2006:028

M A S T E R ' S T H E S I S

MergerHow companies prepare for it

Case Studies of Cloetta Fazer and CashGuard Group

Elisabeth Johansson Claudine Pettersson

Luleå University of Technology

Master's thesis Marketing

Department of Business Administration and Social SciencesDivision of Industrial marketing and e-commerce

2006:028 - ISSN: 1402-1552 - ISRN: LTU-DUPP--06/028--SE

ACKNOWLEDGEMENTS

ACKNOWLEDGEMENTS During the fall of 2005 we have written our thesis as our Master’s thesis within the Program of International Business at the Division of Industrial Marketing at Luleå University of Technology. The past ten weeks has provided us with a deeper understanding of how companies handle the issues of procedures and criteria regarding the choice of merger partner, as well as the organizational cultural in the pre merger phase. Even though we have had some difficulties along the way, this period has still been very interesting and instructive and it has also given us a deeper knowledge within this vast and fascinating area. A great support and motivation was given from our supervisor Manucher Farhang, Associate Professor at the Division of Industrial Marketing and e-Commerce at Luleå University of Technology and we would like to thank him. Furthermore, we would like to thank our participants from the selected companies; Kenneth Söderholm at Cloetta Fazer and Anders Eklund at CashGuard Group, for taking the time to answer all of our questions. Finally, we would like to thank our friends and family for putting up with us and always showing their support whenever needed. We hope that this thesis will be interesting and useful reading material for other students, researchers and people interested in getting a better insight in the area of research. Luleå University of Technology, January 4, 2006

Elisabeth Johansson Claudine Pettersson

ABSTRACT

ABSTRACT Mergers are an increasing phenomenon mainly due to increasing globalization and market competition. Previous research - reporting a high failure rate among mergers - have concentrated on the factors that cause failure or insure success during integration and post merger phases. The purpose of this thesis is to gain a better understanding of the conditions companies should fulfill in the pre-merger phase with the aim of ensuring merger success. Procedures and criteria, as well as role of organizational culture in partner selection were studied through two case studies dealing with mergers of Cloetta Fazer and CashGuard Group. Findings showed that the companies in their pre-merger phase satisfied the conditions leading to a successful merger, even if their ways to success looked different. Regarding the procedure and criteria for selecting a merger partner, our findings generally supported theory, even though Cloetta Fazer and CashGuard Group operate in different industries. When regard to the role of organizational culture and its impact on the pre-merger phase, we found that Cloetta and Fazer had different organizational cultures, while CashGuard and Security Qube System AB (SQS) did not. However, neither of the two companies did a cultural due diligence, as both Cloetta Fazer and CashGuard Group had production collaboration with their merger partners prior to the actual merger.

SAMMANFATTNING

SAMMANFATTNING Sammanslagningar är ett ökat fenomen huvudsakligen beroende på den ökande globaliseringen och marknadskonkurrensen. Tidigare studier- visar/rapporterar en högt misslyckande bland sammanslagningar- koncentrerat på faktorer som har påverkat misslyckande eller försäkra framgång under före och efter faserna av sammanslagningen. Syftet med denna studie är att få en bättre förståelse av de vilkoren företagen ska uppfylla i fasen före en sammanslagning med strävan att försäkra en framgångsrik sammanslagning. Författningssättet och kriterierna, likväl organisations kulturen i valet av partner blev även studerad genom två fall som behandlar sammanslagning av Cloetta Fazer och CashGuard Group. Slutsatserna visade att företagen i sin fas före sammanslagningen tillfredställde vilkoren som leder till en framgångsrik sammanslagning, även om deras tillvägagångssätt har sett olika ut. Beträffande författningssättet och kriterierna för valet av sammanslagnings partner, stöds våra slutsatser generellt av teorin, även om Cloetta Fazer och CashGuard Group verkar i olika industrier. När det gäller organisationskulturens roll och dess inverkan på fasen före sammanslagningen, fann vi att Cloetta och Fazer hade olika organisations kulturer medan CashGuard och Security Qube System AB (SQS) inte hade det. Hursomhelst, inget av de två företagen gjorde en kulturell företagsgranskning, eftersom både Cloetta Fazer och CashGuard Group hade produktionssamarbete med deras sammanslagningspartner före den faktiska sammanslagningen.

TABLE OF CONTENTS

CHAPTER 1 INTRODUCTION .........................................................................................1 1.1 Background ..................................................................................................................1 1.1.1 Merger: definition......................................................................................................1 1.1.2 Distinguishing mergers from acquisitions...................................................................1 1.1.3 Merger motives..........................................................................................................2 1.1.4 International mergers .................................................................................................3 1.2 Problem Discussion ......................................................................................................4 1.2.1 Merger phases............................................................................................................5 1.3 Purpose and Research Questions...................................................................................6 1.4 Delimitations ................................................................................................................6 1.5 Outline of the Study......................................................................................................6

CHAPTER 2 LITERATURE REVIEW..............................................................................7 2.1 Procedure and Criteria for Selecting Merger Partner .....................................................7 2.1.1 Determinants of success .............................................................................................8 Partner................................................................................................................................8 Purpose...............................................................................................................................8 Parameters..........................................................................................................................9 Prepare people psychologically...........................................................................................9 Epstein’s six determinants of merger success....................................................................10 2.1.2 Choosing merger partner..........................................................................................10 Recommendations how to choose merger partner .............................................................10 The Case of Renault- Nissan Merger ................................................................................11 2.1.3 Pre-deal planning .....................................................................................................12 GE Capital’s merchant banking business in NYC .............................................................12 Ameritech’s internal audit services (IAS) .........................................................................14 2.2 Role of Organizational Culture ...................................................................................15 2.2.1 Integrated mechanisms of organizational culture......................................................16 2.2.2 Organizational culture change..................................................................................16 2.2.3 Conducting due diligence.........................................................................................17 Procedure and Criteria for Selecting Merger Partner .........................................................20 Role of Organizational Culture in Partner Selection..........................................................22

CHAPTER 3 METHODOLOGY ......................................................................................24 3.1 Research Purpose........................................................................................................24 3.2 Research Approach.....................................................................................................24 3.3 Research Strategy .......................................................................................................25 3.4 Data Collection...........................................................................................................26 3.5 Sample Selection ........................................................................................................27 3.6 Data Analysis .............................................................................................................27

CHAPTER 4 EMPIRICAL DATA ....................................................................................30 4.1 Case One: Cloetta Fazer..............................................................................................30 4.1.1 Procedure and Criteria for Selecting Merger Partner ................................................31 4.1.2 Role of Organizational Culture.................................................................................33 4.2 Case Two: CashGuard Group......................................................................................34 4.2.1 Procedure and Criteria for Selecting Merger Partner ................................................35 4.2.2 Role of organizational culture ..................................................................................36

CHAPTER 5 ANALYSIS...................................................................................................38 5.1 Within-Case Analysis: Cloetta Fazer...........................................................................38 5.1.1 Procedure and Criteria for Selecting Merger Partner ................................................38 5.1.2 Role of organizational culture ..................................................................................41

TABLE OF CONTENTS

5.2 Within-Case Analysis: CashGuard Group ...................................................................43 5.2.1 Procedure and Criteria for Selecting Merger Partner ................................................43 5.2.2 Role of organizational culture ..................................................................................45 5.3 Cross-Case Analysis: Cloetta Fazer and CashGuard Group.........................................46 5.3.1 Procedure and Criteria for Selecting Merger Partner ................................................46 5.3.2 Role of organizational culture ..................................................................................50

