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Santos Business Management: Merging of Two Companies Evaluation Essay

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Updated: Jun 10th, 2019

Introduction

Santos is an Australian company dealing with coal seam gas to produce gas energy for the entire country. It is a controversial company due to the past events that have affected the country in regard to the catastrophic mudflow. In case of these catastrophes, the company tries to rectify the natural afflictions arising from them.

For instance, the company used 79 million dollars to clean the area that was affected by the mudflow in Sidoarjo (Wheelwright 1957). This implies that the company protects the environment against destruction and degradation.

In this light, the company might try to design strategies that seek to conserve the environment and purport sustainability alongside the green energy. For example, the company might trigger a merging process with another company seeking to conserve the environment. These companies include the wind farms and energy cooperatives (Wheelwright & Miskelly 1967).

When the corporation merges with the Santos Company, it would bring opportunities, risks, and benefits to the company. This paper seeks to identify the various benefits, opportunities, and benefits that would arise due to merging of the two companies. In this light, the paper will focus on a possible alliance between Santos Company and Hepburn wind (Fleckney 2011).

In addition, it will use the Luke’s Theory of power during the explanation. This theory approaches power from a multidimensional perspective seeking to incorporate power, reasons and freedom.

It argues that power is an element allowing one party to change the behaviour of other people. It asserts that the party must have an appealing reason to its subjects. In addition, the subjects have a freedom to choose change amongst other aspects.

Opportunities

Alliance of the Santos Company and Hepburn wind farm would bring many opportunities for the individual companies. The opportunities that might arise due to the alliance are social, economic and natural.

In this light, it is understood that each of the companies has individual weaknesses, strengths and challenges. Therefore, the alliance would help the companies to combine strengths and eliminate weaknesses. These are some of the opportunities that would arise from the alliance of the two companies.

Diversification

The Santos Company is based on providing gas and oils to the international and foreign market. They have relied on production of the two products since conception. Consequently, they have not developed other forms of energy. However, natural gases and oils are exhaustible due to their natural existence.

In addition, the two natural resources can neither be renewed nor recycled through artificial techniques. This implies that the company’s future is not very reliable. In fact, the company might lose its economic solvency as time elapses.

On the other hand, the Hepburn Wind relies on the production of energy through wind. This has become the friendliest production of energy around the world in relation to the environment. It has initiated the production of green energy that purports sustainability and environmental conservation. In fact, almost all countries are harnessing wind.

However, Hepburn wind, which is a community company, relies entirely on the production of energy through wind. Therefore, there are various challenges that face the utilization of wind energy. These include the lack of wind during some seasons and change of its direction.

This implies that the cooperation might fail momentarily and initiate power insufficiency in the community. As a result, the community would suffer from lack of power and cause serious economic losses. In this case, it is clear that the two companies encounter the risk of financial perishing.

However, the alliance of the two companies would present a perfect economic opportunity. In the alliance, the companies would be relying on two power producing methods that include wind and gas energy. As a result, the failure of wind energy would lead to loss of power in the community. In that case, the alliance would rely on gas energy to provide power in the community.

On the contrary, lack of gas would be supplemented by the use of wind power for energy production. Therefore, the two companies would have an opportunity of diversifying power production.

Consequently, they would reduce the risk of inexistence and lack of solvency. In regard to Luke’s Theory, the two companies would change their culture into diversification. Therefore, they would influence each other and develop the freedom of business solvency for a long time.

Community Service

The companies are seeking to offer services within their community by providing various forms of energy including gas, oil and electricity from the wind. However, each of the companies has its own market share to serve. For example, the Hepburn wind is serving about 2300 households while Hepburn is providing energy to the territories in the entire Mainland of Australia.

Therefore, the alliance will allow the two companies to serve a bigger part of the community than the current area. This implies that the income generated through their projects is increased significantly. In addition, they will reach many people across the country and allow them to facilitate value maximization.

In this light, value maximization does not focus on the profits that a company realizes. Instead, it aims at ensuring that the subjects are getting efficient and sufficient services. The alliance will facilitate this by accessing a large number of people and ensuring that enough power is supplied. Therefore, the alliance will present an opportunity for the companies to serve the community and increase their service share.

Sustainable Development

This is a concept seeking to focus on a development that is more than a mere development. In this light, it views development in a multidimensional view rather than limiting development to the economic side. As a result, it focuses on the social, economic, and environmental issues of human development. It argues that there are three combinations that lead to sustainability (Goodall 2012).

