Impact of Corporate

Restructuring on HR
Module 3
Forms/Types of Corporate Restructuring

Ty pes of CR

MERGER AMALGAMATION ACQUISITION JOINT VENTURE

 MERGER
• Merger is a process of consolidation/combination/ unification of
two or more separate companies into a single company.
• Either a new company may be incorporated for this purpose or
one existing company (generally a bigger one) survives and
another existing company (which is/are smaller) is merged into it.
• Such a fusion involves the transfer of assets and liabilities of the
merging companies to the merged company (surviving entity). The
shareholders of the merging company become the shareholders in
the merged company
 A merger may occur in two ways….
• Merger through Absorption: When two or more entities are combined,
into an existing company, it is known as merger through absorption. In
this type of merger, only one entity survives after the merger, while the
rest of all cease to exist as they lose their identity. E.g. Tata Chemicals
Limited (TCL) absorbed Tata Fertilizers Limited (TFL).
• Merger through Consolidation: When two or more companies fuse to
give birth to a new company, it is known as merger through
consolidation. This implies that all the companies to the merger are
dissolved, i.e. they lose their identity and a new company is created. E.g.
Consolidation of Hindustan Computers Limited, Indian Reprographics
Limited, Indian Software Company Limited Hindustan Instruments
Limited, to form a new company HCL Limited.
 Types of Merger
• Horizontal Merger: A horizontal merger is when two
companies competing in the same market merge or join
together. The market share of the newly formed company is
greater than the individual entities. It is aimed at reducing
competition, increasing market share, economies of scale and
research and development.
 Types of Merger
• Vertical Merger: Vertical merger takes place when companies
are having ‘buyer-seller relationship’, join to create a new
company. It is an integration of two companies that are
working in the same industry, though at a different stage of
production and distribution. It can be upstream or
downstream, i.e. where the business takes over its suppliers,
then it is an upstream merger while if the company extend to
its distribution entities, the merger is termed as downstream.
 Types of Merger
• Conglomerate Merger: A type of business integration, in which
the merging companies are not related to each other, i.e.
neither horizontally nor vertically. In a conglomerate merger,
two or more companies operating in different business lines
combine under one flagship company.
 AMALGAMATION
• An amalgamation is a type of merger in which two or more
companies join their businesses to create an entirely new
company/entity.
• As a consequence, the amalgamating company loses its
existence and its shareholder becomes the shareholder of the
new or amalgamated company.
 ACQUISITION
• When one entity purchases the business of another entity, it is
known as Acquisition. It is also called takeover. In this process
of restructuring, one company buys the other company’s
ownership stakes in order to assume control of the target firm.
• Acquisitions can be either friendly or hostile.
– Friendly acquisitions occur when the target firm expresses
its agreement to be acquired,
– whereas hostile acquisitions don’t have the same
agreement from the target firm and the acquiring firm needs
to actively purchase large stakes of the target company in
order to have a majority stake.
 JOINT VENTURE
• Joint Venture (JV) is a form of alliance wherein two or more entities
agree to incorporate, a new entity, by contributing equity and assets, in
order to operate a business or to attain a commercial objective.
• Parties to a JV may have complementary skills or capabilities to
contribute to the JV, or parties may have experience in different
industries which it is hoped will produce synergistic benefits. The basis
of a JV is the sharing of proficiency and expertise of both the entities on
mutually agreed terms. Such sharing ensures a competitive advantage
to the JV entities over other competitors in the market.
• Microsoft and NBC Universal created MSNBC as a joint venture,
which still had the two mother companies maintaining
ownership of the brand new venture.
• Sony-Ericsson is a joint venture by the Japanese consumer
electronics company Sony Corporation and the Swedish
telecommunications company Ericsson to make mobile
phones. The stated reason for this venture is to combine Sony's
consumer electronics expertise with Ericsson's technological
leadership in the communications sector.
 Impact of restructuring techniques on HR
• The major focus of restructuring had been to gain financial
benefits. Mostly attention is paid to the legal, financial, and