CHAPTER 6 FINDINGS AND CONCLUSIONS .............................................................53 6.1 Research Question One: Procedure and Criteria for Selecting Merger Partner.............53 6.2 Research Question Two: Role of Organizational Culture ............................................54 6.3 Implications................................................................................................................56 6.3.1 Implications for management ...................................................................................56 6.3.2 Implications for theory.............................................................................................56 6.3.3 Implications for future research................................................................................56

REFERENCES ...................................................................................................................57 APPENDICES 1-2 Appendix 1 Interview Guides (English version) Appendix 2 Interview Guides (Swedish version)

LIST OF FIGURES AND TABLES

LIST OF TABLES AND FIGURES List of Figures Figure 3.1 Conceptual frame of reference for this study........................................................23 List of Table Table 5.1: Determinants of success.......................................................................................48 Table 5.2: Choosing a merger partner ...................................................................................49 Table 5.3: Pre-deal planning period ......................................................................................50 Table 5.4: Four integrated mechanisms of organizational culture..........................................50 Table 5.5: Four types of cultures...........................................................................................51 Table 5.6: Organizational model...........................................................................................52

INTRODUCTION

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CHAPTER 1 INTRODUCTION In this chapter we will present our research topic. First, a background followed by problem discussion, which then will lead to our purpose and our research question, and finally delimitations of the study.

1.1 Background During the last decade, mergers and acquisitions have been one of the dominant modes of firms’ internationalization (Weber, Shenkar, Raveh, 1996). It has become a chosen strategy for companies to maintain a competitive advantage (Schraeder & Self, 2003). According to Granell (2000) globalization has become a world-wide pressure for companies to change and it is also seen as one of the most frequent external and significant trends for companies. All around the world the trend for companies is to attract foreign investment and still increase exports and develop international alliances. According to Balmer and Dinnie (1999) mergers is one of the phenomena that is growing and over the past years it has become a characteristic of the current business environment and it seems to appear to have affected every country and industry. The authors further state that infrequent sectors are immune to the influence of consolidation that is spreading in the global economy and is affecting both public and private sector.

1.1.1 Merger: definition Mergers are usually described as a marriage. It can be complex to realize since it involves two partners more or less equal in strength which have decide to combine their managerial and operational functions (Olie, 1990). According to Ghobodian, A.J.P., Liu, J. & Viney, H. (1999), a merger is when two companies integrate to form a new company with shared resources and corporate objectives. Gertsen et al., (1998) further claim that mergers are cooperative agreements between equal partners, but in practice power is not automatically equally shared by the two partners. Zaheer, et al., (2003) define merger of equals as “one where there is 50-50 stock swap between the two merging firms and the broad of the merged entity has members from both organizations”.

1.1.2 Distinguishing mergers from acquisitions Buckley and Ghauri (2002) describe the difference between mergers and acquisitions where in a merger, two formerly separate companies unite their assets to establish a new organization, in an acquisition the power of assets in general shifts from one company to another. Schraeder and Self (2003), state that mergers are regularly characterized as the consolidation of two companies into one organization. In contrast, acquisition is often characterized as the purchase of a single company from another where the acquirer or buyer maintains control (ibid).

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According to Gertsen et al., (1998), four different types of mergers and acquisition can occur:

• Horizontal: Between competitive firms in the same branch and that are in the same production stage.

• Vertical: Between firms in the same branch but in different production stage. • Concentric: Between firms in different but related branches. • Conglomerate: Between firms that are unrelated businesses.

Consequentially, various types of mergers and acquisition have taken place in waves of particularly intense activity. Conglomerate mergers and acquisition were the mighty significant involving non-related companies seeking to diversify during the 1960s and 1970s. Even though companies combined together they still continued apart in a rather independent way. During the 1980s and 1990s, the trend in merger and acquisition were changed and affected to a vast extent in both vertically and horizontally related companies. Synergy and seeking the advantages of large-scale operations rather than diversification, was above all strategic goal. (Gertsen et al., 1998)

1.1.3 Merger motives According to Cartwright and Cooper (1996), motives for mergers are rational financial and strategic alliances made in the best interests of the organization and its shareholders. Mergers are believed to be set off by financial or value-maximizing motives when the most important objective is to increase shareholder wealth and financial synergy through economies of scale, knowledge transfer and increased control. Managerial or non-value-maximizing motives relate to mergers which occur above all to raise market share, management status, decreased uncertainty and restore market confidence or perhaps even as a takeover defense or a way of protecting profits from taxation.(ibid) Buckley and Ghauri (2002) also present the different motives for mergers. In line with Cartwright and Cooper (1996), the authors make distinction between four motives: strategic, market, economic, and personal. However, these authors further claim that there may be unstated psychological motives behind the merger decision, and there are times when the decision to merge is initiated only to please the needs of an individual or small group of individuals, rather than any interest from the organization. Some senior executives are motivated to initiate a merger out of fear of nature. In their view, the managers who stay alive, or go on to greener territories, are very much visible men and women of action; people who are known as always looking for new opportunities- forever moving the organization onwards and upwards. As a result, out of good judgment of insecurity and fear for their continual survival, mergers provide a useful way by which they can improve or renew credibility, and restore their own self-confidence and that of the board. Others may be motivated by greedy and selfish needs to implement power and warm up their muscles by engaging in some empire building. On the other hand, for some, mergers are no more than an amusement, where the “big boys” see it as a stimulating and exciting game to be less bored, and to keep their managers on their toes. (ibid)

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According to Mark (1997), many things about mergers and acquisition have changed and the current trend in merger can be summarized in five different items:

• Deals are more strategically driven: The decision to add organizations supports intelligent and distinct corporate strategy.

• Technological advance is driving deals: To keep up with the fast changing technology.

• Globalization is driving more deals: When firms believe that the home market is too

small and want to seek out new territories.

• Deals are involving large organizations: Large companies are transferring the corporate landscape, “mega-mergers”.

• Entire industries are put into play: Consolidation activity throughout whole industries

is encouraged by deregulation, social policies and changing customers’ demands.

1.1.4 International mergers According to Gertsen et al., (1998), an international merger is not only making a deal between two companies which themselves have different organizational cultures, but two companies whose organizational culture are embedded in different national cultures. Rock et al., (1994) state that the 1980’s was a period of remarkable growth in international mergers and acquisitions. According to Buckley & Ghauri (2002), the Asian financial crisis of the late 1990’s is the cause for increased merger activity in the once successfully developing East Asia (Thailand, Malaysia, Indonesia, Philippines and Republic of Korea). Further, Rock et al., (1994) state that cross-border businesses were by no means restricted to the United States, Japan, and West Germany, as it usually was. In fact, the United Kingdom and Canada have been the major recipients of foreign bids, with the United States, Japan, and Germany far behind in conditions of the relations of foreign to domestic. Merger activity in fast developing markets such as Hong Kong, Taiwan, Indonesia, Mexico, and Argentina also has accelerated. In spite of the reduction in the merger market as a whole, cross-border businesses are expected to grow both as a percentage of total transactions and in absolute terms. With the European Community rising as the single largest consumer market, merger activity has been progressively increasing to meet the challenge of fusion. A study during the 1990’s of potential consolidation activity in Europe illustrated that there were more than five times the number of competitors in Europe as in the United States in the battery, turbine, locomotive, and tractor manufacturing industries. Most noticeably, the study also demonstrated that there are more than 300 major appliance manufacturers in the European Community to just four in the United States. (ibid)

