This streamed revision presentation outlines some evidence of the impact on, and reaction of, stakeholders to takeovers and mergers

1. The impact on, and reaction
of, stakeholders to takeovers
and mergers

2. Key points
• All stakeholders are affected in some
way by a takeover or merger – but some
more than others!
• For stakeholders of the target business,
the effect (and response) is often
negative
• The key issue – to what extent are
stakeholders able to influence the effect
of the transaction on them?

3. Key definitions
• Stakeholders: A stakeholder is someone
or some organisation/institution that
has an interest in the success of a
business.
• Post-merger integration: the process of
bringing all aspects of the acquired
business into the business organisation
of the buyer (including customers,
employees etc.)

4. The Stakeholder Model
• Stakeholder model: requires that “all of
the parties affected by management
decisions, in addition to the
shareholders themselves, management,
employees, customers, suppliers,
communities in which the business
operates and the environment from
local to global, all must be considered as
fairly and justly as possible.”

5. Who are the Stakeholders?
• An individual or group with an interest in an
organisation
• Any individual or group who can affect or are
affected by the achievement of a firm’s objective
• Groups/individuals that:
– have an interest in the well being of the company
– and/or are affected by the goals, operations, activities of
the organisation
• They have a stake in what the organisation does

6. Examples of stakeholders (all can be
affected by M&A)
• Shareholders or • Government
business owners • Local community
• Managers & • Other external
employees groups (e.g. pressure
• Customers groups)
• Suppliers • Competitors
• Banks and other • The media
finance providers

7. Potential conflicts between stakeholders
Takeover or Merger Decision Supported By? Opposed By?
Shareholders Employees
Cut jobs to reduce costs
Banks Local community
Management
Transfer production to overseas
Customers & Local community
location
suppliers
Introduce new machinery to Customers
Employees
replace manual work Shareholders
Increase selling prices by 10% to Shareholders
Customers
improve profit margins Management

8. Likely negative impact on stakeholders
Most takeovers and mergers are associated with:
• Job losses in the acquired business (a direct result
of cost synergies) & knock on effects on local
economy.
• Uncertainty & more job insecurity – particularly as
organisational structures & systems are integrated.
• Potential closure and / or transfer of capacity to
other international locations (e.g. to emerging
markets).
• Change in the taxation status of the firm – profits
may be transferred overseas with a loss of
corporation tax for the UK economy.

9. Many examples of adverse reaction

10. Ways to manage stakeholder impact
• Stakeholders need to be considered & included in the
takeover / merger integration plan.
• Clear, early and honest communication about the
intentions & plans of the acquiring firm.
• Focus efforts on the most important stakeholder
groups. For example existing customers of the
acquired firm are crucial, as are employees /
management that the buyer wishes to retain (staff
retention consistently shown as a major HR problem
with takeovers).

11. Examples of stakeholder response
Takeover / merger Stakeholder reaction
Kraft / Cadbury Hostile reaction from employees, unions & local community –
supported by media - but not enough to persuade Cadbury
shareholders from eventually agreeing to the bid.
L’Oreal / Body Hostile reaction from pressure groups, media and some customers
Shop (raising concerns about L’Oreal record on animal testing); but quickly
died down.
Dubai Ports Negative reaction in the USA to the takeover by a UAE-owned firm
World / P&O that would involve foreign ownership of six ports in America.
Coca-Cola / Widespread customer criticism of Innocent’s decision to sell a stake in
Innocent their ethically-friendly business to Coca-Cola (who later took control)
Fenway Sports Broad agreement from Liverpool FC supporters who welcomed the
Group & Liverpool takeover from the previous owners (compare & contrast with
FC continued hostility to US ownership of MUFC

12. Why employees of the target business
might welcome or support a takeover...
• Opportunities for promotion
• Investment by the buyer
• A change of culture
• A fresh start (particularly with a
merger)
• Business not well run by existing
management (i.e. a better future)

13. Depends on factors
• When an acquisition is announced, there are
likely to be conflicts of interest between these
different stakeholder groups, depending on
their interest in the firm. E.g. customers may be
supportive of the takeover. However, employees
may react negatively if there are significant job
losses involved.
• The important thing is to consider the impact
on the main stakeholder groups. Is the effect
on the stakeholder serious, beneficial or will it
hardly affect them at all?

14. Evaluation opportunities
• Which stakeholder groups actually have the
power to impact the eventual success or failure
of a takeover? Whilst there might be
widespread opposition from media & local
community – are other stakeholder groups
(customers, employees) much more important?
• Too easy to assume that a takeover will have a
negative effect on internal stakeholders like
employees. The transaction might actually
benefit them in the long-run if their business is
stronger as a result.

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Mergers Blog for more resources