Arbin Aryal – No one wants to lose their job or position whether for the development of the organization itself or for the sustainable growth of the other stakeholder of the organization. Issuance of the FPO, RIGHT, and BONUS in term of equity is the result of those effects. The word Merger is indeed better than word acquisition for the encroachment of the all the including party in terms of swap ratio, management participation and selection of leadership roll whether the participation is equal or proportionate. For the current scenario of Nepalese federal ruling state and the adjacent policy of the government and governing body Nepal Rastra Bank (NRB) it is sure to be hard to sustain for the small and locally operating BFIs which leads to less space for business. Therefore the only option to sustain is to go for either merger or acquisition. However the process of merger and post merger operation is not a hassle free.
Needs:
Banks in order to sustain in competitive market, should increase their volume of operations to make sustainable profits and to pursue consistent return for the stakeholder. Hence, the only option left for small BFIs is to go for merge or go to acquisition and become competitive. Thought the funds that banks own at present, they are not very likely to earn much profit in the future. The organization after merge will have higher market value and generate extra revenue which enables the acquiring company to earn more than the sum of profits of two different firms before merger supported by the synergy effect ‘the whole is greater than the sum of independent parts’. Some of the reason that BFIs should go for Merger and Acquisition are a) To increase capabilities & Competitive advantage b) Increase market share c) Diversification in product and services d) Decrease in cost & e) Survival. It’s never easy for a company to willingly give up its identity to another company, but sometimes it is the only option to the company to survive. A number of BFIs follow the mergers and acquisitions to grow and survive during last two fiscal years after NRB implement the ceiling in capital requirement to strengthen the capacity of doing business. All other thing remains constant and supportive more positive sides of merging may include more opportunities for advancement and having access to more resources to do the business. Today is the economic necessity that the BFIs should go for merger and acquisition besides increasing capital through FPO, Right & Bonus.
Consequences:
Just mergers and acquisitions may be fruitful in some cases, the impact of mergers and acquisitions on various sects of the company may differ. How the shareholders, employees and the management people be affected should be consider before signing the MOU. Mergers and acquisitions are aimed at improving profits and productivity of a company. Simultaneously, the objective is also to reduce expenses of the firm. However, mergers and acquisitions are not always successful which is seen in Nepalese banking industry time and again. The success of mergers, acquisitions is determined by a number of factors. Those mergers and acquisitions, which are struggled not only affects the entire work force in that organization but also harm the credibility of the company. Mainly understanding of the three stakeholder of the organization determine the success and failure of mergers and acquisitions of the company.
On employees:
It is a well-known fact that whenever there is a merger or an acquisition, there are bound to be layoffs. In the event when a new resulting company is efficient business wise, it would require less number of people to perform the same task. Under such circumstances, the company would attempt to downsize the labor force this mainly create dispute in managerial level. If the employees who have been laid off possess sufficient skills, they may in fact benefit from the lay off and move on for greener pastures. But it is usually seen that the employees those who are laid off would not have played a significant role under the new organizational set up. This accounts for their removal from the new organization set up. These workers in turn would look for re-employment and may have to be satisfied with a much lesser pay package than the previous one. Even though this may not lead to drastic unemployment levels, nevertheless, the workers will have to compromise for the same. If not drastically, the mild undulations created in the local economy cannot be ignored fully.
On Top Management:
It may actually involve a “clash of the egos”. There might be variations in the cultures of the two organizations. Under the new set up the manager may be asked to implement such policies or strategies, which may not be quite approved by him/her. When such a situation arises, the main focus of the organization gets diverted and executives become busy either settling matters among themselves or moving on. If however, the manager is well equipped with a degree or has sufficient qualification, the migration to another company may not be troublesome at all.
On Shareholders:
The shareholders of the acquired company benefit the most. The reason being, it is seen in majority of the cases that the acquiring company usually pays a little excess than it what should. Unless a man lives in a house he has recently bought, he will not be able to know its drawbacks. So that the shareholders forgo their shares, the company has to offer an amount more than the actual price, which is prevailing in the market. Buying a company at a higher price can actually prove to be beneficial for the local economy. Further the Shareholders of the acquiring firm are most affected. If we measure the benefits enjoyed by the shareholders of the acquired company in degrees, the degree to which they were benefited, by the same degree, these shareholders are harmed. This can be indorsed to debt load, which attends an acquisition.
Merger and acquisition failures are not uncommon, there are many other causes of merger and acquisition failures. Some time it is the bullish stock market, merging companies may belong to diverging corporate cultures. Mergers and acquisitions may seem to be beneficial and resulting in the merger of two conglomerates. They have been found to lead to cost cuts and increased revenues. These failures may harm the companies, tarnish their credibility in the market, and ruin the confidence of their shareholders. Seeing the Nepalese economy, mergers and acquisitions prove to be disappointing considering the business growth, profitability and employee turnover ratio. The reason is that their value on the stock market declines. The intentions and motivations for effecting mergers and acquisitions must be evaluated for the process to be a success. It is believed that when two companies merge the combined output will increase the productivity of the merged companies. This is referred to as “economies of scale.” However, this increase in productivity does not always materialize.
If a merger or acquisition is planned depending on the (bullish) conditions prevailing in the stock market, it may be risky. There are times when a merger or an acquisition may be effected for the purpose of “seeking glory,” rather than viewing it as a corporate strategy to fulfill the needs of the company. Regardless of the organizational goal, these top level executives are more interested in satisfying their “executive ego.” In addition to the above, failure may also occur if a merger takes place as a defensive measure to neutralize the adverse effects of globalization and a dynamic corporate environment.
In other side, failures may result if the two unifying companies embrace different “corporate cultures.” It would not be correct to say that all mergers and acquisitions fail. There are many examples of mergers that have boosted the performance of a company and addressed the wellbeing of its shareholders. The primary issue is to focus on how realistic the goals of the prospective merger are.