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1.2 Problem Discussion Gertsen et al., (1998) report that at least 50 percent of all mergers and acquisitions (M&A) activity is unsuccessful, no matter how the success is measured. Questionably the failure rate for international M&A’s is even higher. It is rather surprising to note then, that more M&A’s are taking place around the world today than ever before, both in absolute numbers and in value terms. Besides, it seems like the M&A vehicle continues to be the preferred means of internationalization for companies. In comparison with domestic mergers, cross-border M&A face problems of both cultural and an environmental nature. (ibid) There are a lot of mergers and acquisitions that have not lived up to the expectations (Weber, et al., 1996). Marks & Mirvis (2001) claim that the reason for failing with mergers can be buying the wrong company, paying the wrong price and making the deal at the wrong time. The authors further state that the core of failed combinations is the process through which the deal is conceived and executed. Another contributing factor for failing is the cultural differences that often occur as the foundation for problems in the integration of the mergers. The home country and the industry often go hand in hand with the organizational culture and have a profound effect upon organizations and organizational behavior (Olie, 1990). The hierarchical structure of the company as well as the formalization by influence the national culture, also their decision-making style and its strategy are influence (ibid). Moreover, Olie (1990) claims that the internal merger is a special case and that the national culture also has a profound effect upon the organizational culture. When it comes to foreign takeovers, potential cultural clashes will be worked out through the bargaining power of the dominant part while that is not possible in mergers in which both partners are about of the same size or importance (ibid). According to Tetenbaum (1999), the weight on the financial and strategic issues in combination with ignoring the integration issues has been recognized as a major factor to the failure of mergers. Integration is significant to all parts of an organization (technologies, policies, systems and culture), and failures in mergers are due to the lack of an integration plan paying attention on people and human resource (HR) issues. Even though HR issues are important features of some mergers, these concerns are not dealt with effectively in a lot of the merger dealings that occur. (ibid) Gertsen et al., (1998), claim that high failure and disappointment rates in mergers are often recognized to negative employee reactions by organizational researchers and practitioners. The problems involving the human side of mergers are observed typically in terms of cultural conflicts and acculturation between the companies being united (ibid). Buckley and Ghauri (2002), state that integrating the merging companies is a procedure burdened with complexity and the need for this has become intense as mergers have moved away from unconnected conglomerate mergers to related and horizontal ones. Certainly, cross-border mergers are more complex than simply domestic ones due to the differences of national culture between firms. One study proposes that cultural fit has a major effect on post-merger performance and that companies that permit multi-culturalism and prevent too much control perform better than less permissive firms. Schweiger et al., (1993), claim that there are three major factors critical to success in any merger or acquisition. First, a deal must be assumed for strategic reasons such as to improve or develop competitiveness, to expand products, customers’ served or geographic presence. When mergers are driven only by opportunism or the desire to “do a deal”, rather than reliable

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strategic reasons, they are less probable to succeed. Second, the final purchase price of a merger classically shows both the inherent value of a target business and its value to the merging firm (i.e. combination value). However, when purchase price goes over either the inherent or combination value, mergers are also less likely to succeed. Finally, the value of mergers will in the end be decided by the degree to which they can be successfully implemented. In spite of a reasonable purchase price and sound strategic reasons, mergers are less expected to succeed if the merging organizations are not well combined with strategic benefits realized in practice. Based on these three factors mentioned above, it is obvious that top managers face many challenges in effectively transacting and implementing mergers. First and foremost, is the challenge of knowing what is being bought and both its inherent and combination values. Second, facing the challenge of implementing mergers to capture value. (ibid)

1.2.1 Merger phases The integration process of two merging firms consists of three phases; the pre-merger phase where the merger is planned, the merger phase when the definite deal is made and finally, the post-merger phase in which the integration of the two companies is initiated. (Buckley & Ghauri, 2002) According to Marks & Mirvis (2001), significant differences between classic and well-doing cases can be recognized by separating the different phases organizations experience in the shift from independent to incorporated units. The three phases are; the pre-combination phase, in which the deal is pictured and negotiated by managers and then with authorization, consented by shareholders and regulators, the combination phase, as integration planning develops and implementation decisions are made, and finally the post combination phase, as the combined entity and its people reorganize from first implementation and the new organization is established. (ibid) Doing a merger has become a more and more popular strategic alternative for firms’ internationalization in the modern business scene (Appelbaum and Gandell, 2003). Yet, few of these partnerships result with success (Marks, 1997). The international trend of mergers seems to continue and it affects industries in many areas, which makes it an interesting topic to investigate. Something that draws our attention is the fact that companies despite knowing the risks involved and documented high failure rates still want to merge. Navigating a combination on the way to the successful path starts in the pre-merger phase, as planning and preparation are fundamental to success when companies unite (Marks & Mirvis, 2001). According to Habeck et al., (2000), the failure risk is 30 percent in the pre-merger phase, 17 percent in the negotiation and deal phase and 53 percent in the post-merger phase. Most previous studies have covered the post-merger phase and have neglected the importance of the pre-merger phase, which is a motive for us to take up the issue for our research. We would like to devote more attention on how companies select their possible merging partner, as the failure risk in the pre-merger phase is rather high. Taking into consideration what has been mentioned earlier, we believe that it would be interesting to conduct an investigation concerning the factors companies take into consideration before entering a merger.

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1.3 Purpose and Research Questions Based on the problem discussion above, the purpose of this thesis is: To gain a better understanding of the conditions companies should fulfill in the pre-merger phase in order to ensure merger success. In order to reach our purpose we shall address the following research questions: RQ 1: How can the procedures and criteria used by companies for selecting a possible merger partner be described? RQ 2: How can the role of organizational culture in selecting a possible merger partner be described?

1.4 Delimitations Since we have a limited time frame as well as shortage of prior research in the area, we will put the focus on mergers between Swedish multinational corporations in Scandinavia. Also, though the pre-merger phase may involve many issues we limit our research to two of the more significant aspects (and as reflect in our research questions), namely that of what procedures and criteria are used and what role companies’ organizational culture play.

1.5 Outline of the Study The thesis consists of seven chapters and we will provide a brief text explanation of each chapter. Chapter one has presented the background followed by the problem discussion, and the research questions. Chapter two presents the literature and theory connected to the stated research questions and the conceptual framework ends this chapter. Chapter three provides a description of the methodology used. Chapter four presents the empirical data of the thesis in the form of two case studies, which will be analyzed in chapter five. Finally, chapter six will present with findings and conclusions as well as implications for further research.

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CHAPTER 2 LITERATURE REVIEW In this chapter, a selection of previous research related to our research questions is presented. Firstly, studies connected to the procedures and criteria used in selecting a merger will be presented. Secondly and lastly, the role of organizational culture in selecting a merger will be described. The literature on mergers is very vast, and there are various interesting aspects to explore, but our research problem only deals with one of them and therefore we have selected the literature we thought was most appropriate, namely related to pre-merger phase.

