1.- FUSION: Definition:
- It is the meeting of two or more independent companies in a single one, that is, it is the meeting of two or more pre-existing companies, either that one or the other is absorbed by another or that they are confused to constitute a new subsisting company and the latter inherits the rights and obligations of the participating companies universally. (Durand rt. J. Latsha. Funsions. Scissions et apports partiels d'actifs. 3rd edition 1972. Paris) It is «an operation used to unify investments and commercial criteria of two companies of the same branch or of compatible objectives». It constitutes a merger! To absorption of one company by another, with the disappearance of the first, and carried out by means of the contribution of the assets of the latter to the second company. Likewise, this can be done through the creation of a new company, which, through contributions,absorbs two or more pre-existing companies. (Sánchez 1998: 15)
1.2.- Characteristics:
- Dissolution of the absorbed company that disappears Transmission of the universality of the assets of the absorbed company to the absorbing company Shareholders of the absorbed company become partners of the absorbing company Mergers are operations generally carried out in periods of economic expansion or crisis The transfer of all the assets and liabilities of the absorbed companies to the absorbing companies or from the companies to be merged into the new company The dissolution without liquidation of the absorbed companies to be merged Immediate attribution to the shareholders or the Absorbed companies or the merging companies of shares of the absorbing company or of the new company.
1.3.- Classification:
- According to the French commercial code, the merger can be of two types:
- Pure Merger: Two or more companies join together to form a new one.
These dissolve but are not settled.
- Merger by absorption: a company absorbs another or other companies that are also dissolved but not liquidated.
III. According to Tellado Jr. (1999), he considers that the merger can be carried out in two ways:
- Merger "By Combination": consists of two or more companies joining together to build a new one. These are dissolved simultaneously to constitute a company formed by the assets of the previous ones, through the attribution of shares of the resulting company to the shareholders of the dissolved ones. The dissolution of the merged companies, if it is prior to the formation of the new company, may be agreed under the suspensive condition of the Merger. Merger "By Annexation": one or more companies dissolved for this purpose, contribute their assets to another already constituted and with which they form a single body. The absorbing company has increased its capital through the creation of shares attributed to the shareholders of the annexed companies, in representation of the contributions made for the Merger.Mergers can bring together companies in the same way or in different ways. But a Merger between a company and an association would not be possible.
- According to competition and commercial interest, there are three types of Mergers:
- Economies of scale are their natural goal.
- Highest concentration in the industry.
- Vertical Merger: one of the companies is a client of the other in a branch of commerce in which it is a supplier. The buyer expands backwards, towards the source of raw materials, or forward, towards the consumer.Conglomerate: these companies neither compete, nor is there any business relationship between them. The architects of these mergers have noted the economies of sharing central services such as administration, accounting, financial control, and general management.
2.- BANK MERGERS.
It is the union of two or more entities either by Incorporation or Absorption, for the benefit of a new company that replaces other existing ones, where the entity that is formed by the same partners that constituted the previous entities and those receive new titles in substitution of those who owned. All Banking Mergers emerge as a solution for the problems of the Institutions and the financial system.
Mergers are not a silver bullet to bank inefficiencies. If there is no reliable solidity in organizations wishing to merge, perhaps they would point only to the sum of inefficiencies in an organization that, being older, would be roundly unmanageable. They are convenient in cases where entities previously exhibit an indispensable degree of health in their balance sheets (that is, they do not make up as they have done many times and has been proven), effective rationalization of transformation expenses, excellent risk management, capacity to respond appropriately with minimum costs and maximum effectiveness to changes in the environment, solid assets, quality of service and cost reduction.
3.- EFFECTS OF BANK MERGERS
- Creation of a new company name, resulting from the dissolution of two or more entities requesting the Merger, which implies the joint transfer of their respective capitals of the entity with the new company name, which will also acquire all the rights and obligations of the merged institutions.Absorption of one or more institutions by another, which will lead to the disappearance of the absorbed entity (ies) and the transfer of the universality of its capital (s), assets and liabilities to the absorbing entity. Purchase of all the shares of the absorbed entity by the absorbing entity. As a consequence of this operation, and fire of the verification of the fact by means of a notary and of having complied with the formalities established in the Commercial Code and in the current legal provisions,the assets and liabilities of the absorbed entity will be integrated into the capital of the absorbing entity, the former being dissolved and fully liquidated.
4.- ADVANTAGES AND DISADVANTAGES.
| Advantage | Disadvantages |
| 1.- Improves the quality of the Banking Service.
2.- Lower transformation costs. 3.- Lower operating and production costs. 4.- Strength and Prestige in the Financial Market. 5.- Competitiveness in the Financial Market. 6.- More methodical administration and centralized control. |
1.- Labor Liabilities (Mass layoffs) decrease.
2.- Depending on how the country's economy is, the merger will be a good strategy. 3.- Creation of monopolies and oligopolies. 4.- Possible panic and confusion in the public. 5.- The Credit portfolio in litigation and delayed at the time of fission. |
5.- ACQUISITION:
It is a direct negotiation, in which one company buys the assets or shares of the other and in which the shareholders of the acquired company cease to be the owners of it.
