HR's Role in Mergers and Acquisitions: Success and Failure

Introduction to Mergers and Acquisitions

Mergers and acquisitions refer to the combinations of two or more companies forming a new entity. In other words, mergers and acquisitions (M&A) are the strategic moves of corporate organizations dealing with the dividing, buying, and selling of different companies or similar entities to help enterprises grow. One notable example of a major merger is the combination of Uniphase Corp. and JDS Fitel Inc. in 1999, which formed JDS Uniphase. A major example of an acquisition is Manulife Financial Corporation's acquisition of John Hancock Financial Services Inc. in 2004. Mergers and acquisitions regularly make big news in the business world because millions or billions of dollars are generally involved. In the United States, Wall Street bankers and analysts arrange M&A transactions daily, bringing separate companies together to form single, larger organizations.

The major goals of embarking on M&A include creating shareholder value, enhancing competitive market advantages, and forming cost-efficient companies. Some companies pursue M&A initiatives with the goal of gaining greater market share. Despite the benefits that can be derived from mergers and acquisitions, M&A is a very risky investment, and some companies have lost millions or billions of dollars in the process.

Since the 1980s, the United States has witnessed waves of corporate M&A driven by dramatic changes in the global business environment, with the overarching goal of achieving competitive market advantages. Although M&A transactions are undertaken for sound strategic reasons, almost two-thirds of M&A operations do not succeed. Love (2000) points out that 30% of M&A deals are sold off within five years, and 90% of that 30% never live up to their expectations. Many M&A deals fail because management does not integrate effective and efficient human resources (HR) roles into the M&A process. In the contemporary business environment, human resources plays a critical role in the successful outcomes of M&A in the United States and around the world. The objective of this paper is to evaluate the role of HR in the successful implementation of M&A in the business world.

Major Mergers of the Past Twenty Years

This section identifies different mergers that have taken place within the past twenty years. While some of these mergers were successful, others ended in failure — demonstrating that mergers are inherently risky and require careful strategic planning.

The following are among the major mergers carried out during this period:

1. Tokyo Electron (TOELY) and Applied Materials (AMAT) — Transaction Value: $10 billion
2. Spectra Energy Partners (SEP) and Spectra Energy Corp. (SE) — Transaction Value: $9.8 billion
3. American Airlines (AAMRQ) and U.S. Airways (LCC) — Transaction Value: $11 billion
4. Thermo Fisher Scientific (TMO) and Life Technologies (LIFE) — Transaction Value: $13 billion
5. Liberty Global (LBTYA) and Virgin Media — Transaction Value: $16 billion
6. Publicis Groupe (PUBGY) and Omnicom Group (OMC) — Transaction Value: $17 billion
7. Comcast (CMCSA) and NBCUniversal Media — Transaction Value: $17 billion
8. Michael Dell and Dell — Transaction Value: $25 billion
9. 3G Partners, Berkshire Hathaway (BRK.B), and H.J. Heinz — Transaction Value: $23 billion
10. Verizon (VZ) and Vodafone (VOD) — Transaction Value: $130 billion
11. Exxon and Mobil — Transaction Value: $81 billion
12. Disney and Pixar — Transaction Value: $7.6 billion
13. Sirius and XM Radio — Transaction Value: $1.6 billion
14. Mattel and The Learning Company — Transaction Value: $3.5 billion
15. Sprint and Nextel — Transaction Value: $35 billion
16. Boston Scientific Corp. and Guidant — Transaction Value: $27 billion
17. AOL and Time Warner — Transaction Value: $111 billion
18. Quaker and Snapple — Transaction Value: $1.7 billion
19. Vodafone and Hutch — Transaction Value: $13.3 billion

Successful Mergers and the Role of HR

Organizations involved in mergers and acquisitions often pay great attention to the operational elements of M&A, including legal and financial aspects. However, executives must realize that a successful merger also requires managing the human side of the transaction to maximize its real value (Armour, 2000).

The merger between Vodafone and Hutch is considered one of the most successful mergers in the business world, with a transaction value of $13.3 billion. At the pre-merger stage, both parties agreed on the need to change their corporate cultures and integrate them into a new unified culture. HR played an important role in this integration process. Specifically, the role of HR at the pre-merger stage was to align the organizational intangible assets that comprised HR culture and related issues. The organization formed an informal task force comprising HR leaders and business leaders, consisting of 40 senior members from both parties. At this stage, due diligence was carried out to achieve talent profiling and to understand the available skill sets within both organizations.

At the post-merger phase, organizational changes were met with feelings of doubt and anxiety, particularly when the organization implemented layoffs and addressed employee redundancy. HR managed employee concerns through a series of stress workshops. The company also used online communication to facilitate the sharing of visual and audio information. Face-to-face communication was likewise conducted to keep employees informed about company activities. HR also performed a functional expertise role to assist in talent acquisition and retention.