2.1 Procedure and Criteria for Selecting Merger Partner According to Appelbaum et al., (2000) once the decision to merge has been made, the pre-merger stage begins, but the public announcement and parts of the legal issues have not yet taken place. The important aspect of this stage is that it is solely preparatory. According to Marks & Mirvis (2001) the pre-combination phase is when the deal is visualized and negotiated by executives and then legally approved by shareholders and regulators. The combination phase is when the integration planning occurs and the implementation decisions are made. The post-combination phase is when its combining entity and its people regroup from initial implementation and the new organization settles in. Further, Marks & Mirvis (2001), state that these phases are not clear-cut phases and integration planning increasingly happened in the pre-combination phases before the deal receives legal approval. According to Appelbaum & Gandell (2003) in this period of pre-merger process, it is equally significant for successful merger is the establishment of a clear reporting relationship, which needs to remain unchanged during this period. According to Mark and Mirvis (2001) the pre-mergers phases begin with steering a combined entity toward the successful path. Combination preparing covers psychological and strategic concerns. The challenges concern key analyses that explain and bring into focus the sources of synergy in a combination (ibid). The psychological challenges cover the actions necessary to understand the mindsets that people bring with them and develop over the course of a combination. This method raises people’s awareness of and capacities to respond to the normal and to-be-expected stresses and strains of living through a combination (ibid). Appelbaum et al., (2000) states that people who are affected by a change of ownership or merger become cynical and detached about the intention of the new owner or management to make the new organization a successful one. There are four different aspects that have to be taking into consideration, according to Marks and Mirvis (2001), by executives, staff specialists and advisors, which involve partner, purpose, parameters and people. This can additional be divided into sub- issues (ibid). According to Donnelly et al., (2005) current research on merger goes beyond the bounds of company performance and showing that failure or success can often be bound up with strategic fit pre-and post- merger inter-firm relations. In the courtship period or the pre-merger the attention of critical aspects must to be devoted to such an evaluation of the trade-off balance between the price paid, respective strengths and weaknesses, the product and operational mix, geographical coverage, the quality of the acquired management team, future investment requirements and potential development. In the case of cross-border merger there are a few things that have to be taken into consideration; technical problems such differences in market conditions, taxation and accounting systems, stakeholder and shareholder expectations, as well as cultural difference. This can be extremely complex; all of these, with

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the human aspects being perhaps the more subtle and difficult to manage. Still, “courtship period” may be to short and mergers fail because of this. Companies fail to get to know each other well enough under this period prior to affecting the merger. (ibid) In a combination the strategic synergies should lead to a set of decisions in the pre-combination decision and where based on turf protection and empirical buildings rather than strategy. If the true motives that underlie a combination have less to do with strategy and more to do with non-rational forces, for example the desire to run the largest company in a industry or the fear of being eaten up by competitors. In these cases it is unlikely for a successful combination, since there are no true benefits to gain by joining forces. However, combinations based on such motives are not infrequent. To apply this companionship, corporate leaders declare the strategic criteria and make sure the acquisition team search for candidates that fit them. (Mark and Mirvis, 2001)

2.1.1 Determinants of success

Partner Successful mergers know what to look for and conduct a thorough search to ensure that the companies get what it wants. Companies’ selection of candidates covers the obvious financial and strategic criteria, and expanded also to include assessment of the human and cultural elements that can undermine an otherwise sound deal. A careful pre-merger screening comes only from speaking directly with a good cross-section of the management team from the potential partner. Face-to-face meetings are valuable to have, since they give a picture of the other companies’ dress code for example. It also requires listening and speaking to people from both the formal business issues as well as the less formal “how does it really work” issues. The team of due diligence should be broadened and just not including financial people, but as well including staff professionals from areas like information technology and human resources, and operating managers who are willing to work with the new partners if the combination is carried out. Operational managers have a particularly important role when it comes to due-diligence team, they can find a number of reasons why a deal that looked good on paper would fail in the early stage. Reverse viewpoints and preferences for how to conduct business are not the only reason to negate a deal, but incongruent values, genuine distrust and outright animosity should be noted as red flags. (Marks & Mirvis, 2001) The author further claims, it is also the time for due diligence to size up the depth and width of managerial talent in the potential partner. A study of large combinations found that 65 percent of successful acquirers reported managerial talent to be the particular most important instrument for creating value in a deal. If a buyer is smart, they would not only evaluate current executives, but also look closely at managers that are not yet in leadership positions. (ibid)

Purpose A company needs to first know what they are looking for in a merger partner and have an open and full review of these criteria, which permits for debate and companionship building between staff and line executives. If conflict and confusion appears concerning these criteria and are not fully addressed up front, it will continue down the road. (ibid) Applying these criteria thoroughly increases the likelihood of selecting a partner that will bring true productive value to the merger, rather that one that will just be an acquisition for the sake of doing a deal. Understanding precisely what synergies are wanted sets that stage for subsequently drawing out opportunities through the combination planning and

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implementation phases. The more unified both sides are with and between themselves about what is being sought, the more focused they can be in realizing their objectives. Two sets of criteria helps here and one is a generic set of criteria that guide a firm’s overall combination program and strategy. These are characteristics of organization that must be present in any combination partner. The second set of criteria guides the assessment and selection of a specific partner. (ibid) The setting of strategy starts by inspecting the competitive market and market status of the own organization, which includes strengths and weaknesses and top management’s objectives. The results define a direction for expansion in growth, profitability, or market penetration in existing businesses and for diversification into new areas or simply for cash investment. To evaluate a candidate most companies have standard metrics, which include its earnings discounted cash flow, and annual return on investment. Companies have beside these objectives about the impact of a combination on profitability, the earning per share of the combined organization’s, and future funding requirements. These financial criteria are respected and adhered to, in successful cases, balanced by careful consideration of each of the synergies sought in a combination and what it will take to realize and most combinations involve expense-reductions. For the executives, if they seek to create value, they have to be able to demonstrate for the employees of both sides that there is more to the deal then just cutting the costs. That involves a hard statement of how synergies will be gathered and what that means for the people involved. (ibid)

Parameters According to Marks and Mirvis (2001), partners in a successful combinations share commonality of purpose, they also recognize and accepting the terms of their relationship. The employees are able to focus their energy on a common goal and not on any wishful thinking that might contract the realities of the combination. Still, in several cases of corporate marriage contracts tend to be implicit, instead of explicit, and are open to interpretation and misunderstanding. Awareness defining the end state of a deal can finish the rumors of the pre-merger, since failing to do so can lead to an even more distasteful divorce. Further, the authors state that the initial step is the responsibility of senior executives involved in doing the deal, while the work of achieving the desired end state will involve a lot of people. Away from checking misperceptions, a well as articulated the desire end state guides combination planning and implementation. (ibid)

Prepare people psychologically According to Marks & Mirvis (2001) seller and buyer in an acquisition have very different psychological perspectives on the deal. Psychological factors can influence the relationships in cases where the role of leads and targets are not so well delineated. Members of one side might be seen by themselves or by the other side as technically sophisticated, worldlier, financially strong or savvy in the market place. Still, the assumption for the merger, that the partner will gain access to or pressure each other’s technology, customers, patents, or some other competence that they do not already possess, calls for a true meeting of the minds. Furthermore, the authors state that mindsets of psychology influence previous deals. It could dominate the critical months of transition planning and implementing and they often carry over this into the combined organization. If companies are aware of these mindsets, both one’s partners and one’s own, it helps both sides to prepare for a successful combination. Mark & Mirvis (2001) further explain, to nurse the dialogue about their respective mindsets

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can include sensitization seminars, this to have a psychological preparation. Individuals express their hopes and concerns of going forward, they hear about combination mindsets and by coping with their mindsets they learn tactics and that of their correlate. By readings, presentations or discussion of the human realities of a combination people can also be educated. (ibid)

