Conflicts Resulting from Mergers and Acquisitions Growth Strategies

This report investigates the conflicts resulting from mergers and acquisitions growth strategies. The report posits that even though mergers are important in pooling firms’ resources together for competitive advantage in the market, 83% of these strategies end up failing. The case of DeWaal Pharmaceuticals and BioHealth Lab demonstrates the pitfalls of ignoring cultural integration. Further, the report compares the merger with relevant management theories and concepts and gives recommendations for conflict resolution and ways to get the merger back on track.

Running head: MERGERS AND ACQUISITIONS
Mergers and Acquisitions
Student Name
University

MERGERS AND ACQUISITIONS 2
Executive Summary
This report investigates the conflicts resulting from mergers and acquisitions growth strategies.
The report posits that even though mergers are important in pooling firms’ resources together for
competitive advantage in the market, 83% of these strategies end up failing. The case of DeWaal
Pharmaceuticals and BioHealth Lab demonstrates the pitfalls of ignoring cultural integration.
Further, the report compares the merger with relevant management theories and concepts and
gives recommendations for conflict resolution and ways to get the merger back on track.

MERGERS AND ACQUISITIONS 3
Table of contents
Mergers and Acquisitions................................................................................................................1
Executive Summary.........................................................................................................................2
Mergers and Acquisitions................................................................................................................4
1.0 Introduction................................................................................................................................4
1.2 A critique of the integration process......................................................................................7
1.3 Conflict Resolution................................................................................................................9
1.4 Process for the two senior executives and HR to integrate.................................................10
1.5 Evaluation of the usefulness of the organizational theory and practices.............................12
Conclusion.....................................................................................................................................14
References......................................................................................................................................15

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Mergers and Acquisitions
1.0 Introduction
This report examines a merger between DeWaal Pharmaceuticals and BioHealth Lab and
compares them to contemporary real-world cases. Mergers and acquisitions occur for various
reasons in businesses. It has however been established that the biggest motivator is the alignment
of financial, products, and markets to position the growth of the merged entities as is the case
between DeWaal and BioHealth (Marks & Mirvis, 2010; Light, 2001).
In retrospect, some cases, mergers and acquisitions result from a challenging business
environment that threatens the merging parties. Such threats could be due to technological
changes. In the recent past, many companies have done mergers and acquisitions due to a
growing threat from perceived technologically advanced competition. Case in point is Lenovo
and IBM merging to be more competitive against rivals such as Apple, Hewlett Packard, and
Dell (Snow, 2011).
Another reason for Mergers and acquisitions is due to fear of a rapidly shifting economic
environment. Unilever, for instance, acquired Best Foods in Asia due to a challenging economic
climate in Europe and the United States. This was as a result of the economic crisis which shrank
the purchasing parity of Unilever traditional customers. This was also coupled with the lower
cost of production in Asia as compared to the western countries (Marks & Mirvis, 2010).
Even though organizations hurry into mergers and acquisitions, the human resource
aspect is often ignored given lower precedence than financial and market prospects. This often
results in culture shock which leads to mistrust between employees. Research shows that about

