Overall Merger High Level Plan
The overall merger plan is the integration of Southern Bank’s operations into Northern Bank’s operations. The merger is necessary to create a competitive edge. It is a reactive change that will also involve a strategic change. It is a reactive change because it is in response to the merger between Eastern Bank and Western Bank (Jick & Peiperl, 2011). The merger between the two competitors has created an external force that compels the two organizations to merge in order to remain competitive. It is a strategic change because it will involve restructuring.
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Northern Bank acquires Southern Bank at a cost of $1.5 billion issued in Northern Bank’s stock. It indicates that Northern Bank paid a premium of $0.3 billion to Southern Bank shareholders. Southern Bank shares had a market value of $1.2 billion (Jick & Peiperl, 2011). Southern Bank’s shareholders directly benefit from the merger in the form of stock value. However, the market value can only be retained if the operations of the two firms are integrated successfully.
Northern Bank will discard components with lower ratings and integrate those with higher ratings in both firms to sustain. It will improve the combined market value of the two firms. Some of the branches will be closed down. Some of the processes may be merged. It will lead to downsizing of employees, which is the most challenging process of the change. It affects those who are laid off as well as those who are retained. Those who are retained may feel that the firm has violated their psychological contracts. It may need a strategic change to find other forms of motivating loyalty rather than job security (Jick & Peiperl, 2011). Retaining all employees may not affect customer satisfaction. However, it may reduce shareholder value.
The approach that will be followed in the integration process is taking the best practices from each firm. They are mutually exclusive. The ratings of branches and employee work performances will be considered for retention (Jick & Peiperl, 2011).
The headquarters will be merged into one with the Northern Bank headquarter being retained. One simple rule is that there will be a branch in each town. The condition does not hold when the performance of the branches in the town has a rating of 1 and the reason for the low rating is a lower number of customers. The assumption is that a performance rating of 2 can be improved and a rating of 1 is unlikely to be improved.
Northern Bank appears to have better human resource management practices than Southern Bank. It will lead to the replacement of Southern Bank human resource management practices with Northern Bank practices.
Southern Bank’s loan approval practices will be replaced with Northern Bank practices. The use of collateral should be an item from Southern Bank practices that should be integrated into the change if the firm wants to continue targeting the same market niche.
Northern Bank appears to have a superior IT system (Jick & Peiperl, 2011). The Southern Bank IT system will be replaced with Northern Bank’s. It may also be linked to Northern Bank’s if the cost incurred from losing major customers exceeds the cost cut from the replacement.
Northern Bank’s participative management style will replace Southern Bank’s directive management style (Jick & Peiperl, 2011). The total number of managers retained will involve integration between Southern Bank and Northern Bank. Southern Bank managers’ higher average rating will be put under consideration. Individual ratings will be assessed for retention at the top level.
Products offered after the merger should be rationalized to reduce workload for employees. Retaining all products will ensure that all customers are retained. However, it may lead to a higher workload for employees. Replacing all Southern Bank’s products with Northern Bank’s products may become a weakness because the firm may lose synergies created by the acquisition. Replacing all products would have been possible if the two firms were targeting a similar market niche.
One group of stakeholders is the senior executives from both firms. Pettinger’s internal memo to the 7 top managers is a good indication of their concern for the anticipated changes (Jick & Peiperl, 2011). Based on the stakeholders’ profile, there will be one CEO after the acquisition. It may require the other CEO to accept change of role. The heads of departments will also change roles after the acquisition when others retain their roles. In case of two heads, one department head must accept a new role or be laid off. Downsizing is costly because it incurs send-off packages. The other employees are affected through change of job positions, downsizing, and compensation packages.
Another group of stakeholders are shareholders in the two banks. Shareholders consist of individuals from households, firms, and institutions. They will be affected through gains and losses in stock prices, which will depend on investor confidence based on the outcome of the acquisition. According to the stakeholder profiles, the Sunrise Pension Fund is a major shareholder. It will be concerned about share dilution. Southern Bank was issued with shares that exceeded the market value of the firm. The Sunrise Pension Fund may be affected if the share price falls below its current price as a result of the merger. It may also gain if the merger and the integration process are implemented successfully.
The American Banking Authority, as a regulatory body, will be concerned about protecting shareholders and customers (Jick & Peiperl, 2011). Mergers may be used as a substitute to collusion if firms continue to operate separately after the merger. Collusion results in higher prices for products. Mergers are also considered as a way of reducing competition. The American Banking Authority will ensure that competitive forces are not eliminated in the banking industry. Northern Bank and Southern Bank have slightly different market niches, which may increase the likelihood of an approval by the regulator. Northern Bank has a high target for corporate entities and Southern Bank for households.