Epstein’s six determinants of merger success According to Epstein (2004) to achieve merger success, it requires accomplishment in six factors and if companies are failing in anyone of the six factors they can impede the achievement of the goals of merger. Some of the six factors can be controlled simply through careful implementation and design, while other is more challenging because of numerous external forces. These six determinants are strategic vision and fit, deal structure, due diligence, pre-merger planning, post merger integration, and external factors. (ibid) Pre merger planning According to Epstein, (2004) the preparation during the period leading up to the merger announcement, is vital for success because it is critical to present the merger to key constituencies with confidence. Under this period the integration process if formulated and key decisions are made in the areas of structure, leadership and timeline for the process. It is significant to create clarity in roles and responsibilities for those involved in the integration process versus those in the operating businesses. Companies have to coordinate the communication efforts, widespread it and have it quickly developed, and both speed in planning and decisions and over communication to all stakeholders it is critical. It is essential to select a new leadership and guidelines for the lower levels of personnel decisions must be established. In merger of equals it can be particularly difficult to select a new CEO and board it can create hostilities and become extremely time- consuming. One solution can be to share the responsibilities, but power-sharing creates its own challenges and includes a lack of clarity at the top of the organization. The source of final authority, direction, and responsibility must be clear. Before the announcement the new company’s structure also the structure of the integration management team must be planned. In merger of equals creating a whole new organization is preferable to being constrained by either of the structures that was previous. Dates from earlier should as well be set for making key decisions and establish metrics and targets. If the planning process of pre-merger is not completed effectively, merger integration and success are typically unachievable. (ibid)

2.1.2 Choosing merger partner

Recommendations how to choose merger partner According to Palmer, Parry and Webber (2005) a key issue for small companies is how much actual choice they have. Large acquiring companies may use caution instead of where the smaller companies are in financial difficulties. If companies have weak finances it might have difficulties in finding a merger partner and to attract others can be more complicated since they are considered as “uninteresting” to potential suitors. Not only those parties who want to expand their territory but also to chase wider objectives, such as to start internal reforms or to highlight the major companies ideological position. This competitive market for transfers’ lead to a consideration of the criteria that small companies might apply to select an appropriate partner. One possibility is that companies engage in calculative approach and this by requesting bids from competing companies. This would enable small companies to address merger barriers, example concerns over the coming effectiveness. (ibid)

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The authors claim that when choosing merger partner, it is not simply based on a calculative rationale and that relationship with potential partner can be important. The relationship involving a merger can be with a company from the same or a different industry, consequently gaining from shared expertise and reinforced dedicated power. Smaller companies might instead pursue relationships on deeper political grounds and mergers with larger companies that have like-minded ideologies. Neither political nor occupational relationships, however, can be regarded as qualification for successful mergers. According to the authors, not all mergers act like this when choosing a partner. In addition, employees’ closeness can act repulsive rather than to stimulate to merger and in some situations mergers are hindered by a tradition of hostility between the two potential partners. In the selecting processes of an appropriate partner and negotiation of acceptable transfers terms, give small companies potential opportunities to address to the concerns relating motivations and barriers to merge. (ibid) According to Nguyen and Kleiner (2003) to be successful in merger, it all correlates directly on how well the level and quality of planning are. Companies often spend a little time analyzing and anticipating current /future market trends, but also on integration issues. It is ordinary for companies to refrain an objective analysis of their strengths, weaknesses, opportunities and threats, thus risking the success of the deals from the start. Too often the resources are insufficient and allocated to establishing strategic objectives. Numerous of deals also suffer or fail significant setbacks as a result of the poor due diligence preformed on the target company. (ibid) For companies it seems to be necessary to have an implementation strategy that is clear, before the merger procedure. A well planned merger is based on corporate needs, the definition of strategic and financial objectives. This often leads to a more effective post-merger implementation. The formalization of the internal process of acquiring company may be the key, a variable that can be used as a proxy measuring the extent to which the acquiring a company is internally well organized. If all this is the case, a successful implementation of a merger can be expected. (Papadakis, 2005)

The Case of Renault- Nissan Merger In Renault, sales were highly concentrated with 84.5 percent being in Western Europe alone. Being so concentrated on its domestic European market meant that compared with other major producers, especially its European rival, Volkswagen, Renault was very narrow-minded in capacity and possibly weak as the industry was globalizing quickly. (Donnely et al., 2005) In Nissan, the problems were internal; a conservative firm trapped in traditional Japanese business culture, in which there was little emphasis on profit, together with poor internal communications. In short, Nissan experienced a lack of urgency and had no shared vision of its strategic future. (ibid) Despite the poor shape of Nissan, Renault still wanted to ally itself with Nissan. First of all, as the industry was increasing, Renault needed to expand beyond the boundaries of its Northern European base in order to secure the long-term survival of the business. Secondly, in order to create credibility in a global context, Renault needed to be present in North American and Asia Pacific markets. Thirdly, such expansion would mean a prohibitively expense and could not therefore be an option without a partner. An American partner was out of the question as Ford, General Motors and Daimler-Chrysler were still trying to manage their own recent unions with other European companies. Attention was then drawn to Japan where Nissan

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alone seemed to be on the market. Subaru and Isuzu were under the influence of General Motors and Mazda was under Ford’s sponsorship. (ibid) Merger underlying principle often involves the potentialities of developing future market share and access to a range of technologies, which was obvious in the case of Renault-Nissan. Firstly, Nissan had benefit from a strong market presence in the United States and Asia, whereas Renault was present in Europe and the Mercosur markets. Secondly, their united strengths in technology would without a doubt be of shared benefit. Renault provided significant expertise in research and development, concept design and in marketing, whereas Nissan’s main strengths were its engineering technology. The pre-merger phase took eight months. (ibid)

2.1.3 Pre-deal planning According to Lynch & Lynd (2002), mergers and acquisitions are synonymous. Success depends on two key issues. First, companies or their consultants have to do a far better job in selecting acquisition candidates. Avoiding “falling in love” with a targeted company is one of the recommendations the authors would make. Second, once selected a target, business leaders must form their post-acquisition main concerns and behavior more carefully. (ibid) In the pre-deal planning period, mistakes often occur in three areas:

• Inadequate due diligence on the part of the buyer and/or seller: Too few deals make a complete risk assessment and management profiles, much less sufficiently measure these risks. (ibid)

• Lack of a compelling strategy: Unfortunately, more than one merger has been

motivated by the call for increasing shareholder value more than by sound strategic thinking. Attached to this are some very human issues: Pressures in the environment move executives not to be last in line to make an acquisition. Simple drive, imitative behavior, executive ego or organization stagnation are also among the other understandable, but questionable motives that drive M&A activity. (ibid)

• Overly optimistic expectations of synergies: Mergers are often motivated by the desire

to acquire one particular business of the target; the short of synergies and negative impact of integrating other parts of the business may be unseen as a result. (ibid)

GE Capital’s merchant banking business in NYC Robert Stefanowski, who is Certified Public Accountant (CPA) and managing director at GE Capital merchant banking business, provides suggestions for merging companies how to achieve long-term success in an article form the Journal of Accountancy. Tips to make a merger work:

• Involve top management early in the due diligence process: Whether the target’s company will fit well with existing operations, senior executives must play an essential part in the decision-making. When it comes to acquisitions within the same industry, senior management has the ability to use its experience and objectivity to

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estimate the strength and ability of the target’s management to perform after the merger. (ibid)

• Make sure due diligence is thorough: Prior to proposition, the due diligence team

should have access to all the target’s relevant accounting records and organize meetings with key management staff. If the target is located at many international sites, the team ought to visit all key operating places and get together with local management. The team should obtain board-meeting minutes, calculations of accrued liabilities, fixed asset analysis, inventory and receivable aging and independent audit work papers. It is of highly importance that the acquirer has an in-depth understanding of the target’s operations and risks involved before determining whether its bid for the company is fairly accurate. (ibid)

• Critically evaluate information from due diligence process: Management has to assess

the due diligence findings and review the earnings projections the seller’s investment bankers set as they have a tendency to make too positive forecasts to steer up the target’s price. The buyer has to think finishing the deal makes sense against all probabilities. (ibid)