MERGERS AND ACQUISITIONS 5
83% of mergers fail sooner or later. It has also been established that within the first three years,
30% of mergers and acquisitions fail primarily because of the lack of human resource integration
of which cultural differences act as the greatest hindrance. Change management and
communication to integrate workers should, therefore, be recognized as vital ingredients for the
success of mergers and acquisitions (Bradt, 2015).
1.1 Conflicting values in DeWaal Pharmaceuticals and BioHealth Lab
The first conflict on the DeWaal Pharmaceuticals and BioHealth Lab is on the power
struggle between the two most senior managers that is, Steve Lindell and Kaspar Deveide. To
begin with, Steve views Kaspar with suspicion. Steve feels that Kaspar is usurping his powers by
playing him to the media gallery. He also thinks that he should be the senior most manager
because BioHealth Lab is bigger than DeWaal Pharmaceuticals. This creates mistrust between
the two CEOs (Light, 2001).
Secondly, there is conflict about the criteria for executive employees retention by the two
merged companies. Whereas there are 120 executives in both companies, there are only 65
positions open for filling in the merger. This is creating a lot of anxiety among the employees in
both companies. The issue is also creating a lot of fear in both factions to the extent that it has
led to the exit of four executives in Bio Health. Numerous other employees are considering job
offers from rival firms (Lee, Kim & Park, 2015).
Cultural conflict is also very predominant in most mergers and acquisitions (Rees, 2011).
It in the DeWaal and BioHealth case, it’s clear that there is a big difference in the conduct of the
meeting between Steve and Kaspar. While Steve is direct to the point, Kaspar is a bit laid back
preferring to approach the meeting agenda by floating irrelevant topics. Steve, on the other hand,

MERGERS AND ACQUISITIONS 6
does not trust the Dutch executives even though he hasn't met them or analyzed their
performance, capabilities, and the strengths they would bring to the merger.
Conflict of ideas is another big issue in the merger. It is clear for instance, that due to low
productivity, Steve would like to close down the Indonesian plant owned by DeWaal. Kaspar, on
the other hand, objects to this idea because of the historical importance of the plant between the
Netherlands and Indonesia. Other conflicts involving ideas include the difference in view
between Bruce and Christian on appraisal method for retaining the employees. Both Bruce and
Steve are against testing of the Executives IQ which they view as a latest Human resource fad
that has no bearing on the modality for choosing the executives (Lee et al., 2015).
Employee relocation is also a conflicting issue in the Merger. Some Executives from
DeWaal Pharmaceutical, for instance, turned down an opportunity to work in New York where
the Headquarters would be located. Some of these employees had undoubtedly created many
networks in their jurisdictions before the merger and were not looking forward to severing those
networks (Light, 2001).
Communication is evidently a big issue in the merger, particularly on BioHealth's side.
Due to lack of communication, some of the employees fear that Kaspar is manipulating Steve
and will influence a better deal for DeWaal at the detriment of BioHealth Lab (Koerniadi,
Krishnamurti & Tourani, 2015).
There is also conflict on the portfolio sharing formula between BioHealth Lab and
DeWaal Pharmaceutical. It is not clear the formula that will be used to fill the 65 positions. The
management has not explicitly defined whether the size of the two organizations will influence

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the choice or the number of employees on either side will be the formula to be used (Light,
2001).
1.2 A critique of the integration process
In the most successful mergers and acquisitions, companies have a strategy to integrate
cultural differences and move the organization forward as one unit. It is for instance necessary
for the management to identify one culture which can be used as the platform to integrate the
second culture (Kansal & Chandani, 2014). This can be done through training of employees of
the second culture or through succession management while at the early stage of the merger or
acquisition process (Weber, 2015). This is far from what is happening at BioHealth and DeWaal.
They waited till the last minute to integrate the human resource- which has led to myriad issues
such as a drop in share price by 20%.
According to the contingency management theory, it is crucial for a manager to employ
the most appropriate management style depending on the circumstances facing an organization
(Battilana & Casciaro, 2012). In the case of BioHealth and DeWaal, a leadership management
approach would have been suitable to include the executives in the decision-making process.
Instead, Steve and Kaspar took the whole process of integration by themselves which appears to
be autocratic. This has made the executives feel sidelined and fearful of their future careers.
According to motivational theories, it is important for management to realize that
employees are the most important aspect of an organization. The Herzberg's two-factor theory,
for instance, depicts that management should identify those aspects that motivate their
employees and boost them while suppressing the job dissatisfiers (Ireland, Hoskisson & Hitt,
2012). This is not the case at DeWaal and BioHealth where the management seems to run the

