Introduction
Mergers refer to business associations that involve two or more companies amalgamating to form a single business entity. Through mergers, companies can achieve greater levels of efficiency through exploitation of benefits that are associated with economies of scale as well as enabling the company to exploit new markets and freeze out competition from other firms in the same industry.
In this case, Airbus, an aircraft manufacturing company based in France and Boeing, a US based aerospace company which is one of the largest in the world are interested in forming a merger.
Through this business association, the two companies would reap benefits associated with economies of scale such as increased overall output and diversified markets which would consequently increasing profitability and investment of the new entity. The new company would also gain from the popularity of the two companies in Europe, America and Asia hence marketing its services will be much easier across the world.
However, careful corporate strategic negotiations are essential for the two companies to reap the benefits associated with company mergers failure to which may result in merger failure causing detrimental effects to the company. Companies should adhere to the general rules when engaging in mergers.
First, both companies should hold open and extensive negotiations to ensure that the entire process promotes the interests and goals that the new entity wants to achieve. Both companies should critically analyze financial prospects and performance that allow them merge without posing the risk of future business failures.
Both aerospace companies perform well financially in the industry and the merger is likely to succeed without risk of bankruptcy. Both companies should uphold trustworthiness to ensure credibility of the process especially through presentation of accurate financial records and other records required to justify the merger.
Evaluating merger prospects
In order to evaluate the effectiveness of the merger, Boeing company board of directors should appoint a special negotiation committee that is charged with the responsibility of evaluating and justifying the merger. The committee should be comprised of experienced and high integrity board members who should negotiate the terms of the merger with the team from Airbus Company.
The committee members and negotiators should ensure that the negotiation process yields the required results through identification and addressing the fundamental goals on the onset of the process in order to highlight the key issues relevant for the successful accomplishment of the merger (Kimathi & Kimathi, 2010).
The committee should seek expert assistance from competent advisors in addressing the key and major issues such as profitability and future projections of Airbus. These experts provide guidelines on complex issues such as financial evaluation, design and implementation of the merger as well as legal and taxation regulations (Kimathi & Kimathi, 2009).
Failure to consult experts on various fields may result to lack of credibility as well as biased and uninformed decision making by the Boeing negotiating committee.
These members should be appointed in such a way that they do not portray any elements of conflict of interest to ensures that the committee decision is based on the corporate merits of the associations and not merely from external influences geared towards personal gain (Kimathi & Kimathi, 2010).
If an individual has potential gains from the business association between Boeing and Airbus, he should not be appointed as a negotiating member since his decision may be biased.
The committee should also assess the suitability of the deal by reviewing financial records of Airbus, management depth and succession, business plans and projections among other important information in order to make the decision as to appropriateness of the merger (Kimathi & Kimathi, 2010).
It should keep proper and accurate records for references during the process and should remain focused to the accomplishment of their task which striking the best financial deal with Airbus.
Once the merger between Airbus and Boeing has been justified, extensive financial analysis of Airbus Company must be conducted. Through this process, problems may be detected that eliminates the company from further consideration of the merger. However, problems that can easily be rectified should not hinder the commencement of the process (Madura, 2006).
Mergers often require a lot of money to finance since they may involve one firm purchasing the existing stock of another (Madura, 2010) hence the Boeing should assess whether it has available resources to finance the merger in order to go ahead with negotiations.
Boeing Company and Air bus merger is justified on the grounds that both companies are in the same industry and dominate in terms of profitability.
Merging the two companies would link the American and the European market as well creating the incentive to exploit the world market at large. It would also lead to increased profitability of the new establishment hence availing resources for investment and innovations in the aerospace industry.
Process of Negotiating a Merger
In order to negotiate effectively, I would ensure I have done adequate research on Airbus Company before hand. Collection and evaluation of information that is important in the negotiation process as well as devising a defensive plan to protect sensitive information that may be required by Airbus Company but the company may not be legally required to submit it (James, 2007).
The company should set realistic expectations from the merger to enable the negotiators insist on the company’s aspirations during negotiations and continually reassess them as new information from Boeing company is obtained through out the negotiating process (James, 2007). The negotiator should take control of the bidding process to ensure that the Boeing Company achieves the best realistic deal.
As the lead negotiator I would ensure sustained credibility throughout the negotiation process (James, 2007). When a negotiator proposes a position he should be objective and should support himself with the appropriate rationales. He should also act within limits of time which have been reasonably set by both companies by avoiding wastage of time from the onset of negotiation process.
The negotiator should also be aggressive and upon determination that the deal is appropriate he should see to it that the merger is signed. He should actively participate in drafting of the contract to ensure that the interests of Boeing that negative issues do not crop up before the deal is concluded (James, 2007).
As a negotiator, I would strongly uphold the values of Boeing Company. However I would also ensure that I am flexible such that I can accommodate values of Airbus Company.
Factors that Hinder Effective Negotiations
However, there are various issues that may render the negotiation process unsuccessful such as unreasonable preconditions whereby if the two CEOs cannot agree on division of power in the integrated business (James, 2007), Strategic leaks may destroys trusts among Boeing and Airbus and delay tactics employed by either of the companies to delay the process for calculated purposes.
In addition, companies may use musical chairs whereby the negotiators are constantly substituted leading to overall derailment of the process (James, 2007)
Conclusion
Merging business is a complex process that requires careful considerations by the companies involved. This is because it involves restructuring of various departments of both companies to fit the strategic plan of the new entity. In the event that Boeing and Air bus companies decide to merge, it is important for the two aerospace companies to follow the necessary procedure to asses the suitability of the merger to ensure its success.
Reference List
James, G. (2007). James Freund, ten rules of mergers and acquisitions bargaining, CBS Interactive. Web.
James, G. (2007). Four common deal killers, CBS interactive. Web.
Kimathi & Kimathi, Corporate attorneys, (2009). Seven top strategies for negotiating a merger and acquisition transaction. Worldwide legal directories. Web.
Madura, J. (2006). Introduction to business, New York: Cengage learning.