• Be aware of “troubled companies”: Sometimes, companies are not always what they

appear. Acquirers regularly will get around unidentified risks by placing a portion of the purchase price into escrow for a period after the acquisition. If the organizations solve these problems after closing, the seller can draw on the escrow for the unpaid balance of the purchase price. On the other hand, if the risks result in damages, such as an unfavorable settlement of a pending lawsuit, the buyer keeps the escrowed funds to cover any losses. (ibid)

• Involve the integration team early: It is a requirement of the acquirer to have a sound

business integration plan in plan before closing. By having members of the integration team from the legal, finance and risk areas, they each can use their perspectives to help recognize and address potential problem areas. (ibid)

• Negotiate tight purchase agreements: Lacking extensive due diligence, buyers have

only the seller’s images to protect themselves from hidden liabilities at closing. Purchasers need appropriate representations and insurance from the seller with respect to environmental, tax, employment and other legal responsibilities that may be present but unidentified- the contract ought to state that all liabilities at closing should stay with the seller. (ibid)

• Include material-adverse-change clauses: The negotiation of M&A contracts can take

months and a material-adverse-change (MAC) clause gives the buyers a shelter between signing and closing the agreement. Should a material adverse change occur, then the purchaser has the right to lower the offer or sometimes cut off the deal. Even though MAC clauses are standard in the M&A world, sellers usually want one defined as narrowly as possible; buyers want a broader view so they can modify the price if the results of the original business change significantly before closing- caused by a natural disaster, for example. (ibid)

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Ameritech’s internal audit services (IAS) Ameritech is a company that was acquired by SBC Communications Inc. in 1999, and the article is written by John Burke, former senior internal auditor at Ameritech and is associate director-finance for SBC Datacommunications Inc. The reason for presenting it here is to provide a better view of the importance of making a due diligence. Three factors are at the core of every analysis: customer needs, strategic fit, and shareholder value. The research and follow-through set that internal audit departments can play a major part both before and after a merger. By doing due diligence, IAS took advantage of their internal auditors’ in-depth knowledge of company operations and strategy. They used the due diligence model to study controls in the next processes: (Burke, 2000)

1. Cash receipt, application, and management 2. Processing of accounts receivable 3. Processing of accounts payable 4. Processing of employee expense reimbursements 5. Inventory ordering, controls, and management 6. Customer billing systems 7. Employee payroll 8. Vendor and customer contract review and approval 9. Revenue recognition policies For each process, they:

• Documented and process-mapped the newly acquired company’s methods and procedures.

• Assessed the effectiveness of controls in place. • Compared the processes and practices with Ameritech’s and benchmarked key

factors such as reserve balance, inventory turns, and other items. • Provided recommendations on improving operations and taking advantage of

synergies. With the use of the due diligence model, IAS evaluated risk by investigating the key components of the targeted company’s business. The critical processes were examined to decide integration issues and those areas of immediate concern. (Burke, 2000)

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2.2 Role of Organizational Culture Culture can be defined in many different ways, according to Nahavandi & Malekzadeh, (1998) culture is the beliefs and assumption shared by members of an organization. The authors further state that the term culture is often used as if companies just have one culture, instead most companies have more than one set of beliefs that influence the employees’ behavior within their organization. It can be different subcultures within an organization and it can be divided into functional, occupational, product or geographical lines. Hence, to understand the culture of any firm involves decoding and identifying the different subcultures. This is to intake insight how the subculture interplay to influence organizational decisions making and behavior (ibid). Culture can be a make or brake factor when companies’ merger and culture is to an organization what personality is to an individual. Poor culture can be a contribute factor for merger and acquisition to fail (Schraeder & Self, 2003). Organizational culture is soft, holistic, hard to change, has a historical basis and is socially constructed. It can be necessary to change the environment within an organization if the culture should be changed (Schraeder & Self, 2003). Organizational culture can be an influence on how people set personal and professional goals, carry out tasks and control assets to accomplish them. The culture of an organization have an effect on the way in which people consciously and subconsciously think, make choices and finally the way in which they recognize, feel and act (Look & Crawford, 2004). The pre-merger stage can be described as only introductory. Cultural audits and creation as well as plans of action all include the pre-stage. These steps help in ensuring the smooth completion of the remaining process, as well as the success of the M&A. (Appelbaum & Gandell, 2003) According to Cartwright & Cooper (1996), the decision whether to merge or not is perhaps one of the most significant and expensive decisions an organization ever makes. The most effective way of avoiding the culture conflict is by not going into an inappropriate and potentially catastrophic organizational marriage in the first place. It seems like there is a need for an almost formal pre-nuptial agreement or establishment paper between joining companies which lay out the foundation and terms of the agreement and the expectations each company has of the other. The authors have outlined ways in which selection decisions, planning and management can be improved: Preplanning

• Know you own culture fully. (ibid) • Research the target company. (ibid) • Consult the personnel functions. (ibid) • Arrive with an agenda of people issues and areas for discussion, which will test out

your implicit or pre-formed theories about its culture. (ibid) Aims

• To make an initial assessment of the culture of the potential merger partner. (ibid) • To outline the terms of the proposed marriage contract. (ibid) • To establish the likelihood of its acceptance and so ascertain a realistic time-scale for

integration. (ibid)

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2.2.1 Integrated mechanisms of organizational culture A number of studies have identified key factors for success in M&A’s. There is a connection between M&A planning, management practices, and coherence of organizational culture and performance. Four integrated mechanisms of organizational culture can be an influence on its performance: organizational direction and shared purpose, early employee involvement, the impact of a strong culture on firm performance, and integration of an extensively held system of norms and expectations. Different cultures may hinder integration around new norms, work practices, individual and organizational identity. A strong organizational culture can be a means to create competitive advantage, increase motivation, and organizational effectiveness if expressed integration processes are settled and put into practice. (Horwitz et al., 2002) Success of an M&A depends on the ability of decision-makers to spot a potential merger partner or acquisition target with a good strategic and cultural match. Since financial and strategic considerations may be more important than selection criteria based on cultural similarities, mixtures between organizations of diverse culture type take place. It is appropriate to ask whether a particular combination of cultures has more chance of success than another combination. For instance, the combination of a “role culture” with a “task culture” has more possibility to succeed than a “power culture” with a “person/support culture”. A suggestion of a typology of merger integration refers to traditional, open and collaborative marriages, which depend on the reason for the merger and power relations in an M&A. Since the objectives of “traditional marriages” and “collaborative marriages” are different, acquirers require different characteristics in their partners. Success for a traditional marriage is dependent on the ability of an acquirer to modify the culture of the acquired, while integration in a collaborative marriage depends on readiness to compromise. The degree of difference between two culture types can decide the degree of adjustment needed to reach a new “best of both worlds” culture. (ibid)

2.2.2 Organizational culture change If the individual sees the culture of the other company is likely to intrude on his/her own, the more extensive and critical the evaluation. The concern of cultural fit is hardly ever given any serious consideration in the decision-making stage. At best, cultural compatibility is regarded as likely to improve the success of that marriage, but lack of it is an insufficient cause to take out the original proposal. The culture fit model proposes that if the acquiring organization or dominant merger partner aims to change the culture of the acquired organization then cultural similarity is not essentially a precondition. The change of culture is a long and complicated process, probably three to five years or even longer. However, certain types of culture are more open to change than others, in that cultures which require a high degree of individual constraint, such as power or role cultures, are less resistant to change than those which promote autonomy, such as task or person/support cultures. If the method of acculturation is cultural integration to make a new “best of both worlds” culture, then the more similar cultures, the smoother and easier the transition, given that the marriage is not between two power cultures. Organizational cultures can generally be seen as four main types: power, role, task/achievement and person/support; which then have been extended and elaborated. If two organizations come together and their cultures are mismatched to the point that many employees no longer fit into the environment and its dominant culture, or find the culture indefinite, split or conflictual, the resulting effects are likely to have a substantial and large-scale impact. The effects of uniting different cultural types, as it has an influence on managerial style, employee perceptions and behaviors both before and during the integration