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show without much regard to the employees' emotions. The BioHealth sales executive, Allison -
has to bring to attention the fear facing the employees to Steve- which he had no idea hitherto.
According to Lewin's Change management theory, it is important for the senior most
managers to act as agents of change. This can be demonstrated by freezing company activities
during a change, moving the employees into the change and finally unfreezing the organization
activities. This is not the case with BioHealth and DeWaal where the employees fear for change
has not been addressed. This is one of the reasons why some executives are opting to find jobs
elsewhere (Hayes, 2018).
According to the resource-based view of the firm, employees form the nerve center of an
organization because they possess a bundle of resources such as talent, knowledge, and abilities
which are difficult to imitate or acquire by other firms. However, by not addressing the
employees’ fears, BioHealth and DeWaal have opened an opportunity for rival companies to tap
into this bundle of resources which may reduce DeWaal and BioHealth competitive advantage
(Day, 2014).
The systems theory encourages that top management should recognize that different
factors in the organization affect employees and the employees, in turn, affects the systems at
work. Therefore, employees are part and parcel of the organizational system that works
harmoniously towards a common goal. By senior managers like Steve and Kaspar not addressing
employees concerns in their decision-making, a barrier is created in the system. For instance, the
effect of firing half the executives since only 65 are required out of the 120 current executives,
will definitely impact the remaining employees' motivation which will lead to low
productivity(Rees, 2011).

MERGERS AND ACQUISITIONS 9
The importance of communication in the workplace is very important as it helps every
employee to translate everyday activities into objectives to achieve the company's strategy.
Without communication, employees feel neglected. This is exactly the position at DeWaal and
BioHealth Lab. Since Steve is not communicating the modality of retaining the executives and
integrating the two cultures some employees feel dejected and are in the process of finding other
jobs. The company could lose talent and incur high costs of recruiting and training new talent
(Gomes, Angwin, Weber & Tarba, 2013; Benton & Austin, 2010).
1.3 Conflict Resolution
The first method to resolve the retention and integration conflict is through open
communication. Most of the staff feel left out of the merger process between DeWaal
Pharmaceutical and BioHealth Lab. For this reason, some of them have started to rebel by
finding alternative jobs. Embracing communication would help to alleviate the fallout between
the senior CEOs and their executives as it would involve them while at the same time reassuring
their importance to the company (Depamphilis, 2018).
Secondly, the two CEOs can seek an arbitrator to do recruitment on their behalf. The
arbitrator can be in the form of a recruitment agency without any ties to the two organizations.
That way, any decision made by the agency would be acceptable to both parties. As an added
advantage, the executive positions would be filled through merit as opposed to partisanship
(Gomes et al., 2013).
Teamwork is another important strategy to resolve conflicts. In this method, both
BioHealth and DeWaal should come forth with an ideal team of executives who they commonly

MERGERS AND ACQUISITIONS 10
agree on. The two CEOs who are conflicting would then let the team selected to proceed
objectively with selecting the rest of the executives (Breuer, Ghufran & Salzmann, 2018).
Change management in the organization is very crucial. The conflicts unraveling at
BioHealth and DeWaal are due to lack of preparation for change when the two organizations
merged(Kansal & Chandani, 2014) Now that change is happening, it would be beneficial to start
the change management process or hire change managers to fast-track the process of helping
employees fit in new roles in the company (Benton & Austin, 2010).
Being transparent and open to both parties’ suggestions and ideas would help to create an
atmosphere of trust. Currently, the two CEOs don't seem to trust each other which has resulted in
prolonged decision making which has affected the share price of the company and led to a
turnover of talented staff (TeeriKangas & Thanos, 2018).
Finally, training on cohesiveness and conflict resolution would go a long way to alleviate
the conflicts. Then training can be packaged as employee role play for both organizations which
would help to scale down anxiety (Weber, 2015).
1.4 Process for the two senior executives and HR to integrate
The first step is to define the changed roles of each and every position for the 65
positions created by the merger. The defined roles should capture the changes in each position,
what the occupant will be doing, the qualifications and competencies of the occupant, the results
expected and finally the appraisal duration to gauge the performance of the occupant (Avinadav,
Chernonog & Perlman, 2017).

