Analyzing M&A Effects on Saudi Petrochemical Industry Performance

This report presents a comprehensive analysis of the impact of mergers and acquisitions (M&A) on the operational performance of Saudi petrochemical industries. The research evaluates the effects of M&A on profitability, revenue generation, and overall business growth. The study investigates the application of various theories related to M&A within the Saudi petrochemical sector, assessing the significance of these strategies in the context of business operations and functions. The methodology includes interpretivism philosophy, exploratory research design, and both primary and secondary data collection through interviews with CEOs and executives, questionnaires for employees and investors. The findings suggest that M&A positively influences cost control, operational efficiency, and revenue generation within the industry, highlighting the importance of strategic alignment and innovation. The report concludes with recommendations for improving cost efficiency and managing risks associated with M&A, emphasizing the need for effective communication and employee engagement during the integration process. The report also addresses the viewpoints of various stakeholders regarding the benefits and challenges of M&A in the context of the Saudi petrochemical sector.

CHAPTER 5: CONCLUSION AND RECOMMENDATIONS
5.1 Conclusion
On the basis of above research project on which it can be said that, there have been
positive impacts of merger and acquisition on the operational performance of the Saudi
petrochemical industries. Tit have impacted on the beneficial growth in terms of profitability and
revenue generation of entity. There have been creation of certain aim and objectives which were
being analyses for presenting the adequate study on the facts. There are several sections and
chapters which were being evaluated and studied to have adequate analysis over the facts.
By considering the literature of the studied merger and acquisition process which states
that, there have been positive growth and revenue generation which could help in making
adequate operational increment. Merger plays main role in having the big amount of capital,
large number of workforce as well as wide spread operational level which will be helpful in
improving market value of the firm.
Objective 1: To develop understanding and evaluate theories related to merger and acquisition
(M&A)
As per literature it has been concluded that, petrochemical organizations in Saudi are
being able to seek satisfactory merger and acquisition which can prove to be helpful in scaling
and securing raw material in such a manner that its impact on ultimate prices of oil can be
reduced. It helps in increasing overall viability of the products and services that are actually
offered by the conglomerated organizations. Since, overall production of oil in Saudi Arabia
have reached to 12.5 million barrels, per day, it has generated the requirement of investing in
refineries within as well as outside the territories (Aggarwal and Urata, 2016). Mergers and
acquisition can help in bringing changes in dynamics of raw material, mining, drilling, etc.
Policymakers have believed that mergers and acquisition have proven to be quite successful for
the organizations which include a lengthy process of collection of raw material to present it in
the form of finished goods to the customers. However, there have been use of various techniques
and theories which were being discussed in this section have impacted on improving the
financial performance as well as reducing the risks which are associated with operations of firm.
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Therefore, the objective of report has determined that impacts of Merger and Acquisition over
the business will be effective with reference to generate suitable revenue.
The research methodology aspect that has been used by the researcher in order to carry
out present investigation. Interpretivism philosophy has been used by the researcher so that real
facts and figures can be taken into consideration ultimately resulting in generation of effective
results. Exploratory research design has been used by the researcher so as to come up with new
insights regarding mergers and acquisition. Further, new aspects with respect to mergers and
acquisition have determined for analyzation on topic. One of the most important aspect that is
related to research methodology of research is, data collection and sampling aspects. In the
present dissertation of mergers and acquisition, data was collected in both primary as well as
secondary manner. Primary data has been collected in three formats so as to take the views of
three sets, that are, CEOs and executives, employees and investors. In order to collect data from
CEOs rigorous interview has been organized containing seven questions in it. It has helped in
developing insights regarding mergers and acquisition aspects. Further, so as to take the views
and reviews of employees, a questionnaire containing five questions was also been introduced so
that adequate data regarding the same can be initiated. In the end, data has also been collected
from investors, so as to take their say, in the form of questionnaire. Data has been collected from
50 CEOs, 20 employees and 20 investors. It has helped in generating newer insight in relation
with mergers and acquisition with respect to petrochemical companies in Saudi Arabia.