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period, and the degree to which a single sound culture emerges, will probably generate important consequences for both individual and organizational merger outcomes. Especially, the role of organizational culture has more and more appeared as a prominent factor in influencing the integration process and thereby merger outcomes. (Cartwright & Cooper, 1995) According to Appelbaum et al., (2000), it is important that CEOs and human resource departments work together to plan the actions that need to be taken into consideration that culture can be a factor that could help or destroy the company, if the company were to merge. If this is overlooked and if the differences are too big, it can almost alone damage the deal. To change the corporate culture involves that employees must see concrete reasons that changes work and are valuable; otherwise, it could end in that they devote themselves to the new culture. The decision of which model of organizational culture that will be implied is the most important step at the pre-merger phase and it includes (Appelbaum et al., 2000):

• Using one or the other culture. (ibid) • Forming a culture that integrates the strongest characteristics of each culture. (ibid) • Building an entirely new culture that is not based on how each culture was before.

(ibid)

2.2.3 Conducting due diligence Mark (1999) claims the cultural objective of due diligence is not to reduce cultural conflict in a combination since that would not be possible. The purpose of cultural due diligence is neither to find a perfect fit between organizations that is to be integrate. In reality a moderate degree of cultural distinctiveness is beneficial to productive combinations. The best combination take place when a fair amount of cultural clash prompts constructive argues about what is best for the combined organizations. The due diligence of cultures primary benefit is to prepare executives for demands of combining together with previously separate organizations. Furthermore, the author explains that due diligence cultural raises awareness of and sensitivity to the issues with cultural in merger. It makes the selection process more sophisticated and complements the financial and strategic criteria. Cultural due diligence helps anticipate the demands, to assist and integrate in order to determine the cultural “end state” of consolidation. (Mark, 1999) According to Mark (1999), approaching to conducting cultural due diligence go under four general categories:

• To integrate cultural criteria in the initial merger discussion.(ibid) • To organize and prepare due diligence teams with a gaze at cultural criteria.(ibid) • To add cultural criteria to due diligence data gathering. (ibid) • To use proper tools to review cultural fit. (ibid)

The level of “acculturation” is an important aspect of the merger that both firms go through during this period. Nahavandi and Malekzadeh (1988) integrate the model which spots four forms through which “acculturation” occurs to identify the optimized model of organizational culture in the pre-merger phase. According to (Appelbaum et al., 2000) these forms are dependent on the type, size, and cultural characteristics of both the buyer and the target and they are:

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• Integration: people in the acquired firm want to keep their independence and preserve their culture and identity: This as a rule leads to structural absorption of two cultures, but little cultural and behavioral assimilation. (ibid)

• Assimilation: is always a one-sided process where one group freely takes on the

identity and culture of the other. In general, the acquired firm will be engrossed into the acquirer, and will not have a cultural identity. (ibid)

• Separation: includes efforts to preserve one’s culture and practices by staying separate

and independent from the dominant group. Not much cultural exchanges will take place between the two groups, and each will function independently. (ibid)

• Deculturation: the acquired firm looses both cultural and psychological contact with

both itself and the other group, and it involves remaining an outcast of both. (ibid) The more diverse cultures, the greater probability there is for a large cultural shock, foremost if the M&A was not voluntarily chosen (Horwitz et al., 2002). According to Cartwright & Cooper (1995), when two organizations merge, the resulting contact or acculturation always creates some form of culture shock. The effects may be mildly distasteful, shocking and novel or extremely disturbing of for organizational members, depending on how individuals appraise the attractiveness of the other culture in comparison and degree to which they value their own culture. Different cultural types may make the individuals constrained as individuals judge the culture of the other partner by the value they connect to conserving their existing culture, or the extent they identify the culture of “the other” as attractive (Horwitz et al., 2002). Potential results for the organization consist of member assimilation, integration, separation, and deculturalization. Successful marriages are a result of the cultural dynamics and power relations in the combinations. The culture types of both organizations before integration make a crucial part in deciding whether an acquired culture will change or integrate. Cultural likeness is not a prerequisite for pleasing assimilation. Most mergers are traditional marriages and they are likely to be successful if the proposed direction of culture change is seen as giving an increased employee participation and autonomy. Significant integration through a collaborative marriage is more likely to take place where there is potential to create a “best of both worlds”. There are four broad approaches an acquiring firm may take, each with differing effects: aggression/hostility, conciliation, corrosion and indoctrination. Conciliation and collaboration are more likely to be associated with establishing cultural fit prior to an M&A than other approaches. (Horwitz et al., 2002) Merger and acquisition strategies try to find competitive advantages which organic growth cannot achieve. Power relationships among parties affect the way in which HR and cultural integration occur. In an acquisition there are winners and losers. There is more obvious employee resistance to change in hostile acquisitions than in voluntarily M&A’s. Here the HR policies and practices of the dominant party may be forced. Feelings of defeat may have an effect on merger results in setting the direction of future cultural change and HR integration. (ibid) Ashkenas et al’s., acquisition model has four stages, first a pre-acquisition stage with due diligence, negotiation and closing the deal. Second, an establishment building stage with a launch, and merger integration and strategy formulation. Third, fast integration by realizing

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and integration plan, and progress judgement. Fourth, a valuation and modification of the long-term plan to be as successful as possible. (ibid) Failed mergers often reflect careless “soft” due diligence, meaning that the due diligence was not thoroughly enough. Key critical success factors for such a cultural inspection include understanding management strengths and weaknesses, needs/opportunities for organization restructuring and redesign, review of existing HR practices and systems. Outstanding differences in corporate culture need to be dealt with. (ibid) The CEO of the acquiring company should have a plan to deal with cultural conflicts as the employees and executives of the two incorporated companies begin working together in two different environments in order to reach the common goals of the new unit. Language problems and a variety of cultural dimensions identified by Hofstede: individualism versus collectivism; large versus small power distance; strong versus weak uncertainty avoidance; masculinity versus femininity; and short-term versus long-term orientations. (Agami, 2001) The culture of ICL and Nokia-Data In ICL-Nokia-Data, culture can be defined as “the way we do things around here”. It is the mix of many parts and can be described at a point in time. The values and beliefs are the most significant of these and are propagated by the most senior people in the organization; to this they can add history, processes and procedures, mission and objectives, educational programs and so on. (Mayo and Hadaway, 1994) Three years before was when the merger of Ericsson Data Systems and Nokia Data took place and changed the cultural mix- with consensus-loving, participative style of the Swedes in disagreement with the direct often insensitive Finnish approach. The former was definitely the larger organization, and most countries outside of Finland were mainly or totally Ericsson. The cultural shift was dominated by the controlling Finnish style, even though the Swedes felt a strong dislike. Yet the better managers typically said: “in Ericsson, you had to push decisions upstairs all the time; in Nokia you sink or swim on your own judgement”. Therefore, one key manager in the PC Division advised not to make the same mistake with Ericsson and invest at once in inter-cultural understanding. (ibid) 2.3 Conceptual Framework The aim of this section is to develop a conceptual framework, based on the literature review covered in the previous sections, and will show how different theories relate to each research question. The conceptual framework will aid us in data collection and later in data analysis.. According to Miles & Huberman (1994) a conceptual framework describes, either graphically or in a narrative structure, the most important things to be studied, namely the key factors, constructs and key variables. Moreover, the authors say that it is easier to create a conceptual framework if the research questions already have been stated, which has been done for this study (ibid). In order to be able to answer our two research questions, an explanation will be provided in order to explain what we will collect our data on. Among the theories presented, we will choose the concepts that are most relevant for our study. Our conceptualization will be presented in accordance with the order and content of our research question stated below:

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RQ1: How can the procedures and criteria used by companies for selecting a possible merger partner be described? RQ2: How can the role of organizational culture in selecting a possible merger partner be described?