operational elements ignoring other elements. But with time, it
has been recognized that the human aspect is the real key to
achieve the objectives of the restructuring process.
• Human resource issues are the primary indicator of the success or
failure of a deal. Though employees are the most important
resource of an organization in restructuring issues, the employees
issues are, mostly ignored during the restructuring process.
 Areas where restructuring impact on HR
1. Resistance to Change
2. Psychological Impact
3. Culture Conflict
4. Impact on Job Satisfaction
5. Competitiveness
6. Merger-Emotions Syndrome
 Resistance to Change
• Restructuring brings change in technology, change in leader/
boss all this impacts the employee as they were comfortable
with the previous boss/leader, they were acquainted with the
previous technology and because of this the employee’s resist
change.
 Psychological Impact
• Restructuring have a severe impact on the psychology of an employee as
the employee becomes fearful of unemployment (Fear of Job Loss), they
get sacred of demotion, fear of unknown and feel insecurity, fear of job
changes, job transfers, compensation changes, etc
• Due to all these they lose confidence and feel they are incompetent thus
it effects their ego, performance and their morale is also disturbed.
• Communication is critical during these times, so here organization need
to communicate to employee and should strive to share as much
information about what is happening and, most importantly, how the
changes will affect individual employees, as they possibly can.
 Culture Conflict
• When two or more organizations come together, culture clash is
inevitable. Rarely do two organizations have the same culture.
• As these groups get to know each other there will inevitably be
conflict, so it is important for organizations and their managers and
HR staff to recognize this and to provide opportunities for
employees to get to know each other, to openly address concerns,
and to work together toward the creation of a new culture that will
merge the best of both worlds.
 Impact on Job Satisfaction
• After restructuring the job satisfaction level of employee
changes. Employees expect that they should get proper fringe
benefits like retirement benefits, day care facilities, sick leaves,
vacations paid/ none paid, hotel stay, education funding, pick
and drop facility.
• After restructuring if all these facilities are not given to them
then they become demotivated to work and it affects the
productivity of the company.
 Competitiveness
• When employees are concerned about their own job security
they are more likely to become competitive with others and this
competitiveness can result in conflict--sometimes even violence.
• During restructuring it is important for managers and HR
professionals to be alert to signs of negative competition and to
ensure that employees are being kept informed about impacts on
their jobs and their futures with the company.
• While some competition is good, competition is not good when it
creates tension and negative conflict in the organization.
 Merger-Emotions Syndrome
• Hunsaker and Coombs (1988,
58) found familiar pattern of
emotional reactions in workers
throughout a merger or
acquisition; which is called
“merger-emotions syndrome”.
• This can be illustrated by the
following diagram.
• Denial. In the beginning employees react to the announced
merger with Denial. They say it must be ‘just a rumour’.
• Fear. But when it is confirmed employees become fearful like
they start thinking about job loss, layoffs.
• Anger. In many instances, employees feel like they have been
‘sold out’ after providing the company with loyal service. The
employees do everything in their power to stop the merger but
when they are unable to do so they show anger. They start
expressing by doing strikes threatening the management.
• Sadness. Employees begin to grieve the loss of corporate identity
and reminisce about the good old days before the merger.
• Acceptance. Once a sufficient mourning period has elapsed, employees begin to
recognize that to fight the situation would be useless, and they begin to become
hopeful about their new situation.
• Relief. Employees start to understand that the circumstance is not as unfavourable as
they had imagined.
• Interest. Once people become secure with their new positions or with the
organization, they begin to look for positives at workplace and find the job interesting
and start taking interest in the work. They begin to perceive the new situation as a
challenge in which they can prove to their organization their abilities and worth.
• Liking. Employees learn new opportunities and begin to like their new work
environment.
• Enjoyment. Employees discover that the new situation is working out well and feel
more secure and comfortable.