.75 million in cash, and $78.75 million in new Bahri shares. The announcement of the merger was made in June 2012, and the transaction was expected to take place in November 2012. This means that the process of the merger took 5 months. However, we cannot identify how long the negotiations between the two parties took. There are situations where these negotiations take years, and other situations where negotiations take weeks.
Stock prices evolution and shareholders' reaction
Each merger between important companies has consequences for them. These consequences refer to customers' reaction following the merger, to the process of stocks that can be significantly influenced, to the market's reaction, and others. These effects of the merger are monitored in order to evaluate its impact.
In the case of the Bahri and Vela, the merger brought Saudi Aramco 78,750 new shares issued by Bahri. These shares represent 20% of company shares after the issuance process. The merger of important companies, especially on the oil industry, brings great attention on the companies in case. Stakeholders become more interested in these companies. Their shares are sought after by more investors. Therefore, they become more expensive.
This is also the case of the merger between Bahri and Vela. As expected, the company shares have increased their price following the merger. Investors are interested in buying hot stocks, which increases their price. They are looking to sell these stocks at some point where their price is even higher. They expect that the fact that these companies merge in order to develop one of the most important shipping companies in the world is likely to determine increased profits for them.
The shareholders appreciated the merger between Vela and Bahri. They saw this as a great opportunity that would allow these companies to develop their activity, to expand it on international level. Therefore, it is obvious that they would be in favor of this merger. Their reaction was a positive one towards the merger. This is because it is expected that return to shareholders are likely to significantly increase.
Results of the merger
Such an important move from all points-of-view had to have important results. The transaction between the two companies was a very complex one. This is because the two companies transacted large amounts of money between them. In addition to this, the employees were also affected by the merger.
The entire activity of the two companies has significantly modified as a result of the merger. Bahri became the exclusive shipping supplier of Saudi Aramco. In other words, instead of finding customers, addressing each of them, Bahri only has one important large client. However, the customers of Bahri before the merger were transferred to Saudi Aramco.
This situation makes it easier for Bahri to address the shipping industry. Instead of focusing on finding customers, Bahri must focus on satisfying the needs of Saudi Aramco and its customers. This is also easier for Saudi Aramco. This is because the company has assured the services of a shipping provider, Bahri. The company is not required to spend a lot of effort into finding suppliers that can satisfy its needs. In addition to this, Saudi Aramco also benefits of Bahri's customers.
The roles of top managers during the merger
There are several factors that determine the success of a merger. The behavior of top managers is one of the most important factors. This is because they set the tone of the merger. Based on the things they communicate, other stakeholders develop their approach to the merger in case.
The role of top managers is multi-leveled. They must ensure that the negotiation between the two parties is oriented towards a win situation. This means that each party must reach some of its objectives. However, the top managers must determine which are the objectives that can be reduced, and which are the objectives that must be reached.
Top managers play another important role regarding the merger. Top managers must ensure the efficient communication on the merger. This is because such an important strategic move is likely to draw the interest of different categories of stakeholders. Employees can feel unsafe about their future within these companies. The…