6.- BASIC FORMS OF ACQUISITIONS
- Merger or consolidation: Consolidation is the same as a merger except for the fact that a totally new company is created, since both the one that acquires and the acquired one ends their previous legal existence and become part of the new company. In a consolidation, the distinction between the company that is born the acquisition and the company that acquired is not of importance; however, the rules that apply are basically the same as mergers. Also, in both cases, the acquisitions result in various combinations of the assets and liabilities of the two companies. Share acquisitions: consists of buying the shares with voting rights, delivering cash, capital shares and other securities in exchange.The purchase procedure usually begins with a private offer affected by the administration of one company to another. The offer is communicated to the shareholders of the company set as the target of acquisition by means of public announcements, such as the placement of advertisements in newspapers.Acquisition of assets: these acquisitions involve the transfer of property titles. The procedures can be expensive. A company can acquire another company by buying all of its assets and for this the formal vote of the shareholders of the selling company will be required.Merger by Incorporation: It is when two or more existing Institutions meet to constitute a newly created Institution,originating the extinction of the legal personality of the incorporated Institutions and the universal transfer of their assets to the new company.Merger by Absorption: It is when one or more institutions are absorbed by another existing institution, causing the extinction of the legal personality of the absorbed institutions and where the absorbing institution universally assumes its assets to the new society.
7.- OPERATIONAL RULES FOR THE MERGER PROCEDURES IN THE VENEZUELAN BANKING SYSTEM.
According to the Stimulus Law for the Strengthening of Assets and Rationalization of Banking Sector Transformation Expenses (2001: 10), the institutions interested in merging must accompany the respective request for merger authorization, the information and documentation detailed below:
- Certified minutes of the respective Shareholders' Meetings in which the merger agreement was approved, without prejudice to the provisions of article 126 of the General Law of Banks and other Financial Institutions Certified audited statements with their respective notes from the requesting entities in which will be based on the merger, formulated more than three (3) months in advance of the date of the merger request, which must be signed by the officials of the respective financial institutions required by the Superintendency of Banks and other Financial institutions.
These financial statements must be accompanied by an external audit report, prepared in accordance with the parameters established in this regard by the Superintendency of Banks and other Financial institutions for the semi-annual audits; They must also include details of the transactions carried out between the entities to be merged during the last two (2) semesters.
- Institutional declaration, which must express:
- That all the liabilities of the institutions involved are included in the aforementioned financial statements.
- That all off-balance sheet contingencies or risks have been adequately quantified.
- That all credit, concentration, exchange risks, stock market risks, risks derived from operations between financial groups, risks from international operations, have been duly informed, measured, controlled and provisioned, if applicable.
- That any potential contingency that may affect the viability of the merger project has been duly informed.
- That all the instructions issued by the Superintendency of Banks and other Financial Institutions during the last two (2) semesters prior to the date of the merger request have been complied with.
- That they have no pending obligation with the National Treasury, derived from the sanctions imposed by the Superintendency of Banks and other Financial Institutions.
- Merger plan that must contain at least the following:
- Schedule of execution of the merger plan, indicating, clearly and precisely, the stages and periods in which it will be fulfilled, and the person responsible for its execution.
- Economic-financial fundamentals of the merger.
- Impact of the merger in the legal, financial, accounting and tax areas.
- Organizational structure, indicating the people who will be responsible for the different areas, together with a copy of the vitae of each of them.
- Diagnosis and programs in the areas of technology, human resources, administration and operations.
- - Methodology and valuation procedures used to determine the exchange ratio between the respective shares of the institutions participating in the merger, for the purpose of incorporating the shareholders of the absorbed institution into the shareholding structure of the entity resulting from the merger.
- Pro-forma financial statements of merger, which will correspond to the one estimated to begin, in the case of merger by incorporation, or continue, in the case of merger by absorption, the operations of the financial institution resulting from the merger, in the event of be authorized.
Said financial statements must have an opinion issued by external auditors, registered in the Registry kept for that purpose by the Superintendency of Banks and other Financial Institutions, on the reasonableness of their figures and that it was made in accordance with the parameters established in this regard. by the Superintendency of Banks and other Financial Institutions.
Likewise, it must include the consolidation and / or combination worksheet and details of the adjustments and eliminations that occur as a result of the merger.
- Share structure that the financial entity resulting from the merger will have, once this process has been carried out.
In the event that the shareholders are legal entities and have a percentage greater than five percent (5%) of the shares or voting power of the Shareholders' Meeting of the resulting institution, the necessary documents must be submitted until the natural persons are determined. that ultimately, are the direct or indirect shareholders of the entity resulting from the merger.
- Detailed list of the balances of the active and passive operations and income and expenses that the twenty (20) main shareholders, direct and indirect, will have with the entity resulting from the merger, once the process has been carried out. Detail of the links or links of any kind, including:
- Kinship by consanguinity or affinity existing between the shareholders and those people who will make up the board of directors, occupy senior executive positions, or are advisers or directors.
- Reciprocal participations in the ownership of capital, businesses and joint operations that exist between the shareholders, or between them and the people who will be part of the board of directors, managers or senior executive personnel, advisers or directors.
- The relations or reciprocal interests in the ownership of capital, businesses and joint operations that the members of the administrative board, managers or senior executive personnel, advisers or directors have among themselves.
- Copy of the draft bylaws of the entity resulting from the merger. In the event of merger by incorporation, in addition to the information mentioned above, an economic-financial study must be submitted, which must contain:
- Business plan.
- Economic-financial viability of the institution resulting from the merger.
- Operations plan through which the mechanisms and procedures through which the proposed business plan will be specified will be specified, indicating the following aspects: market segmentation, geographic expansion, business lines, profitability, human resources area, products financial to introduce in the market, promotion and advertising, technologies and innovations.
- Projected Financial Statements for the first six (6) semesters of activity of the new financial entity resulting from the merger.
- Internal, accounting and administrative control plans that they propose to establish for the financial institution resulting from the merger.
- Draft press notice where the merger request is reported to the Superintendency of Banks and other Financial Institutions, indicating the requesting entities and the respective legal regulations on which the process is based.
