Over time international business has undergone great transformation and this has necessitated most corporations to expand their scope of operations so as to benefit from the economies of scale and the advantages of having a diverse portfolio products. This has been the tactic used by most trans-national organizations to succeed in different nations. They grow through mergers and acquisitions. The current corporate world has advanced from the poor lifestyle to affluence and as a result, completely new economic theories have developed. Businesses have revolutionised and they are turning from local to global marketing, most of these business ventures are forced to put in place a framework of operation that ensures accountability and global recognition otherwise this would greatly degrade their performance. Though mergers and acquisition are very crucial in the fast advancing economy, this paper asserts that mergers can be very detrimental if no proper background and feasibility study is carried out. Mergers involve redesigning and restructuring business operations. However, problems of compatibility can arise causing the capital resources to be obsolete when adjustments are being made. In order to attain the intended goals of better performance and growth from the merger, the merging firms have to carry out a study to assess future feasibility, asset compatibility and resource sustainability.
Southcorp and Rosemount had previously succeeded on their own before the decision to pool their resources and do business together in 2001. The merger helped the businesses to make substantial advances in the corporate environment (King et al 189). Southcorp was able to attain international status after the merger as Rosemount increased its market in Australia. These developments were very important to the survival of the companies. However, considering that the companies were highly diversified in their separate businesses, compatibility became a problem and some property had to be liquidated (King et al 189). Southcorp was a diversified company that dealt in air conditioners, water heaters and wine. However following the merger, other business lines had to be shut down with the exception of the wine business since the firm came to concentrate on wine production latter on. Southcorp was able to acquire Rosemount’s estates as well. This implies that the properties that were given up for liquidation were not necessary to the new merger (Eiteman 480). The paper addresses the problems of compatibility following a merger and price determination for their goods.
Mergers and acquisitions are becoming very common in the current tough economic times. This is because these methods have saved companies from the great loses they would have incurred if some solution was not to found. The phrase, ‘mergers and acquisition’ has hence been adapted to mean uniting to do business together as partners rather than compete and it’s usually abbreviated as M&A (Beamish 69). This corporate strategy helps firms in corporate finance management that ultimately allow the firms involved to survive difficult economic times like the 2008 recession or the great economic depression (Hirsch 13).
Companies come together or a company acquires another business so that they are able to invest in an existing firm that would develop faster rather than having to create a new business. In the wine industry, there is very high competition and smaller firms are often disadvantaged in the hierarchy (niche) (Hirsch 14). This is because they cannot easily afford (in terms of finances) to constantly change their technology to fit new market needs as the larger corporation and well established firms do. And as such, the smaller companies are often edged out of competition (Perry & Herd 13). However, there is still an option for them to survive, form a merger and become bigger.
Companies can pool resources together by forming a merger so that at the end of it all, they have a lot of money or enough capital to invest in superior technology. When Southcorp and Rosemount decided to come together, the two companies knew the benefits that they would reap from the deal (Australian Financial Review 25). However, there are two major problems emerged that seemed not to have been catered for before the merger was effective. These issues include compatibility and problems in pricing (Hirsch 13).
There is a very important aspect of business operations that comes into play at this juncture. It’s termed as due diligence and refers to the analyses needed to have been done before the merger was effected in this circumstance. This assessment enables the two companies to be aware of what exactly they are getting themselves into. It can also assess future survival to determine whether the business will be self-sustainable (Anderson 65). This is usually about attempts to eliminate possible loses that would result from poor planning and property becoming obsolete as they cannot be used in the new business.
Having to know the history of the partner company is very essential. The two companies in question had separate paths to success and both were successful. Southcorp had diversified a lot dealing in water heaters and other products not related to wine (Australian Financial Review 25). Rosemount on the other hand owned an estate that was later acquired by Southcorp. The problems of incompatibility can however be solved if the merging companies take necessary steps in advance like selling unnecessary assets and re-investing the money. There are several risk factors that are involved in the process of merger since the entire process ends up in formation of a whole new business and management structure in most cases (Anderson 65). These have to be analyzed critically. Before entering a partnership or a merger, revisiting the definition of mission and objectives is important (Perry & Herd 13).
There are two types of mergers that take place in the corporate world today; Horizontal or vertical merger. Survival of the new business is very important as there is no need of merging and then loosing out the diversity enhance vulnerable, to collapse in case the other of product fails (Ferguson 56). By this, it’s important that the policy support the move for diversifying into the non wine industry. The company should also seek to merge with other firms which will offer expertise and also carry out some acquirement to increase the rate of expansion and when this is achieved, the company will enjoy the economies of scale in its operations (Anderson 65).
As the business expand and become multinational, it gains a lot of power due to the capital it holds and the market situation they create. The wine manufactures in Australian market have created oligopolies in many sectors and this makes the companies manipulative and hence very influential (Combe 109). By these means they can easily ‘play around’ with the prices of commodities. As the business world become more liberal and the phenomenon of globalization spreads, Rosemount and Southcorp are faced with a tough challenge in setting prices (Australian Financial Review 25). This is attributed to the fact that as separate entities, the two companies’ had different pricing policies. When required to work together every company present a price perceived efficient or that worked for it in separate entity yet this is need a whole new strategy.
Merging to do business is a process and takes sometime before everything is incorporated into the new founded company. Problems of working together towards certain goals can be solved in a better way (Leonard 63). Primarily, the two companies should know why they are getting into the merger. Basically mergers are for assurance for future survival considering that the world suffers turbulent economic times. Management and cultural issues need to be solved first as they can end up in confrontations, discrimination, and stress among employees (Combe 109).