First, the combination between social aspects and environment makes a bearable life. The combination of the environment and economy brings about viability of human life. Lastly, the combination of social aspects and economy brings about equitability (Campbell & Mollica 2009).

The alliance comprising of the Santos and Hepburn wind would present an opportunity allowing them to practice sustainable development. Consequently, Hepburn project seeks to produce green energy that is friendly to the environment. On the other hand, Santos produces energy through a method that can lead to gradual environmental degradation.

However, Luke’s Theory asserts that parties can influence the culture of other parties especially when in partnership. Therefore, Hepburn will seek to change the destructive cultures into constructive ones.

The alliance is within a better financial position that would allow allocation of some funds to environmental rehabilitation. As a result, they would have an opportunity to initiate development in a substantial and sustainable manner.

Natural Resources

The two companies would have the opportunity of getting more resources for use. In this case, it is important to note that Hepburn Association owns the Hepburn wind project and Leonard Hill found to the south of Victoria. They use the wind turbines to harness wind and produce energy. However, the land found below the turbines is not used for other activities.

This implies that the land is a waste land rendered unproductive due to a single objective of the project. However, Santos can explore on the hills and determine whether they have the natural gases and oils. This implies that the abandoned land will be transformed into a resourceful area of production.

On the other hand, Santos Company mines the natural gas and leaves the lands abandoned. If the companies would form an alliance, Hepburn wind project can be extended to the areas that Santos Company has left.

Benefits

There are various benefits that would accompany the alliance of Hepburn winds and Santos Company. In this light, the alliance will benefit the company and the community. The benefits are environmental, economic and social. These are some of the benefits that would be experienced by the alliance.

Capital Availability

The companies have different capital and financial assets. However, the individual assets are directed to the production of energy. This implies that the two companies allocate funds to similar project producing energy. The alliance would ensure that the companies combine their individual capital into a single amount. This would ensure that the alliance has a bigger capital than the individual companies.

Therefore, they would have enough capital allowing them to focus on the two projects in an efficient manner. Hepburn Winds owned by the community would run efficiently due to the influx of foreign funds from the Santos Company. On the other hand, Santos Company would get support from the community.

Reduced Cost

The individual production of energy is costly due to the individual operations of the two companies. In this case, the cost of logistics is very high because the companies experience the cost individually. However, the alliance would allow the companies to integrate their logistics and meet a single cost. As a result, the logistic cost would be reduced to a half of the total cost that the companies incur individually.

This implies that the overall cost of energy production would reduce. Reducing the cost of logistics enables the companies to provide energy at a cheap price. This would promote the spirit of value maximization that focuses on serving the customers efficiently and sufficiently. In addition, it would ensure that the companies increase the area of service by reaching people in the population.

In fact, this is an initiative of developing the country in a sustainable manner. According to the previous paragraph, sustainability ensures that people are served by considering social and economic capabilities. Therefore, the low priced supply of power is a strong element of sustainability. According to Luke’s Theory of power, a company should seek to empower its subjects.

In this light, it should instil a sense of freedom in their lives. Power cost reduction improves the financial freedom of the subjects relying on the two companies (Bragg 2010). Therefore, the benefit is compatible to the theory because it caters for freedom.

In addition, it reduces the cost to empower the financial position of people. This implies that the alliance would have a discrete reason to cut the cost. As a result, it satisfies Luke’s theory that requires a company to exercise power through reasoning.

In addition, this alliance would help the companies to reduce the organizational cost. The alliance enables the management to integrate staffing techniques. This implies that the staff will be reduced significantly. As a result, the money paid to those staff members is diverted to other sectors of the alliance. Moreover, they are able to integrate the structure present in their individual organizations.

For example, the companies will share a single headquarter. This will increase the efficiency and accessibility of the alliance (Alberts & Segall 1966). Also, it will reduce the cost of logistics involved in the separate organization. Similarly, the money is used to improve technology and conduct other researches.

Additional Research

Individually, the companies do minimal research on their respective fields due to financial constraints. This leads to low productivity of energy including electricity and gas. Upon the process of merging, the companies obtain a high financial capability that enables them to invest a lot of money on research.

This helps the alliance to produce much energy for the population. Therefore, it makes it possible for the alliance to serve more people than operating individually. Also, it ensures that the energy produced can sustain the population.