The Superintendency of Banks and other Financial Institutions, as established in the Law of Stimulus for the Strengthening of Assets and Rationalization of Banking Sector Transformation Expenses (2001), must review and analyze the documentation that accompanies the merger request within the term of twenty (20) business days, counted from the date of receipt of all the collections thereof, notifying the applicants the day after the expiration of said period, the observations that it deems appropriate, in order that make the modifications that may be necessary.
Observations must be corrected within twenty (20) business days following the date of receipt by the applicants of the respective notification.
Once said period has elapsed, without the applicants having accepted the observations or having requested a single extension of twenty (20) business days of the indicated period, the application submitted and the Superintendency of Banks and other Financial Institutions, ex officio, shall be deemed to have been withdrawn. will declare.
According to the same Law of Stimulus for the Strengthening of Assets and Rationalization of Banking Sector Transformation Expenses (2001: 10), the Superintendency of Banks and other Financial Institutions, if applicable, will have a period of twenty (20) days after the receipt of the documentation to verify that the applicants have complied with the corrections determined in due course, if in this period it is proven that the applicants did not completely correct the observations made, that body will declare the merger request inadmissible.
The Superintendency of Banks and other Financial Institutions, if applicable, will have a period of twenty (20) business days following receipt of the documentation to verify that the applicants have complied with the corrections determined in due course, if at this time Within a period of time it will be proven that the applicants did not completely correct the observations made, that Agency will declare the merger request inadmissible.
Once the previous periods have ended and the legal provisions have been complied with, the Superintendency of Banks and other Financial Institutions may accept the merger request by means of a reasoned order and authorize the publication of the press notice indicated in paragraph 11 of article 5 of these Regulations.
Applicants will proceed to publish the notice within a period of no more than five (5) business days from the date of said approval, in a newspaper with proven circulation in the area where financial institutions have their respective addresses. applicants for the merger and in one (1) newspaper with proven national circulation. Copies of said notices must be sent to the Superintendency of Banks and other Financial Institutions, within a period of two (2) business days following their publication.
According to the aforementioned Law, the Superintendency of Banks and other Financial Institutions, within a period of fifteen (15) business days from the consignment of the notices provided in the previous article, will carry out the technical analysis of the merger process; and once this has been completed, it will proceed to prepare a report, and send it to the Superior Council of the Superintendency of Banks and other Financial Institutions or whoever acts in its stead, in order to obtain their opinion, within a period of ten (10) business days., on the viability of authorizing the requested merger; In accordance with the provisions of paragraph 1 of article 177 of the General Law of Banks and other Financial Institutions, and Sole Paragraph of article 12 of the Law of the National Savings and Loan System.
The Superintendency of Banks and other Financial Institutions will notify the requesting financial institutions, by means of a duly motivated act, of the declaration of inadmissibility of the merger, if the technical analysis carried out determines the inadmissibility of carrying it out.
If the opinion of the Superior Council of the Superintendency of Banks and other Financial Institutions or whoever acts in its stead is obtained, so that the merger is carried out, the Superintendency of Banks and other Financial Institutions will proceed to issue the Resolution that authorizes it, which, It will be published in the Official Gazette of the Bolivarian Republic of Venezuela. Said publication will be communicated to the requesting entities by means of an official letter addressed to each of them, where it will be expressly indicated that the merger will only take effect once the provisions of article 10 of these regulations have been fulfilled.
If the favorable opinion indicated in the heading of this article is not obtained, the Superintendency of Banks and other Financial Institutions will proceed to notify the said decision to the requesting entities.
The Stimulus Law for the Strengthening of Assets and Rationalization of the Transformation Expense of the Banking Sector, establishes that once the merger is published in the Official Gazette of the Bolivarian Republic of Venezuela and communicated by means of official letter in accordance with the provisions of article 9 of these Regulations, the requesting entities must submit to the Mercantile Registry within the following thirty (30) continuous days counted from the receipt of the indicated letter, for the purposes of their registration, the following documentation:
- The Bylaws of the entity resulting from the merger.
- The Assembly Minutes where the merger was agreed.
- One (1) copy of the Official Gazette of the Bolivarian Republic of Venezuela containing the Resolution by which the merger is authorized.
- Official Letter from the Superintendency of Banks and other Financial Institutions where it communicates the publication of the authorization to which article 9 of these Rules is contracted.
- The audited financial statements of the applicant entities, in which the merger was based.
- The financial statements of the beginning or continuation of operations, as the case may be.
- Copy of the registration of these documents in the Mercantile Registry, must be sent to the Superintendency of Banks and other Financial Institutions, within the period of two (2) inhabiting days following the same.
Within the five (5) olías habites following the registration provided for in the previous article, the merging institutions will publish in a (1) newspaper with proven circulation in the area where they have their respective addresses and in one (1) newspaper with proven, circulation nationwide, an indicative notice that they have merged.
Copies of said notices must be sent to the Superintendency of Banks and other Financial Institutions within the period of two (2) business days following their publication.
The merger authorized by the Superintendency of Banks and other Financial Institutions will have full effect from the registration with the Mercantile Registry of the documents indicated in article 10 of these regulations.
8.- MANAGEMENT OF CHANGE IN MERGERS AND ACQUISITIONS
When two companies merge, they start a transformation process, therefore they must carry out this process from a change management perspective.
We find several elements of the Theory of Change Management that can be applied to the merger processes, which will be exposed below.
A first element to comment on is the existence of a basic difference between most efforts for change management and changes in mergers and acquisitions.
Planned change efforts involve moving an organization from a known past into a known, or at least planned future.
