Explain the process of merger. Write down the goals of a merger.
Process of Merger
There are three major steps in a merger transaction: planning, resolution, implementation.
1. Planning, which is the most complex part of the merger process, entails the analysis, the action plan, and the negotiations between the parties involved. The planning stage may last any length of time, but once it is complete, the merger process is well on the way.
More in detail, the planning stage also includes:
- The signing of the letter of intent starts off the negotiations.
- The appointing of advisors who play the role of consultants, examining the strengths, weaknesses, opportunities, and threats of the merger.
2. The resolution is simply management’s approval first, then by the shareholders involved in the merger plan. The resolution stage also includes:
- The Board of Directors calling an extraordinary shareholders’ meeting whose item on the agenda is the merger proposal;
- The extraordinary shareholders’ meeting is called to pass a resolution on the item on the agenda.
- Any opposition to the merger by creditors and bondholders within 60 days of the resolution.
3. Implementation is the final stage of the merger process, including enrolment of the merger deed in the Company Register. Normally medium-sized/big mergers require one year from the start-up of negotiations to the closing of the transaction. This is because, in addition to the time needed technically, there are problems relating to the share exchange ratio between the merging companies which is rarely accepted by the parties without drawn-out negotiations.
Goals of a merger
1) Helping the leaders to agree on a clear and specific set of goals for the merger. Setting up measures helps the leadership team to focus on tangible, measurable results, which brings misunderstandings and conflict into the open.
2) Measuring the results at a number of milestones can also point to potential problems before they become crises, helping to make the merger/acquisition smoother and increasing the likelihood of success.
3) The OD consultant should not usually lead the scenario planning, but they should be there as a process consultant to ensure that every team member’s contribution is heard and that people are honest with each other and with themselves.
5) Exploring options – are there other ways to accomplish the same goals without a merger? Again, going back to Chrysler, the company was seeking international expansion and financial security.
6) Investigating assumptions – while usually not a separate exercise, the OD consultant, as an outsider, is in a unique position to bring out hidden assumptions. This should be done continuously throughout the process, though scenario planning and exploring options are expressly designed to explore and test assumptions.
Know the types of Mergers and Acquisitions and Steps to a Successful Merger