MERGERS AND ACQUISITIONS 11
The second step is to agree on the organizational culture to adopt. This is because having
two different cultures is the main cause of the conflicts in the two organizations. The two
cultures can be subjected to rigorous performance-based indices for an objective decision to be
made. It is also necessary for the 2 CEOs and their HR officials to generate cooperation from
everyone in the organization on the choice made for the culture and the roles of the positions
created (Kansal & Chandani, 2014).
The fourth step would be to enlist the services of an external recruitment agency to
manage the interviewing and selection of the most appropriate executives for the roles already
defined. This will ensure that every executive is given a fair chance for selection. The selection
process may also unveil deficiencies in the current executive pool and make suggestions for
external sourcing of the talent (Avinadav et al., 2017).
Management of change is very important at this point. The executives and the other
employees will justifiably be anxious about the new direction being taken by the company.
Change management should include identifying the areas that require changes, support for the
employees and evaluation of the progress. Reassurance for absorption of executives who are not
selected into other roles should also be made (Hayes, 2018).
It is very important to manage the communication process. This is because it can be easy
for executives to feel lost if there are no clear communication channels. This will encourage
feedback mechanisms to identify and arrest any challenges early enough. Face-to-face
communication should be given priority. Reinforcements of the change to everyday work should
follow this step (Gomes et al., 2013).

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1.5 Evaluation of the usefulness of the organizational theory and practices
The resource-based view theory of the firm is very useful. This is because it perceives the
organization as having resources that are rare and not easily accessible to other organizations.
This thus gives a company a sustained competitive advantage. Human resources are the most
important resource and hence must be carefully handled and involved in cultural integration
during mergers and acquisitions. Otherwise, they will decamp to competitors and erase the
company's competitive advantage (Ireland et al., 2012).
The system theory is also very important as it allows top management to view human
resources as part of the organizational system that can affect or be affected by internal and
external factors. If the human resource is compromised, then the whole system fails and the
company productivity is affected. Leaving out the executives in the decision-making process in
mergers and acquisitions is a recipe for chaos in the outcome (Day, 2014).
Employee motivation cannot be overemphasized. In Herzberg's two factor theory, the
management is advised to identify job satisfiers and boost them while removing job dissatisfiers
such as employee exclusion as was evident in the merger case. The same applies to theory x and
theory y which encourages managers to identify self-motivated the not so motivated staff in a
firm. Consequently, the self-motivated staff can be granted autonomy in a firm while for the not
so motivated staff, job dissatisfaction barriers can be identified and removed to encourage
employee motivation (Ireland et al., 2012).
On contingency theory, it is appreciated that management makes their decisions because
the current circumstances obligate them to do so and not because they are expected to make
generalized decisions. This theory is therefore very useful in the current situation of mergers and

MERGERS AND ACQUISITIONS 13
acquisitions because it dictates that the circumstances warrant involvement of employees through
leadership. This serves to quell the fear experienced by the employees (Battilana & Casciaro,
2012).
Lastly, change management cannot be avoided in mergers and acquisitions. Therefore it
is very useful in determining whether a merger or acquisition will be successful or fail. It has
already been depicted that 83 percent of mergers and acquisitions fail because of failure to
incorporate change management including culture integration (Hayes, 2018).

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Conclusion
This report examines the case of a merger strategy between BioHealth Lab and DeWaal
Pharmaceutical. The report explores the conflicting issues in the case. It also compares the
merger and acquisition against management theories and concepts in a bid to understand the
failures of the employee retention exercise being undertaken by the two companies. The report
delves into the necessary recommendations to resolve the conflicting values. Finally, the report
looks at the usefulness of managerial theories and concepts suggested earlier long.

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