Change induced by a merger or acquisition means moving from a known past to an essentially unknown future, either because there are no detailed plans at the time of the agreement or because they are incomplete. The future of the merging organizations may be perfectly clear to the key players actively involved in the process, however few people in the buying firm know the future plans, while in the acquired firm it can be a complete mystery..
Therefore, the basic task during the transition phase is to clearly define and actively communicate the vision of the future to all those interested in the success of both organizations.
As with any change management effort, managing the transition phase in the merger process is subject to pitfalls. The lack of attention devoted to the implementation of the change, compared to that devoted to the elaboration of the objectives. This is no stranger to mergers and acquisitions, in which little attention, resources and time are devoted to the transition and integration phases.
Changes are initiated in the goals of the main units, in the dependencies and in the main management systems, such as decision making or planning, but often there are not many changes initiated from an individual perspective. It is not uncommon for some employees to leave the organization as a result of the merger, while those who remain with the firm must adapt to the changes. The merger or acquisition is done "for" the staff, not "with" the staff.
A third element to consider is the sources of resistance to change.
| INDIVIDUAL FACTORS | Factors
GROUP |
ORGANIZATIONAL FACTORS |
| 1. Perceptions about what is happening.
2. Desire to agree with others. 3. Level of change that overflows. 4. Personalities incompatible with expectations. 5. Lack of skills and knowledge to do what is needed. 6. Basic values and beliefs threatened. |
1. The change violates the group's norms.
2. The change generates conflicts that threaten the continuity of the group. 3. Fear of rejection by other groups. 4. Lack of sensitivity and understanding of what is needed. |
1. Lack of support for the change of senior management.
2. Change threatens established schemes of power and influence. 3. The organizational structure does not support change. 4. Negative climate, closed to change. 5. The basic technology of the organization is not compatible with change. 6. A “cultural ethnocentrism” may prevail, there is an attitude that “we are the best”. |
9.- DIFFERENT MODELS OF THE MERGER AND ACQUISITION PROCESS.
Most mergers and acquisitions are isolated events that companies push through with great effort. Very few companies repeat a process enough times to develop a model. Mergers are not usually considered as a process, something that can be reproduced, but as something that must be finished as soon as possible so that everyone can return to their daily work.
The tendency to consider mergers as a unique event in the life of a company is reinforced by the fact that they are often painful experiences that produce anxiety and uncertainty. It can generally involve job losses, restructuring of responsibilities, career truncation, loss of power, and other stressful situations.
The increasing pace of M&A activities is evident, however the number of failures is also significant. Two out of three mergers or acquisitions fail to meet initial expectations; As a consequence, it has aroused interest in developing models and sharing the lessons learned by those who experienced processes of this kind.
Each merger, large or small, has its own particularities, and therefore, normally no two mergers are the same. Each acquired company has a unique structure, each has its own unique business strategy, and each has its own culture. For many concepts and models that arise from previous transactions or from other companies, it should not be forgotten that each new agreement is different.
Below we will develop some models that explain this process.
9.1- THE EXPLORER MODEL OR WHEEL OF FORTUNE
The following is the model that GE Capital Services has developed to integrate new acquisitions with the parent company, and which has been successfully applied in several projects. It has been exposed, debated, tested and fine-tuned several times.
The model that Ashkenas, Demonaco and Francis have called “Explorer's Model” or “Wheel of Fortune”, divides the entire process into four action phases that start with the work that is done before closing the deal and continues until the completion of the assimilation. Within each of these phases there are several stages. Finally, each action phase includes several best practices and concrete steps that help managers move forward through the process.
| 1- PRIOR TO THE ACQUISITION |
| · Start the cultural analysis.
· Identify business and cultural barriers that can prevent successful integration. · Choose an integration manager. · Evaluate the strengths and weaknesses of the company and the leaders of the departments. · Develop a communication strategy. |
| 2- ESTABLISHMENT OF THE BASES |
| · Submit properly to the integration manager.
· Orient new executives about the business rhythm of the acquiring company and non-negotiable securities. · Jointly develop an integration plan. · Involve senior management in a visible way. · Provide sufficient resources and assign responsibilities. |
| 3- QUICK INTEGRATION |
| · Employ process planning, simulations and monitoring systems to accelerate integration.
· Utilize audit staff to audit the process. · Use feedback and learning processes to continuously adapt the integration plan. · Initiate short-term director exchange. |
| 4- ASSIMILATION |
| · Continue developing practical tools, processes and common languages.
· Continue long-term exchange of managers. · Use audit staff to audit the integration. |
The clear and systematic appearance of the model contradicts the fact that startup integration is both an art and a science. Although the explorer model recommends a series of linked actions, every acquisition contains some novel or unique aspects. And as with any major transformation, management will have to improvise. However, with this model it is possible to avoid improvisation being the only protagonist.
9.2- RATIONALIST MODEL OF ACQUISITIONS
Sudarsanam proposes in his book a process that comprises three stages: preparation, negotiation and integration. The different steps covered by each of the stages are shown in the following table:
| STAGE 1 |
| · Development of the acquisition strategy, logic of value creation and acquisition criteria.
· Target search, selection and identification. · Strategic evaluation of the target company and justification for the acquisition. |
| STAGE 2 |
| · Development of the purchasing strategy.
· Financial evaluation and pricing of the target company. · Negotiation, financing and closing of the deal. |
| STAGE 3 |
| · Evaluation of organizational and cultural affinity.
· Development of the integration approach. · Coupling strategy, organization and culture between the acquirer and the acquiree. · Results. |
The author proposes a rationalist vision of acquisitions based on the decision-making process.