The first step to take in order to avoid problems of mergers in future is to establish an acquisition strategy. From this strategy, the companies will define the criteria for merging ands looking for the target (Beamish 69). Second is making up the merger plans. These plans include valuation and evaluation. Following the evaluation processes, the companies in questions then carry out negotiations to reach agreements (Beamish 69). Third is to carry out the ‘due alliance’ requirements. Get in touch with purchases and sales processes. Lastly is to implement the project.
Addressing problems that come with mergers and acquisition is of critical importance as many businesses are merging in order to increased their working capital, increased product diversity, increased work skills and experience and to increased market share. All these attributes go towards increasing survival chances of a business. As a result, proper managing of the incompatibility problems is very vital for merger. If a business can be able to transform without hiccups, business can be very successful. The current business world has grown to international standards and hence world class management and leadership skills are required to manage the operations on multi-national companies or corporations. This is because most of the international business ventures have grown through mergers and acquisitions plus they have diversified their products.
Anderson, Kym. The Globalization (and Regionalization) of Wine, Centre for International Economic Studies Discussion Paper 125, University of Adelaide. 2001. Adelaide. Blackwell Publishing
Australian Financial Review. “Southcorp Stumbles: Yet another Corporate Icon at Risk”, 2000, P. 16-25. Adelaide, IES pub
Beamish, Paul. (Ed). Cases in Strategic Management, 2000. French Forest, Prentice Hall
Combe, David. “Grapes of Success: Australian to International – The Southcorp Wines Story”, Mt Eliza Business Review, 1 (2): 1998; pp. 108 – 115. Monash, Monash Publications.
Eiteman, David. Multinational Business Finance. 1998. Pp. 480-496. Boston, MA, Addison-Wesley,
Ferguson, Adele. “Southcorp’s Magnum Opus” Business Review Weekly, : B R W 23(18): 2001; P. 56. New South Wales, Media Publication.
Hirsch, Jared. Mergers and Acquisitions: A Different Perspective, 1996, pp. 13-19. New York City Kimball Publishing
King, Darren, Dalton, Richard. Daily, Martin and Covin, George. (2004), “Meta-analyses of post-acquisition performance: indications of unidentified moderators”, Strategic Management Journal, Vol. 25 No.2, pp.187-200. Geneva, Inderscience Publishers Ltd.
Leonard, Daniel. Global Markets. Mergers and Acquisitions. New York City, Shermerhorn Johnson Company,1997.
Perry, S. Jeffrey and Herd, J. Thomas. Reducing M&A Risk Through Improved Due Diligence. Strategy & Leadership. 2004 Vol 32. Issue 2, Pp 12 – 19
The research was conducted between January 2010 and Maril 2010. Specific event are recorded in the table below with the time limit.
The concept of merger and acquisition is very important in the corporate world today since the problems with economy and expansion of businesses on the increase considering that the Febketplace has become very unpredictable. There are efforts by business managers to try and find ways that can facilitate better outcome in tough economic times. This has included mergers and acquisition of businesses as opposed to starting new ventures.
Purpose of Study
The purpose of the study was to investigate the significance and impact of the merger between Southcorp and Rosemount. Problem Statement: Mergers and acquisition in some cases can be very problematic especially when the merging firms cannot attain harmony. This is the problems of incompatibility. Hypothesis: Merging companies face a very huge setback of incompatibility.
This section is very important in providing extensive understanding of the topic understand. Basically it started by defining the principles of mergers in relation to different background of businesses. This section then discussed a variety of facets that surrounds mergers from all perspectives.
Research Design: The research involved both qualitative and quantitative methods of study. Target Population: The sample population was managers and workers from Southcorp and Rosemount companies. Structured and semi structured questionnaires were used. Scaled questions that utilize Yes/No response of the likert design questions were expansively used on the questioners as they are very easy to understands and analyze. Reliability of the methods was assessed and reported.
These were drawn from the study findings analysed to sum up the findings.
|Research Timeline and Project Milestones|
|Refining The Topic And Consulting With Supervisor||Jan 4 – Jan 6 2010|
|Developing Research Questions||Jan 5 – Jan 10, 2010|
|Preparing Research Proposal||Jan 12 – Jan 18, 2010|
|Presenting The Research Proposal||Jan 22, 2010|
|Preliminary Literature or Secondary Research||Jan 23 – Feb 4, 2010|
|Finalization Of Research Methods And Plan||Feb 4 – Feb 8, 2010|
|Submission of Proposal To Ethical issues agency||Feb 11, 2010|
|Organising Travelling, Obtaining Contacts, and making the Budget For Research||Feb 12 – Feb 13, 2010|
|Receiving Authorization From Ethical issues agency||Feb 15, 2010|
|Carrying Out Pilot Research and Writing Up the results||Feb 16 – Mar 13, 2010|
|Revising Research Methodology In Light Of Pilot study||Mar 14, 2010|
|Carrying Out of the Research||Mar 15 – Mar 29, 2010|
|Analysing the Findings And Mapping Out the Presentation And Thesis||Mar 30 – Apr 6, 2010|
|Writing the First Draft||Apr 7 – Apr 10, 2010|
|Writing the Final Draft||Apr 11 – Apr 13, 2010|
|Consulting with Examiners and time for the Supervisor And Research Office to make Consultation with Examiners||Apr 14 – Apr 18, 2010|
|Preparing the Final Thesis For Submission and time for the Supervisor to evaluate Readiness For Submission||Apr 19 – Apr 21, 2010|
|Submission of the Thesis||Apr 24, 2010|