On the basis of this objective it can be said that, influences of merger and acquisition will
be beneficial to the industries on the basis of cost controlling and organizing the operations.
Along with this, there will be reduction in capital expenses such as salaries to the top-level
managers and employees which will be ascertained and controlled to have effective business
management. However, researcher have used various theories such as differential efficiency
theory, inefficient management theory, strategic realignment to changing environment etc. are
the theories which has been included and studied to evaluate the changes incurred in industries
after merger and acquisition.
Objective 2: To assess the significance of M&A in the context of business operations and
function.
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As per literature, it can be said that impacts of this operational changes in the business
have positive as well as negative impacts with reference to run the business on long term basis.
Main aims business in mergers and acquisition is improving the overall financial performance
and reducing risk. It has been stated by the researchers that when companies are combined, they
are able to reduce overall fixed costs by removing duplication of departments or any operations.
Use of large number of machineries in the production process will be helpful in reducing number
of Labour force which is ultimately results in lowering the costs of operations in production
process.
Further, secondary data has been collected by the researcher with the help of books,
Journals, online resources, published material, articles, etc. researcher have considered all ethics
related aspects. It has also been ensured by the researcher that the data and results are valid a s
well as adequately reliable with appropriate reasoning behind the data base. In order to perform
secondary research respondents have been chosen form various companies, such as, Saudi
Arabian Mining Co., national industrialization co., advanced petrochemicals co., Nama
chemicals co., Sahara petrochemical co., Saudi international petrochemical co. and methanol
Chemicals co.
Along with this, there have been analysis made over Saudi petrochemical organizations
which has had represented the impacts of Merger and acquisition over their operational
performance. Sipchem: Young and growing Fast is Saudi joint stock organization established in
year 1999 on 22 December and owned through Saudi and other GCC countries. It has affiliated
to International Diol and International Methanol company as it will manufacture more than one
million metric ton of methanol and on annual aspect of 75 thousand metric tons butanediol.
Similarly, the performance of Saudi Arabian Fertilizer Company was established as joint venture
in year 1965 among private sector and Saudi government. The company's aim is to process,
produce and manufacture along with market fertilizers inside and outside kingdom. National
Industrialization Company has future plan of organization is to market its product globally
which was undertaken as outcome of Saudi Arabia joining World trade organization. Yanbu
National Petrochemical Company (Yansab) on which, the establishment of joint stock
company in year 2005 where 51% of organization is owned through SABIC, 4% through
Saudi Industrial investment organization, 10% through 17 private organizations and Saudi
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citizens by 35%. Furthermore, the objective of Yansab is engaged in manufacturing
petrochemical products like ethylene glycol, ethylene, low linear density polyethylene and
butene 2 and BTX. Thus, this are the organization which have been addressed to have
adequate ascertainment of the impacts of Merger and Acquisition on the business operations.
However, as per analyzing the performances of these organization after Merger and
Acquisition on researchers have concluded that, there were positive changes and results
which have presented the accurate analysis over the efficiency and revenue generation of
Saudi petrochemical industries.
The interview, conducted from CEO of petrochemical industries, concluded that merger
is an important aspect that can be required majorly when entity is planning to expand itself. It is
also helpful in increasing overall scope of the business. It is an effective approach when
company is losing its brand value and plan to expand itself beyond any geographical limits.
Mergers also come handy when the management of company has been poorly framed and is not
able to generate adequate profits. However, on the other hand, it can also increase overall cost of
the business rather than resulting in generation of revenues. CEOs also stated regarding mergers
having positive impact on operational efficiency of the business where technical innovation of
the company can be enhanced. It can also help in decreasing overall financial risk and ensuring
growth of the organization (Galeeva and Zinurova, 2015). As per literature review, mergers and
acquisitions have been equally important for the petrochemical companies as in the case of other
companies. Since, it is quite difficult to initiate in these company’s mergers help in getting
investment and financial security for the same, that can be adopted for generation of better
amount of profits. It has been recommended by the CEOs of various petrochemical companies,
that, it is important to assess and estimate that whether merger and acquisition will be able to
generate adequate amount of profitability out of it or not.
