A Case Report on Takeover Turmoil

A Case Report On

“Takeover Turmoil”

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Kirloskar Institute of Advanced Management Studies, Harihar

(PGDM 2014-16)

Subject: Strategic Management-II

Submitted to                                                                                             Submitted by

Dr V.S. Pai                                                                                                           Group 2

Group Members

Q.1 What are the major problem areas if Era Steel is considered for takeover? Explain in detail.

Ans. Following are the major problem areas if Era Steel is considered for takeover:

1. Absence of professionalism- Mr L. Patil company’s personnel director had pointed out that Lobe steel has a professional organisational culture, while there is an absence of professionalism in Era steel, this could be a problem.
2. Accumulated losses of Rs.250-300 Cr & Short term liabilities- Era steel had accumulated losses of Rs.250-300 Cr & Short term liabilities. The company’s cash flows were under strain. As a result Era steel was not financially stable & could well drag Lobe steel down with it.
3. Fine tuning of Personnel Policies- Setting up of new personnel policies for the company which has been taken over is an important task for the Human Resource department. It is important for the HR department to communicate these policies clearly to the employees related to employee benefits, performance reviews, promotions, terminating employees, work schedule, etc.
4. Work Culture- The two companies have a different work culture and after takeover if Era steel’s work culture fails to suit that of Lobe steel’s it will result into a failed merger.
5. Compensation Packages- After merger addressing compensation packages is an important part. The company should design an attractive compensation package in order to do the merger. Companies face a lot of problems from employees side when it comes to compensation packages after mergers.

Q.2 How are these problems to be resolved by Lobe Steel if the deal is struck? Elaborate on the solution for each problem faced.

Ans. 

1. Absence of professionalism in Era Steel-

• This can be solved by creating a professional work environment with the help of Lobe steel’s Management.
• They can give training to employees on how to do their work in a professional manner. Lone steel has a professional organisational culture which will also help to develop the same in Era steel during integration process.

1. Accumulated Losses of 250-300 Cr & Short term Liabilities-

• The acquisition will increase the market share of the company from 40% to 60% which will eventually increase revenue that will help to bring down the losses & short term liabilities.
• Merger will result into economies of scale resulting to reduced cost.
• Developing professional organizational culture will also help to bring down the cost to a great extent as the funds will be managed more effectively.

1. Fine tuning of Personnel Policies-

• Managing Human resource is a very important when there is a merger or acquisition about to happen. Chances of rumours related to layoffs, relocation, and other policies prevail in such situation. Such things can be avoided if there is a clear communication from the Human Resource Department.
• Premerger Employee stress mgmt. training- During mergers employees might go through a lot of stress which might lead to loss of many important employees. The HR department should conduct sessions in order to clear doubts of employees well in advance so as to reduce their stress.

1. Work Culture-

• The HR department can conduct Integration programs to create a good work culture for both the companies.
• The company can hire other firms which specialize in doing such integration programs while mergers.

1. Compensation Package-

• Retraining, redevelopment & revamping of skills- Removing people can be avoided if proper training, development & revamping of skills is done after merger.
• Provide VRS/Golden handshake- Voluntary retirement scheme can be given to employees in order to restructure the human resource in the company.

Q.3 Recommend acquisition of Era Steel or suggest organic growth for Lobe Steel? Justify your answer

Ans. 

Recommendation: Acquire Era Steel.

Justification:

• The acquisition of Era Steel will help to get a readymade manufacturing location near Mumbai, which otherwise would have taken 18-24 months to set up from scratch. It came with 45 acres of freehold land.
• It gives the company an opportunity to expand its services to Mumbai.
• A major attraction for the acquisition of Era Steel is the brand new Electric Resistance Welding (ERW) tube plant, which Lobe Steel was looking to add in its ERW line as a part of its plan.
• The acquisition gives a running business with all the clearances from the state pollution board and the environment ministry.
• Era Steel has also acquired brand equity in some overseas market for its pipes which will create synergy.
• Moreover the acquisition would increase Lobe Steel’s market share in the steel tube & pipe segment to 60% which is currently at 40% in this product.