PSSudarsanam, ob cit Page.
Rationalist view of acquisitions
This vision is based on the direct evaluation of the economic, strategic and financial aspects of the acquisition proposal, and calculates the potential for value creation based on this evaluation. The justification for the acquisition is articulated in terms of strategic goals, and how the acquisition will be useful to achieve those goals. A relevant aspect of the rationalist method is the emphasis on quantifying the expected costs and benefits of the acquisition.
The resulting decision will require deep commitment and loyalty from all participants. In this way, acquisitions are the result of rational and cold decision-making processes in which the acquiring company is considered as a homogeneous and undivided decision-making unit.
9.3- THE SEVEN PHASE MODEL FOR MERGERS
According to McCann and Gilkey, the process is much more than simply identifying an attractive candidate and negotiating a deal, considering that the hard work begins after the deal closes.
The seven phases suggested in this model are not as independent as the following figure shows, but can overlap and depend a lot on each other.
Joseph E. McCann and Roderick Gilkey, ob cit Page 8.
Seven phase model
| STRATEGIC PLANNING | |
| OBJECTIVE | Create a corporate planning process that actively supports the merger activity, which is articulated with the company's vision. |
| MAIN TASKS | · Redefine the planning process so that it is able to assist the merger activity.
· Guarantee the development and suitability of the support systems (human resources, control, structure) to reinforce the merger planning activity. |
| ORGANIZATION | |
| OBJECTIVE | Build effective management capacity within the company with sufficient authority and resources to actively manage the merger process. |
| MAIN TASKS | · Organize and equip the fusion function consistently (ad hoc groups, teams, staff).
· Define the roles and responsibilities of key stakeholders and provide them with training. · Guarantee access and commitment from senior management. · Develop protocols: phases, flows, relationships and calendar. · Guarantee the integration of the planning process. |
| SEARCH | |
| OBJECTIVE | Identify the most attractive candidates, search and produce enough data in order to achieve a subsequent analysis to prepare an offer. |
| MAIN TASKS | · Create a systematic process to identify top candidates.
· Identify the criteria for selecting candidates. · Create profiles and necessary data. · Provide the results to senior management to act. |
| ANALYSIS AND PROPOSAL | |
| OBJECTIVE | Develop sufficient information to be able to evaluate the business, financial and organizational adjustment, which allows assessing and presenting an offer. |
| MAIN TASKS | · Apply sufficiently rigorous analytical techniques.
· Establish value ranges and parameters of terms and conditions. · Develop an initial strategy for the later phases of the transition. · Agree on a presentation approach for the offer or proposal. |
| NEGOTIATION AND AGREEMENT | |
| OBJECTIVE | Reach an agreement with a candidate, on price, term and conditions. |
| MAIN TASKS | · Approach the candidate company in a way that creates a favorable environment for negotiation.
· Keep the negotiation secret to control the price. · Quickly and efficiently evaluate counter offers. · Raise the negotiation and its logic. |
| TRANSITION | |
| OBJECTIVE | Smooth and effective control of the situation through the design and implementation of a transition management process. |
| MAIN TASKS | · Assess and stabilize the situation.
· Apply the basic rules for the effectiveness of the transition. |
| INTEGRATION | |
| OBJECTIVE | Apply the integration strategy developed. |
| MAIN TASKS | · Define specific priorities for action.
· Allocate sufficient resources for implementation. · Direct and control the implementation. |
The authors consider that the overlapping of phases in the process leads to the existence of numerous difficulties, therefore they highlight the importance of feedback so that the process constantly improves with the knowledge that is acquired little by little.
9.4- SYNTHESIS
Once the different models have been presented to carry out the merger processes, we intend to show the coincidences identified through the following table.
| STAGES | ASHKENAS, DEMONACO AND FRANCIS | SUDARSANAM | McCANN AND GILKEY |
| STRATEGIC PLANNING | X | X | |
| ORGANIZATION | X | X | |
| SEARCH AND SELECTION | X | X | |
| ANALYSIS AND OFFER | X | X | |
| NEGOTIATION AND CLOSURE | X | X | X |
| TRANSITION AND INTEGRATION | X | X | X |
| MONITORING AND ADJUSTMENT | X | ||
| ASSIMILATION | X |
It should be noted that the eight stages mentioned above involve various tasks. Depending on the approach of the different authors, these will be included in one stage or another.
From the previous table it can be observed that in all the studies carried out by the different authors, the stages of negotiation and closing, transition and integration are present.
On the other hand, PSSudarsanam, and McCann and Gilkey emphasize the importance of strategic planning, partner search and selection and analysis and offer, while Ashkenas, Demonaco and Francis agree with McCann and Gilkey in considering the creation of a capacity important effective leadership actively leading the merger process.
Finally, it is interesting to mention that Ashkenas, Demonaco and Francis place greater emphasis on the final part of the process, highlighting the follow-up and assimilation stages, not considered by the other models.
10.- SOURCE OF SYNERGY IN MERGERS AND ACQUISITIONS.
Within the possible sources of synergy there are four basic categories, namely:
- Income improvement:
An important reason for acquisitions is that a combined company can generate more income than two separate companies. Income increases can come from marketing gains, strategic profits, and market power.
- Marketing Gains - It is often claimed that acquisitions and mergers can produce higher operating income as a result of marketing activities. Such improvements can be made in the following areas:
- About the previous inefficient media programming and advertising efforts.
- In the weak current distribution networks.
- In the unbalanced product mix.