Technological Advancement

In the alliance, the companies will invest on their technology highly because they possess financial capabilities (Gutterman 1994). In this light, they will invest in efficient wind turbines that last for a long time. This will reduce the cost of maintaining the wind turbines leading to increased profits.

On the other hand, they will purchase advanced drillers that enable the alliance to drill high levels of gas and oil for refineries (Schacht 1991). Therefore, the alliance will be more efficient than separate companies.

Risks

A risk is a possibility of experiencing an undesirable event in the future (Holmes 2002). It is based mainly on the uncertainty of the event happening at a future time. Therefore, the parties involved do not have the knowledge concerning the future events (Krayenbuehl 1985).

When merging organizations and companies, there are various risks that arise (Cameron 2004). Mostly, the risks are oriented financially because the organizations depend on finances to run their logistics. The succeeding paragraphs will discuss about the risks associated to the alliance of Hepburn wind and Santos Company.

Exhaustion

The most critical risk that accompanies the alliance is exhaustion of energy. It is clear that Hepburn relies on wind energy that can stop or change direction. This implies that wind energy is not very promising for the population and the alliance (Moretto 2008). In addition, gas and oil deposits can diminish because they occur naturally. Similarly, the existence of the gas and oil deposits is not guaranteed for the alliance.

This implies that the alliance will be experiencing a vertical merging process. In this alliance, solvency is not guaranteed entirely. This leads to a risky situation because the two energy producing plants could fail. In fact, the failure would cause an immediate closure of the alliance.

In case of a closure, it will become significantly difficult for the companies to restart when merged. Therefore, we can conclude that the alliance would be running on a dangerous and risky platform of operation.

Debts

Obviously, many organizations take commodities on credit and utilize them before paying. In this light, the organizations discussed on this paper might have debts in their original setup. In a merging process, the assets and liabilities are transferred from the individual companies to the alliance (Thompson & Cook 2006).

The debts might take a huge part of the revenue and reduce the solvency of the two companies. In fact, the companies might experience much risk if either of the companies does not disclose all information about its liability. In this case, the companies must ensure that their partners disclose all information required.

Conflict of Interest

The companies operate different projects in light of producing energy. Hepburn association produces energy through wind while Santos depends on the natural deposits during the production of energy.

There is a risk that is associated with conflict of interest by the personnel from the two companies. This would affect the management by reducing it efficiency and reliability (Rosenberg 2002). As a result, the alliance can fail and lose the assets that it had acquired.

Conclusion

The aim of this paper was to discuss the possible opportunities, benefits, and risks that would be associated with the alliance of Santos Company and a community corporation. In light of accomplishing that task, the company has focused on Santos Company and Hepburn wind project. It has discussed the opportunities, risks, and benefits that would be realized. Therefore, it is an all-inclusive paper that serves its purpose.

References

Alberts, W & Segall, J 1966, The corporate merger, University of Chicago Press, Chicago.

Bragg, S 2010, Cost reduction analysis tools and strategies, John Wiley & Sons, Hoboken.

Cameron, S 2004, Risks. Wheeler, Waterville.

Campbell, T & Mollica, D 2009, Sustainability, Ashgate, Farnham Surrey, England.

Fleckney, P 2011, The barriers to community renewable energy in Victoria. Law Book Co. of Australasia, Sydney.

Goodall, C 2012, Sustainability, Hodder & Stoughton, London.

Gutterman, A 1994, Technology-driven corporate alliances a legal guide for executives. Quorum Books, Westport, Conn.

Holmes, A 2002, Risk management. Capstone Pub, Oxford, UK.

Krayenbuehl, T 1985, Country risk: assessment and monitoring, Lexington Books, Lexington, Mass.

Moretto, E 2008, Exchange ratios for merging companies, Emerald, Bradford, England.

Rosenberg, N 2002, Conflict of interest, Hyperion, New York.

Schacht, W 1991, Industrial competitiveness and technological advancement debate over government policy, Congressional Research Service Library of Congress, Washington, D.C.

Thompson, P & Cook, T 2006, Alliances. Wizards of the Coast, Renton, WA.

Wheelwright, E 1957, Ownership and control of Australian companies; a study of 102 of the largest public companies incorporated in Australia, Law Book Company of Australasia, Sydney.

Wheelwright, E & Miskelly, J 1967, Anatomy of Australian manufacturing industry; the ownership and control of 300 of the largest manufacturing companies in Australia. Law Book Co, Sydney.

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