Further, liquidity aspect must also be ensured by the team for it better implementation.
Thus, the objective of the research has been achieved as the impacts of merger and acquisition
over the organization have positive impacts in raising the gains and efficiency in a profitable
manner.
Objective 3: To conclude the influence of M&A on Saudi petrochemical companies and
recommending ways through which business units can improve cost efficiency.
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By literature of study, on which ascertainment of effective techniques which in context
wit bringing the adequate increment and helps raising efficiency of the firm. Researcher have
anlsyed and suggested various techniques which will be impacting on reducing the risks,
improving governance as well as production process of Saudi petrochemical industries. Along
with this, using the alternative techniques, machineries as well as robotic arms will be helpful in
managing the operational efficiency in businesses.
From the survey conducted on employees, it has been articulated that employees are
mainly aware of mergers, which takes place in the organization. It can be stated that mergers and
acquisitions are officially communicated to stakeholders and views regarding the same is also
considered. It has also been acclaimed by the employees that merger is an effective method that
can be adopted by petrochemical companies so as to initiate innovation in the operations. As per
literature review, it is not comfortable for employees to get involved in mergers as adequate
changes are also been experienced in their roles and responsibilities. It this scenario, it important
for the management to organize motivating session that can help in effective implementation of
change in the organization. They also stated that there is adequate impact on productivity aspects
of the employees and their functions in the organization.
From the survey that has been conducted on investor, it can be concluded that mergers
and acquisitions are the important aspect that are considered by the investor while deciding that
whether they want to invest in a particular company or not. As per primary data analysis, it has
also been stated by theme that petrochemical companies must get indulged in mergers so that
they can generate maximum amount of profits out of it. There having various industries which
are being performing in this segmentation and have observed several challenges in the
operational practices. As per secondary data analysis, the risk factor is quite high in that case, the
companies are also able to generate maximum amount of revenues out of it as well.
As per analyzing the objectives of this dissertation on which there have been various
theories and concepts which has been discussed in the literature. Thus, the impacts of Merger
and Acquisition on the business is for increasing the efficiency, productivity as well as revenue
generation in the market. Similarly, there will be positive impacts over operational functions of
petrochemical industries. It will be effective with respect to increasing the efficiency as well as
profitability of the firm.
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In the end, as per Greve and Man Zhang, 2017 it can be stated that, mergers and
acquisition can prove to be quite advantageous for the companies which are planning to expand
themselves and increase their overall scope. Thus analyzing the studies from various authors and
sources have defined that merger and acquisition of same segmentation organization will be
effective in improving the work efficiency as well as capital generation power for the
organization.
5.2 Recommendation
On the basis of above study, it can be said that, merger and acquisitions play the most
important role in enhancing operational efficiencies of the organization. There will be suitable
gains on the basis of capital generation as well as revenue of the firm. Financially, it will be best
approaches as the merger of two similarly operating organization will go to have a new joint
venture. Therefore, such operation al advancement will be effective as per making suitable
increment in the revenue as well as operational area of firm. The costs implicated in production,
distribution as well as making various functional expenditures will be divided among them.
There will be rise in the quality of production made by professionals in relation with generating
fruitful ideas as well as improving the operations of firm. Increment in the satisfactory amount of
funds and rising capital structure of entity will have favorable managerial control (Schill and
Loutskina, 2013).
Cost efficiency of industries will be rise and which in turn will be adequate and helpful
as per meeting the suitable gains of firm. Research report is consisting of various operational
control and managements of operations in Saudi petrochemical industries. Examination over the
operations of various industries which are needed to be managed and overcome with financial
needs of business. Therefore, after analyzing all the facts and the reasons behind the research
issues it can be recommended that the merger and acquisition will have positive impacts over the
operational efficiencies as the various machineries and resources will have distributed costs
which will be bared by both the partners or the industries operating a joint venture. However, it
has emphasized on meeting the objectives of the research as Influences of M&A on Saudi
petrochemical industries which suggests the adequate ways to improve cost efficiency of
businesses.