- Strategic benefits: Some acquisitions portend a strategic advantage. This is an opportunity to take advantage of the competitive environment if certain situations materialize. Strategic profit is more of an option than a standard investment opportunity. Michael Power (1985) uses the example of the acquisition of Procter & Gamble's Carmín Paper Company as a breakthrough that allowed the latter to develop a highly interrelated conglomerate of paper products: disposable diapers, paper towels, products feminine hygiene and tissue paper. Market or monopoly power; one company may acquire another to reduce competition. If so, prices can be increased to achieve monopoly profits,Mergers that reduce competition do not benefit society. The empirical evidence does not indicate that increasing market power is a significant reason for mergers. If monopoly power is increased through an acquisition, all companies in the industry should benefit as the price of the industry product increases.Cost Reduction: One of the basic reasons for a merger is that a company can operate more efficiently than two separate companies. Thus, for example, when Bank of America agreed to acquire Security Pacific, it cited the possibility of lower costs as the main reason. Through a merger or acquisition, a company can achieve greater operational efficiency in various areas or functions Economies of scale:If the cost of production decreases as the level of production increases, it is said that an economy of scale has been achieved. Economies of scale grow to their optimum level. After that point, diseconomies of scale occur, that is, the average cost increases once that point is exceeded. Vertical integration economies: from vertical as well as horizontal combinations, operational economies can be obtained. The main purpose of vertical procurement is to facilitate the coordination of closely related operational activities. Technology transfer is another reason for vertical integrations. Complementary Resources: Some companies acquire others to make better use of current resources or to build on the missing elements for success.Elimination of administration: there are certain companies whose value can increase with a change of administration. In some cases, managers do not understand the nature of changing conditions, they cannot abandon the strategies and styles they have formulated over the years. Tax Earnings:
Tax earnings can be a powerful incentive to make some acquisitions. Among them can be mentioned:
- Use of tax losses derived from net operating losses:
Sometimes companies have tax losses that they cannot take advantage of, these are called net non-operating losses. b. Utilization of unused borrowing capacity: Because some degree of diversification occurs when companies merge, the cost of financial reorganization is likely to be
lower for the combined company than is the sum of its values for the two separate companies. Therefore, the acquiring company could increase its debt-to-equity ratio after a merger, thereby generating additional tax benefits and additional value.
- Surplus employment: another of the laws refers to surplus funds. It is presented in the case of a company, for example, it has a cost-free cash flow, that is, available after payment of taxes and after all projects with positive net present value have been considered. In this situation, the purchase of fixed income securities, the company would have several ways to spend that surplus, such as: payment of dividends, repurchase of shares or acquisition of shares of another company. Capital costs:
The cost of capital can often be reduced when two companies merge because the costs of issuing securities are subject to economies of scale. The costs of an issuance of both debt and equity are much lower for both the largest and the smallest issues.
11.- BANK MERGERS IN VENEZUELA.
Currently Venezuela is immersed in a process of bank mergers: Caja Familia with Banco Unión, Interbank, Banco Mercantil and La Venezolana EAP, Banco República with Common Fund, La Primogénita with Mi Casa, Valencia with Banco Noroco, Del Sur EAP with Oriente EAP and Banco de Venezuela Grupo Santander with Banco Caracas. It is estimated that this latest merger will concentrate the banking market in Venezuela and will become the most powerful group in Venezuelan banking for the next few years.
But before these mergers took place, the Venezuelan financial market was made up of 87 banking entities, of which only 10 are those that concentrate more than 50% of the deposits in the financial system. In this way, the remaining 77 banks had to manage to take 50% of the remaining market.
Why have banking institutions come to merge? The mergers have materialized due to the following causes:
- Wealth of banking institutions High leverage and bank indebtedness High transformation costs and low productivity Lack of knowledge of the profitability of channels, clients and products.
This process of bank mergers and acquisitions is not new. Starting in the 1960s, the process began in the United States, a country that is advancing towards a banking system with fewer banks, but larger ones and reoriented towards the universal banking scheme. During the 1980s, the average annual number of mergers was double that of the 1970s and triple that of the 1960s. By the late 1990s, the United States had 23,854 financial institutions, while at the end of the 1980s there were 27,864 financial institutions.
Globally, there has also been a successful process of bank mergers and acquisitions: Deutshe Bank with Bankers Trust, thus emerging the largest bank in the world, which consolidates the sum of 756.5 billion dollars. In the same way, banks in other countries have merged: in Spain Banco Santander and Banco Central Hispano, Banco Bilbao Vizcaya with Banco Argentaría, in France Banco Paribas with Société Genérale, in Switzerland the Unión de Bancos Suizos UBS with Swiss Bank Corporation, in Japan the Bank of Tokyo with Mitsubishi Bank gave rise to the world's first bank.
In conclusion, it can be said that nothing in banking is the same as it was before. In fact, not only banks are dedicated to the business of financial intermediation, since financial innovations, deregulation, technological changes and globalization have changed the way of doing banking in the world. All of this leads to the following characteristics of the current banking situation:
- The universal banking model advances. Banks lead industrial conglomerates. The new competitive environment demands new mechanisms to reach new dimensions in business.
12.- WHY DO THE MERGERS FAIL?
During the first half of this year, the global M&A market grew more than 25% over the level of the same period in the previous year, reaching a record figure. The global globalization process suggests that this phenomenon will continue with an upward trend in the coming years; However, as of the second quarter of 2000, a certain slowdown in the increase of these corporate transactions has begun to be noticed, particularly in the North American market.
It is true that companies eager to expand or powerful enough to seek strategic investments that increase shareholder value are re-evaluating the risk / reward factor of such acquisitions or mergers. They are being more prudent and conservative in their expectations of the possible benefits and expected profitability, placing much more emphasis on the strategy and planning of the processes required to achieve the planned objectives in the pre-determined deadlines.