HR further performed the role of human capital development through technical training, soft-skills training, orientation programs, team interventions, and career pathway planning. The orientation program was specifically used to enhance employees' knowledge about the new changes that had taken place within the organization. Vodafone developed a new organizational culture and values through cultural integration, and HR carried out the role of career management for employee promotion. The outcome of the merger positioned Vodafone as one of the leading operators in the Indian mobile market and a leading player in the global telecommunications sector.

The merger between Exxon and Mobil is one of the most successful mergers ever completed in the business world, with a transaction value of $81 billion. The transaction elevated ExxonMobil to the status of the largest company in the world at the time. The merger was significant enough that the Federal Trade Commission (FTC) required the restructuring of some Exxon and Mobil gas stations to prevent monopolization, even as it approved the deal. The outcome of the merger made ExxonMobil one of the largest oil companies in the world with a commanding presence in the international market, enabling it to achieve dramatic earnings. ExxonMobil remains one of the largest publicly traded companies in the world.

Other successful mergers include the combination of Citicorp and Travelers forming Citigroup, and J.P. Morgan and Chase forming JPMorgan Chase. The Disney and Pixar merger, valued at $7.6 billion, allowed the combined company to exploit both organizational and financial synergies, increasing stock prices and supporting long-term growth. The merger between Sirius and XM Radio, valued at $1.6 billion, enabled the two companies to deliver a broader offering to customers. Retailers such as Circuit City, Best Buy, RadioShack, and Walmart benefited from the expanded product offerings. The merger helped both companies achieve stronger financial performance, manage operational costs more effectively, and gain competitive advantages in audio entertainment.

Love (2000) argues that human resources play a diligent role in successful merger outcomes. ExxonMobil was able to derive success from its merger in part because of the diligent strategy the organization employed to manage its HR process at both the pre- and post-merger stages. ExxonMobil used a seven-step model developed by McCann and Gilkey (1988) to define the role of HR in the merger process — a useful framework that helped the organization manage human resources through the M&A process.

Human resources played a critical role at the pre-merger stage because ExxonMobil involved employees who were knowledgeable about the negotiation process. The company also created an effective team to manage the M&A process. Some mergers fail because corporate executives do not integrate human resources professionals who are familiar with the change process (Marks and Cutcliffe, 1988). To avoid this pitfall, ExxonMobil employed a group of personnel highly skilled in change management to implement the pre-merger process.

Bramson (2000) discusses the key role of human resources in the merger between Shaw Supermarket and Star Supermarket, a transaction valued at $500 million. In that merger and acquisition process, human resources professionals from both companies played critical roles in the integration process. Schuler and Jackson (2001) support this argument by pointing out that large firms are relatively more successful in the integration process because they are able to implement systematic approaches to managing human capital through all stages of a merger, from pre-integration to post-integration.

During the integration process between Citicorp and Travelers, differences in corporate culture and potential incompatibilities threatened the integration. Citigroup succeeded in its integration because the company identified HR issues as one of the major priorities. The company retained key talented personnel by combining important staff from both Citicorp and Travelers to run the new organization. Senior executives were dedicated to leading the new company. Citigroup conducted a preliminary assessment of the M&A process's implications for HR and analyzed how the integration was likely to affect all personnel within the organization. At the pre-merger stage, Citigroup also evaluated its values and philosophy, including leadership style and team versus individual work procedures.

At the post-merger integration stage, ExxonMobil and Citigroup standardized work procedures to improve productivity and provided support for affected employees. Workforce restructuring was carried out immediately after each merger was finalized. Both companies organized stress management workshops to assist surviving employees in coping with the stress associated with the M&A process.

Lotz and Donald (2006) argue that a lack of success in mergers and acquisitions is often due to employees not receiving adequate attention during pre- and post-merger processes: "The stress that they experience during the process. This oversight exists despite the fact that employee problems have been blamed as being responsible for a third to one half of all merger failures" (Lotz & Donald, 2006, p. 2). Recognizing employee stress as a factor leading to M&A failure, these companies organized stress management workshops for their workers.

Conclusion

This paper has identified different mergers and acquisitions that have been implemented across the world. The study reveals that one of the key causes of M&A failure is that organizations do not integrate HR roles in the pre-merger and post-merger stages. The study recommends that organizations integrate the roles of HR throughout the M&A process to enhance successful outcomes from integration. One important recommendation is that HR should assist employees in managing the stress that can occur at the post-merger stage through seminars and workshops. The paper also discusses the task of HR at the post-merger phase to provide orientation for employees, helping them understand the cultural changes that have taken place during the change process. Implementation of these recommendations will assist organizations in achieving their goals following integration, and in realizing the full strategic value of their merger and acquisition investments.

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