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On the other side if considering the issues which are generally faced by organizations
after having M&A which are mainly associated with the poor operational execution and financial
control. Governance of organizational plans and policies as well as administrating the process
will be based on two previously operating approaches. Thus, it might create obstacles in the
initial stage while later on professionals will analyses the requirements and make new plans and
policies. It will be helpful as there will not be require more board members, CEO's to the
operations (Channon and Jalland, 2016). It reduces the costs of making them payments for the
salaries retained by them. There will be rise in the performance of organization as well as brings
the better financial control which in turn will be useful and effective as per enhancing the
operational activities and industrial requirements.
In relation with the requirements of petrochemical products in the market there are
various personalization which are working in relation with retaining the adequate of funds as
well as meeting the market gaps. Merger and Acquisition on the other hand has the impacts in
distributing the operational duties and tasks among their wide workforce. Thus, the distribution
of job roles and departmental operational among the large numbers of employees will be
effective in terms of enhancing or bringing promptness in industrial performances.
Reduction in costs of operating the business activities will effectively result in enhancing
the operational gains as well as revenue during the period. Effectiveness of the adequate revenue
generation is that there will be rise in the market share of the firm which will have satisfactory
control over the operational activities as well as proper management of operations. Disclosure of
financial statements among external users which will positivist responses as investors will reflect
their keen interest in making fruitful investments in the firm. Increase market value will be
beneficial and attractive to investors in terms of retaining the adequate amount of return over
their invested capital which will be a profitable technique in terms with attracting them
(Kuznetsov, 2013).
Similarly, in relation with the production activities performed by organization in context
with sole operational units they have to make more efforts and utilization of funds as per
producing the produce while as operating the joint venture there will be suitable distribution of
all costs and management of operations. Similarly, there will be production of a best quality
product and at the cost-effective rates. In addition, there will be rise in the numbers of suppliers
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to the firm as the distribution channel of firm will be wider and profitable in terms of having
huge revenue generation.
Considering the growth of businesses, it must be said that there will be rise in the revenue
and the operational activities that will result in favorable growth of efficiencies. Operational
level such as crude oil refining and natural gas are the main activities will have expanded
operational function and activities. Rise in the operational functioning of the organization which
will be effective and helpful as per meeting the business requirements as well as managing the
operations. Considering health, safety and operational environment there will be need of
appropriate execution of workforce. Merging two organizations will require to have adequate
administration of all the activities in business. Demonstrating the requirements of upgraded and
technically effective machineries and equipment’s there will be expansion of operational criteria
of the organization.
Venture will have innovative machineries and techniques to operate the business
activities in the market which in turn will be profitable in terms of generating the desired
revenue. Thus, it will be suggested to professionals of Saudi petrochemical industries that they
must make implication of various techniques and use the innovative and ungraded technical
machineries which in turn brings promptness as well as accuracy in producing the products.
There will be less wastage as well as better management of operations.
Ascertaining the costs and profit margin of industries merger and acquisition will be an
effective tool as per controlling the huge costs in small expenditures while helpful in making
higher profitable gains to the firms. Merging of two economies will bring the adequate rise in
capital structure as they will have satisfactory amount of funds for the operations. Moreover, the
previously existing machineries or manufacturing plants will reduce the costs of products. There
will be huge workforce which will be work together in operating the one tasks. Firm will have
wide operating area as well as employees to perform them.
The need of hiring new employees for the operational activities will be reduced as they
will have experienced and skilled people. Revenue and profits generated by them will be
satisfactory in terms of meeting all the expenditures such as salaries to employees, machinery
charges, raw material, variable, fixed and overhead expenses will be distributed and on which
they will not go to face any obstacles in managing the operational activities in industry.