Why do mergers fail? "There is no doubt that when companies make the decision to merge, they always do so with a high degree of optimism about the future of the new combined company, having made plans to improve profitability, product distribution, market expansion, savings from synergies., etc., etc., in short, all those elements that influenced the crystallization of the initial idea, with the ultimate objective of increasing the economic value of the business. In reality, mergers are very similar to the "infatuation-courtship-marriage" process, in which the parties sometimes arrive at the altar with many illusions and expectations, and little experience in living together and in the difficult path to achieve sustained success.
Studies on mergers and acquisitions carried out in recent years have concluded that a surprisingly high number of these were not only unsuccessful in reaching the planned objectives, but also considerably reduced the value for the shareholders, since they were forced to invest much more time and money to correct anomalies that were not adequately anticipated during the merger or acquisition process. In addition, a not inconsiderable number of mergers, also proved over time, that did not produce a substantial increase in the economic value of the business.
Despite this evidence, and particularly during the last two years, we have witnessed the high number of companies worldwide that continue to merge in the expectation of transforming their companies through a corporate renewal that achieves objectives much more quickly than through a process internal development, or to protect itself from a situation of obvious threat to its economic and financial perspectives.
Companies that choose to merge as a defense against threats usually bring their problems to the new company. The counterpart, in the initial moments of the "flirting" are glimpsed more by the opportunities that are perceived than by the difficulty of the challenges to be faced. Likewise, those that are initially projected as mergers "of equals", only to end up in reality as acquisitions by one of the parties, bring with them the need to have a clear vision and strategy defined during the courtship and very particularly after the consummation. of marriage.
Although the reasons why many mergers and acquisitions were unsuccessful have been as varied as the number of particular characteristics inherent in each merger, ten common factors could be identified:
- insufficient investigation of the company to be acquired or merged;
- underestimate the difficulties inherent in the amalgamation of two different cultures;
- a lot of energy expended in achieving the merger or acquisition, and little energy devoted to integration and subsequent planning;
- taking important decisions postponed due to the lack of a clear definition of post-merger responsibilities and the emergence of internal conflicts;
- reject the views of antitrust bodies;
- negligence in maintaining permanent, clear and open communication, both internal and external;
- neglecting personnel management, causing demotivation and the withdrawal of key personnel;
- neglect existing businesses or clientele by paying more attention to the new structure outlined;
- show little respect for the other company, its people, its work methodology and its achievements;
- delay in providing recognized, visible and accessible leadership.
The fact that many mergers and acquisitions fail is not in itself a reason to reject the good opportunities that such transactions present. What must be recognized is that any merger or acquisition process presents a complicated and difficult corporate challenge, the success of which will depend on the diligence put into proper evaluation, planning and execution.
13.- CASE STUDY: BANESCO BANCO UNIVERSAL
At the end of the first semester, Banesco Banco Universal presented the result of a laborious work, publishing the consolidated balance sheet that included the results of the merger with Unibanca Banco Universal. This process began in May 2000 with the creation of Unibanca, as a result. of the integration of Unión Banco Comercial and Caja Familia Entidad de Ahorro y Loan.
Since its inception in 1992, this is the eighth merger that Banesco has successfully carried out. The financial, technological and operational integration derived from this latest merger process positions the institution as one of the most important 100% national capital banks within the financial system and the fourth in the ranking in terms of asset holding and public fundraising. refers within the commercial and universal banking subsystem.
Similarly, Banesco is positioned as the leader in the number of customer service agencies, after registering at the end of 2002 a total of 374 located throughout the country, of which the Capital District concentrates 20.6% (78 agencies), the State of Miranda 20.1% (76 agencies) and the State of Zulia 11.9% with a total of 45 agencies.
A noteworthy fact during the second semester was the incorporation in July of Banesco's share to the Caracas Stock Index (IBC) 8. At the time of its inclusion in the IBC basket, Banesco had 3.1 billion shares outstanding to its credit. Before the Unibanca merger, Banesco BU owned 1 million shares. Despite the adverse conditions in the economy and the prevailing climate of uncertainty in the country, Banésco maintained its position within the stratum to which it belongs during the semester. Additionally, it highlights the importance acquired by the total equity and term deposits. In the first case, after totaling Bs. 542 billion at the end of December, it registered a market share of 13.5%. Compared to the end of the first semester, equity registered an increase of 14.6%. This level of equity in relation to the total assets of the institution resulted in an equity sufficiency index of 18.9%, standing 2,8 points above the market and significantly above the minimum required by the Superintendency of Banks.
After the merger process, Banesco has occupied the fourth position throughout the semester in terms of customer deposits, maintaining its market share at around 10.2%. Specifically, at the end of December, resources from the public totaled Bs. 1,712 billion, equivalent to a 19.7% inter-monthly growth. Of this total, 57.4% (Bs. 982 billion) corresponded to checking accounts; 28.4% (Bs. 485 billion) to savings deposits and 9.7% (Bs. 166 billion) to term deposits. In relation to this last instrument, the increase of Bs. 113 billion (213.2%) registered during the second half of the year stands out.
For its part, the institution ranked tenth in term deposits, which when contrasted with the results of June meant an escalation of seven positions.
The evaluation of the productive assets according to the items that comprise it, first showed an increase of Bs. 11 billion (1.6%) of the net loan portfolio, placing it at Bs. 717 billion. The breakdown of the loan portfolio reflects a behavior contrary to that of the market, with Banesco's delayed portfolio showing a quarter-on-month fall of 25.3%, after going from Bs. 71 billion in June to Bs. 53 billion at the end of December 2002.