Dott Manufacturing, as a customer, is another key stakeholder (Jick & Peiperl, 2011). The merger should conduct a cost benefit analysis to check whether the customized product for the customer can be continued or discontinued. If Southern Bank IT System is linked to the Northern IT system, the customized product will be retained. However, the firm foregoes $50.38 million in terms of non-interest expense reduction annually. The Southern Bank IT System is likely to be replaced with Northern Bank’s. In case the product is discontinued, the customer may be forced to seek other service providers or renegotiate a new deal aligned with the available products. It may affect the railway companies that it serves.
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On one hand, Sergeant & Co. will want to see that the acquisition outcome increases their rating as an M&A consultant (Jick & Peiperl, 2011). On the other hand, the Daily Post editor has an interest in covering the story in a manner that analyzes it objectively and subjectively. The editor is likely to criticize layoffs, which may provide negative publicity.
Strategies and tactics to help stakeholders adopt
Shareholders will be the first group that will be concerned about the acquisition. They need to retain or increase the value of their stock after the merger. Shareholders approved the acquisition, which reduces resistance. The main tactic to use on shareholders is emphasizing the continuities and the gains of change (Jick & Peiperl, 2011). The firm should elaborate on synergies developed as a result of the acquisition.
Employees will be the second group of stakeholders concerned about their jobs. They will be assured that most of them will actually retain their positions because only a few branches will be closed. 11 out of 39 branches will be closed down (see Appendix A). One of the key tactics to help employees adapt to change is to reduce anxiety through communication (Jick & Peiperl, 2011). Anxiety comes when people stay for a long period without knowing who will be affected and the manner in which it will occur. There is the need to provide more information about what is about to happen as soon as more data is analyzed. It will help to create a mindset that anticipates change.
There will be a need to increase capacity for change through reducing the internal clocks (Jick & Peiperl, 2011). It enables the firm to respond to employee complaints and views in a shorter time. As the integration manager, I will listen to them and accommodate their emotional outburst as a natural way of responding to bad news. The best option is to help managers explore risks and options emerging from the merger. They will also be involved in decision-making to ensure that the process appears fair to all.
Major customers will be assured that the change will be gradual and they will be accommodated into new products if their customized product is scrapped from the list products. For the Daily Post and the American Banking Authority, it will be necessary to seek political support from key stakeholders and the public.
Merger decision plan (Rationalization)
The situation in rationalizing branches
When the branches are rationalized, the branch with a higher rating will be retained in each town. The one with a lower rating will be closed down (Jick & Peiperl, 2011). The main reason of a merger is to have the best of both sides. If all branches are retained, then the cost structure may remain the same. If the management decides to close all Southern Bank branches in towns that have a Northern branch, the firm will save 22.9 million annually.
Rationalizing would cut the combined cost structure by 4%, which amounts to $18.72 million annually (Jick & Peiperl, 2011). Rationalizing may increase efficiency and overall performance that may help the firm gain more than $4.18 million by which the first option exceeds rationalization in cost reduction. The firm is likely to report a higher profit margin under rationalization than in the first option. Not only does rationalizing cut costs, but it also creates synergies different from the economies of scale.
The number of branches will reduce by 11 out of 39 branches as shown in Appendix A. Those that have higher ratings are retained in each town. There will be a downsizing of employees as well. It will be a complete restructuring. Managers from closed branches with higher ratings will displace those with lower ratings in retained branches. There will be an increase in workload for the remaining branches because they will have to serve the same number of customers that they used to have before the closure of some branches.
Impacted stakeholder groups
Employees will be the first group of stakeholders that will be affected by the downsizing. Some managers will have to be laid off to prevent lost self-esteem in case they are accommodated in lower roles within the organization. Those that remain will also feel threatened that they may find it difficult to be loyal to the firm, unless a different form of reward replaces job security. There are 2 county managers at the time of the merger in each county. One of the county managers will have to be laid off or accommodated in a new role depending on their choice. In towns with more than 1 branch manager, only one will remain.
The transformation will be much easier for customers if the same products are offered and the quality of customer service is improved. However, it may not be worse because the displaced branches are found within the same town.
The Daily Post editor would like to cover the story about the feelings of employees who are laid off and customers who have to be served in a different branch from the one they commonly use.
The Sunrise Pension Fund, which represents major shareholders, would like to see that there is no redundancy. The high cost can only be reduced if there is no duplication of branches or employee roles.
Sergeant & Co. would like to see that more employees are retained in their current positions and only a few are displaced.
Strategies and tactics to help stakeholders adopt
Managers at the county level and branch level will be notified about the likely changes. It helps to create a mindset that anticipates change (Jick & Peiperl, 2011). Another effort will be to help them explore the risk and options that come with the change. Some managers may be more willing than others to be laid off or to accept new roles. The firm policy is to retain the best in the current position. The procedures and criteria used to select employees will be publicized. For the managers, there will be a single list of ranking and a cutoff point from which all those above the cutoff point are retained in their current position. The managers will be able to see their credentials, ratings from employees, and customer ratings of their branches.