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Therefore, it will be suggested to the professionals of this industry is that they must implicate
budgetary control system in operations. It will be beneficial to them in planning, forecasting
analyzing the costs requirements in each piece of work. Execution of the funds required in each
activity will have better control in improving business efficiencies. Performance of organization
will be improved and managed as per making suitable execution of operation.
Different cultures are one of the challenges in mergers. The percentage of over plus
employees is approximately 30% after M&A. In the pre-M&A period, employees are
preoccupied with something they cannot control, such as who will stay and who will go and who
will lead the new organization. Other employees are preoccupied with thinking about new
people and accepting new culture, which is the biggest challenge after mergers. Employees of
companies intending to M&A are classified into three categories:
1. Employees who focus on their tasks and are somewhat concerned until they reach full
integration.
2. Employees who are worried and are ready to get new job.
3. Employees who are willing for M&A idea and consider this transformation as an
opportunity to grow. This is the positive thinking explained by book that name is Who
Moved My Cheese. Any change is a nature of the life. understanding and accepting this
nature will help us to live in a better place near to a new cheese. This book is a
motivational book for all employees in organizations that intend to engage in major
change or integrations (Johnson, 1998).
Applicability of merger and acquisition in relation with making the adequate increment
in operational functions which in turn will be effective and helpful as per analyzing
requirements. Saudi petrochemical industries have impacts of merger and Acquisition as per
increment in the operational efficiencies as well as reduction in the level of costs. Moreover,
after merging the two industries there has been rise in the market share of the new venture.
Investors find that the organization will be much profitable and attractive as per rising their level
of funds for the operations. Distribution of capital funds in each operating department in the
organization which will have equivalents and required needs. Satisfactory funds will be allocated
in each task and which will be helpful in meeting the fund requirements of industry. Eventually,
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there has been reduction in the costs of manufacturing or producing a unit which in turn will be
assistive as per having distributed costs in operational activities. On the other side, it can be said
that the firm will become able to have adequate decision-making process which in turn will be
effective and helpful as per setting the competitive prices over the products. The plans relevant
with reducing costs of products will be reduced and managed by professionals as per analyzing
requirements of operations (Rowley. and Cooke, 2014).
It will be suggested to the managerial professionals, CEO's and Board members in Saudi
petrochemical industries is that it will be adequate as per bringing the suitable control over prices
over oil products. Therefore, rise in market share will be helpful as per managing the costs and
brings stability in prices of products. Widening the operational activities will bring the
appropriate resources to the firm on which there will be proper utilization of resources. The
chances of having waste in the operations will be reduced as per optimum use of such resources.
It will be better for environment in terms of having less pollution as well as industries in meeting
the proper cost requirements. Similarly, M&A will be an attractive approach for investors in
analyzing the market share, profitability as well as ability of firm in meeting the short term as
well as long terms debts in the right manner. Thus, increased efficiency will be adequate as
creating the competitive environment in external market. It will be a helpful approach as
diversification of profits, costs as well as risks associated in business activities. Risk relevant
with the financial drawbacks, insolvency and the operational needs will be managed and
analyzed by the professionals as per monitoring and managing the activities in firm (Aggarwal
and Urata, 2016). Moreover, it will be suggested that the merger of two organization will have
positive impacts in terms of rising market share, revenue as well as reducing costs and risks
associated with business activities.
Once the stakeholders decide on a merger or acquisition, the process takes a minimum of
eighteen months to reach full integration. SABIC has experience in integration the shared
services for all its affiliates through Fanar program in 2001, which took two to four years until
the program reaches a full completion. A big organization is recommended to be established in a
new organization chart until merger program has a full completion. The surplus employees will
leave the company based on the known standard rate which is five percent every year by normal
resignations or any other reason. Then, upon merger completion, you will find that 10% of the
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employees had left the organization; half of them are considered surplus employees. However, as
per literature it can be said that there must be use emphasizes payable on changes incurred after
adopting merger and acquisition in the industry. It will positively affect in managing the
operations as well as overcoming with financial requirements in the organization.
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