The structural analysis of the loans granted reflects an increase in the current portfolio of Bs. 34.2 billion (4.7%) during the indicated period. The improvement in the quality of the portfolio can also be seen in the decrease in the proportion of late loans over the gross loan portfolio, which decreased by 2.1 points during the second semester, standing at 6 at the end of the year,3%. This behavior shows a significant effort by the institution's portfolio management area, considering the presence of factors that affect the ability to pay, such as the deterioration of the population's income generated by the rise of the inflationary process and unemployment, among others.
Also noteworthy is Banesco Banco Universal's compliance with the regulations established by the Executive, of obligatorily allocating 12% of its gross loan portfolio to financing the agricultural sector. At the end of December, Banesco registered loans to this sector for a total of Bs. 108.8 billion, which represents 12.9% of the bank's gross loan portfolio (Bs. 845 billion). Of the total loans granted by the subsystem to this primary sector of the economy, Banesco accounted for approximately 10%. On the other hand, investments in securities totaled Bs. 994 billion, equivalent to an inter-monthly variation of Bs. 465.3 billion (88.0%). Of the total placed by banks in this type of instrument, Banesco's share was 16.3%, standing at 5,2 points above the participation obtained at the end of the first semester.
Consistent with the behavior recorded in the financial system, Banesco's asset structure reflects a greater orientation in the use of funds towards investments in securities to the detriment of the Granting of loans. This assertion derives, firstly, from the decrease in the share of the loan portfolio during the semester, from 30.2% to 25.1% at the end of 2002, which implies a decrease of 5.2 points. While investments in securities increased their participation by 12.1 points, concentrating 34.8% of total assets in December.
The bank's greater holdings in this type of asset generated a better positioning of the liquidity levels, giving the institution a high capacity to respond to an eventual withdrawal of funds. The ratio of cash availability plus investments in securities to public deposits totaled 34.7%, which represents a growth of this ratio of 1.8 points during the semester.
It should be noted that the recomposition in the use of funds led to a deterioration of the financial intermediation index (loan portfolio to deposits), producing a 7.5 point drop during the second semester, after going from 49.3% to 41, 9% at the end of December.
In terms of Trust, Banesco totaled Bs. 1,685 billion, ranking fourth in the market. The importance acquired by the institution in this type of assets is the result of the trajectory of each of the entities that formed the new bank. Given Unibanca's track record in managing housing policy resources, Banesco, after the merger, consolidated itself as the leader in attracting this type of resources, totaling Bs. 394.8 billion at the end of 2002, equivalent to a share of market of about 27.0%.
According to the income statement, Banesco's management during the second semester showed a gross financial margin of Bs. 183.8 billion, derived from a total of Bs. 261.6 billion of financial income and the corresponding Bs. 77.8 billion. to expenses for the same concept.
In the first place, financial income presented an inter-monthly growth of Bs. 166 billion (173.7%), mainly derived from the increase of 161.1% in income from the loan portfolio, which represents 55.9% of these, as well as the rise registered in income from investments in securities (184.5%).
On the other hand, the record of higher financial expenses responded to the growth of expenses for public fund-raising, exposing the higher financial cost that represents the preference of economic agents for less liquid instruments. These expenses represented 52.2%, while expenses for financial intermediation obligations represented 31.6% of financial expenses.
Another outstanding aspect of the income statement is the increase in transformation expenses, adding Bs. 185.4 billion at the end of the year, of which Bs. 74.0 billion corresponded to personnel expenses and Bs. 105.8 billions to operating expenses. This behavior is a consequence of the entire process of changes that the integration of two important institutions entails, which not only requires the transmission of the new image to the public, but also merits the training of personnel in order to have a prepared team, that share the same organizational culture. It is also very important to note that merger processes not only lead to economies of scale whose benefits are reaped in the medium term,rather, it is necessary for him to go through important levels of expenses, among which those corresponding to a series of amortizations have a significant participation.
The efforts of the institution are oriented towards the efficient management of resources and the achievement of management indicators that allow the achievement of a reasonable profit, bearing in mind the excellent service to the public that characterizes us.
In this regard, the analysis of the management indicators shows that despite the aforementioned increase in operating and personnel expenses, the favorable evolution of the productive assets of the institution attenuated the deterioration that they could suffer, placing the ratio of personnel expenses plus operating to average productive assets at 22.6%, showing a slight increase or two points in relation to the end of the first semester. This same behavior was observed in the ratio of the sum of both expenses with respect to financial income, which at the close of 200 stood at 68.0%.
The breakdown of the results cascade reflects that despite the increase in transformation expenses, Banesco presented a positive intermediation margin of Bs. 0.9 billion, which together with obtaining other operating income of Bs. 161 billion led (once the Bs. 1.9 billion Income Tax has been deducted) upon obtaining a net profit at the end of the second half of 2002 of Bs. 70.4 billion. Given this result, Banesco was ranked as the fourth institution in the banking market with a 12.7% share of the profits obtained.
The return on equity was 46.3%, exceeding the annualized inflation for the period (31.2%) by 15.1 points.
Finally, it is important to note that Banesco combined its management as a financial intermediary with one of the most appreciated social functions, such as the contribution to the education of our people, being one of the decisions of the Board of Directors to participate by granting 6% of the profits generated in the next five years to the Fe y Alegría educational institution, in order to contribute to the important work that it carries out with people without resources, offering education to approximately 270,000 students. In addition to the monetary contribution, Banesco staff are committed and identified with such important work.
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