Managers who are to be laid off can anticipate the change even before the final list is compiled. It helps to reduce anxiety caused by expecting the unknown. I will need to listen to their feelings and make them understand that restructuring is the best option to remain competitive (Jick & Peiperl, 2011). Without it, all job positions in the firm are threatened by competitive forces. A few have to be sacrificed to retain the best. I will need to give them time to realize how important the change is to the survival of the organization. The firm will also promise send-off packages to reduce anxiety among employees.
There will be less displacement in cases where an employee has better credentials and a higher rating. They are likely to remain in their current positions as Sergeant & Co. would prefer.
The Sunrise Pension Fund would like to see a cut in costs, which comes through downsizing. The firm will emphasize the gains that are likely to come from the reduction of the number of branches and the retention of the best performers. The strategy will also work for the Daily Post editor.
Southern Bank’s Human Resource Practices replaced by Northern Bank’s
Northern Bank has better human resource practices than Southern Bank. Northern Bank’s practices will replace Southern Bank’s. Elaine Bolta, Southern Bank’s HR Director and Northern Bank’s Hector Rice would like to know who will be the overall HR director after the merger. Elaine Bolta has been in the position for a shorter time and is likely to be given a new role. Hector Rise has been instrumental in developing better human resource practices in Northern Bank. Southern Bank employees who will be retained will need to sign new contracts with Northern Bank that aligns itself with grades rather than individual negotiation (Jick & Peiperl, 2011).
The change affects all retained Southern Bank employees. Their salaries will be affected because they will be assigned to grades with fixed salaries (Jick & Peiperl, 2011). It is better because employees performing the same duty will be issued with the same grade and salary. However, it may be discouraging for top performers. Promotions can be used to ensure that top performers are rewarded using a different approach.
The bonus scheme will be changed for Southern Bank employees. It will be based on individual performance rather than the profitability of the entire bank (Jick & Peiperl, 2011). In this situation, each approach has its own advantage. Using profitability of the firm to reward employees encourages teamwork. However, it may fail to distinguish low performers from top performers. Using individual performance to issue bonuses encourages all employees to increase their productivity. However, it may increase individualism that may threaten overall performance.
The company’s cars will be issued to all employees who are above the 12th grade. Directors of Southern Bank will retain their vehicles only if they are above the 12th grade.
All retained employees will be allowed to take a low-interest loan, which was not possible when Southern Bank operated separately (Jick & Peiperl, 2011). Employees will use corporate expense cards for costs incurred while conducting business. A refund was the usual method used by Southern Bank.
Pension contributions will become voluntary for Southern bank employees. It means they will have to use part of their salaries to make pension contributions. It also means that all employees can contribute, including those with less than 2 years working with the firm.
The number of holidays will increase by 2 days from 18 days to 20 days in addition to public holidays.
Most of the changes are improvements on Southern Bank’s human resource practices.
Impacted stakeholder groups
The two HR directors are the first group of stakeholders affected because they are concerned about retaining their positions and roles. Any change of position or role may upset the human resource managers. Southern Bank directors will also be concerned about retaining their vehicles. Grades will be used to assign salaries. None of the employees would like to see their salaries reviewed downwards. They have adopted lifestyles aligned to their current salaries that may be difficult to change. Southern Bank offers salaries that are above the industry average when Northern Bank offers salaries close to the industry average (Jick & Peiperl, 2011). It is likely that salaries will be reviewed downwards for some of the Southern employees.
Most of the changes are improvements to Southern Bank HR practices. The retained Southern Bank employees will be impressed by most of the changes apart from salaries.
Sergeant & Co. would like to see that most of the employees are pleased with the changes in HR practices for Southern Bank employees.
Strategies and tactics to help stakeholders adopt
The best strategy is to help Southern Bank employees separate the present from the past. It will be necessary to let them understand that they are being integrated into Northern Bank practices because Southern Bank has been acquired by Northern Bank. I will emphasize that grades offer opportunities for growth for top performers through promotions. Employee empowerment is also an option (Jick & Peiperl, 2011).
Employee empowerment allows them to make more decisions affecting their workstation. I will need to suspend judgment to allow the Southern Bank employees to understand the new terms. It will not be difficult to change the psychological contracts because the conditions are better in most cases. It will be necessary to use Southern Bank managers as role models who have accepted the change. There is need of magic leaders to increase acceptance for change (Jick & Peiperl, 2011).
Jick, T., & Peiperl, M. (2011). Managing change: cases and concepts (3rd ed.). New York, NY: McGraw Hill Ryerson.