Procedure and Criteria for Selecting Merger Partner To answer research question number one, we have done a selection of literature concerning the different criteria and procedures that are used in selecting a possible merger partner. Determinants of success According to Marks and Mirvis (2001), in order to succeed in the pre-merger phase, four different aspects have to be taken into consideration by executives, staff specialists and advisors. The four aspects are:

• Partner • Purpose • Parameters • People

Lynch and Lind’s, (2002) “two key issues of success” will be utilized to find out if the selecting procedures for possible merger partner, if companies take this into consideration, if not what do companies take into consideration. Success depends on two key issues and is stated below:

• Companies or their consultants have to do a far better job in selecting merger candidates. Avoiding “falling in love” with a targeted company is one of the recommendations we would make.

• Once selected a target, business leaders must form their post-merger main concerns

and behavior more carefully. Robert Stefanowski, CPA (Certified Public Accountant), and managing director have some tips on how to make a merger work. We found this interesting and want to look further on this, in order to see if companies are taking these tips into consideration or if companies have other tips on how to be handling a merger in the best way. The seven tips of how to make a merger work are presented below.

• Involve top management early in the due diligence process. • Make sure due diligence is thorough. • Critically evaluate information from due diligence process. • Be aware of “troubled companies”. • Involve the integration team early. • Negotiate tight purchase agreements. • Include material-adverse-change clauses.

Choosing a merger partner

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Further Marks & Mirvis, (2001) state that a careful pre-merger screening comes only from speaking directly with a good cross-section of the management team from the potential partner, which we will also want to look at, i.e., how companies approach potential partners. According to Palmer, Parry & Webber (2005) give some recommendations on how to choose a merger partner.

• If companies have weak finances they might have difficulties in finding a merger partner and to attract others can be more difficult since they are considered as “uninteresting” to potential partners.

• When choosing merger partner, it is not simply based on a calculative rationale, but

that relationship with potential partner can be important.

• Merger can be with a company from the same or a different industry, thus benefiting from shared expertise and strengthened committed power.

By using the theories mentioned above we want to examine if these criteria occur in reality, if this is what companies are taking into consideration when choosing a merger partner, or at least how they react toward these criteria. Pre-deal planning To examine the pre-deal planning period, we have chosen Lynch & Lind’s (2002) theory, to see what mistakes that often occur in the pre-planning phase and how companies are handling this planning period. Whether companies choose to handle the preplanning process or not, will also be investigated through the data that connects with determinants of success. The three mistakes that often occur in the pre-deal planning period are:

• Inadequate due diligence on the part of the buyer and/or seller. (ibid) • Lack of a compelling strategy. (ibid) • Overly optimistic expectations of synergies. (ibid)

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Role of Organizational Culture in Partner Selection To answer the second research question, relevant literature regarding the role of organizational culture in selecting possible merger is chosen. Integrated mechanisms of organizational culture Horwitz et al., (2002) have identified key factors for success in M&A. Four integrated mechanisms of organizational culture can be an influence on M&A’s performance, and will be used in order to observe to which extent the culture factor plays a role in a merger. Different cultures may hinder integration around new norms, work practices, individual and organizational identity. The four mechanisms are presented below.

• Organizational direction and shared purpose. (ibid) • Early employee involvement. (ibid) • Impact of a strong culture on firm performance. (ibid) • Integration of an extensively held system of norms and expectations. (ibid)

Organizational culture Cartwright & Cooper’s (1995) theory on “the role of organizational culture” will also be utilized. In order to more specifically investigate the different organizational cultures and how it plays a role in merger. The authors state the following aspects of cultures, that has more and more appeared as a prominent factor in influencing the integration process and thereby merger outcomes.

• Power • Role • Task/achievement • Person/support

Moreover, Appelbaum et al’s., (2000) theory about the “importance of culture in organizations” will also be used since organizations must be aware of the cultural impact of a merger and that merger can destroy a deal or help one. The decision of which model of organizational culture will take on is the most important step at the pre-merger phase and it includes:

• Using one or the other culture (of the merger companies culture). (ibid) • Forming a culture that integrates the strongest characteristics of each culture. (ibid) • Building an entirely new culture that is not based on how each culture was before.

(ibid) Conducting due diligence Similarly, we want to examine if the theory by Mark (1999), about the issues of conducting cultural due diligence is used by companies when choosing a possible merger partner. The four categories are:

• Integrating cultural criteria in the earliest merger discussions. (ibid) • Staffing and preparing due diligence teams with an eye toward cultural criteria. (ibid) • Adding cultural criteria to due diligence data collection. (ibid) • Using formal tools to assess cultural fit. (ibid)

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These different theories combined together, we believe it will assist us in collecting the data which eventually help us in providing an answer to our research questions: how can the procedures and criteria used by companies for selecting a possible merger partner be described and how can the role of organizational culture in selecting a possible merger be described. Based on the above, we can present the frame of reference in a pictorial form as shown in figure 3.1.

Figure 3.1 Conceptual frame of reference for this study. Source: Authors’ Construction.

Role of Organizational Culture in Partner Selection

• Integrated mechanisms of

organizational culture - Horwitz et al., (2002)

• Organizational culture change - Cartwright and Cooper, (1995) - Appelbaum et al., (2000)

• Conducting cultural due diligence

- Mark (1999)

Criteria and Procedure for Selecting Merger Partner • Determinants of success

- Marks and Mirvis (2001)

- Lynch and Lind (2002)

- Robert Stefanowski, GE Capital (2002)

• Choosing a merger partner

- Marks and Mirvis, (2001) - Palmer, Parry and Webber (2005)

• Pre-deal planning period - Lynch and Lind, (2002)

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CHAPTER 3 METHODOLOGY In this chapter the research methods that are used, to answer the research questions are presented. The chapter starts with the purpose of the research, followed by the research approach and strategy, then the data collection methods and sample selection. Further, the methodology problems which develop during the study will be reviewed and discussed.

3.1 Research Purpose According to Eriksson & Wiedersheim-Paul (2001), the purpose with a research is to state what is to be accomplished by conducting research and how the results of it can be used. Furthermore, Yin (2003) claims that research can be categorized as exploratory, descriptive or explanatory. Saunders, Lewis & Thornhill (2000) say that it is also possible to have more than one purpose. Saunders, Lewis & Thornhill (2000) state that exploratory studies are important means of finding out what is happening, to look for new insights, to ask questions and to evaluate phenomena in a new light. Further, the authors say that the exploratory research approach is especially useful if you expect to clarify the understanding of a problem. The exploratory research can be conducted in three ways; a search of the literature, interviewing to experts in the subject and finally, performing focus group interviews (ibid). According to Saunders, Lewis & Thornhill (2000) the aim of descriptive research is to correctly depict a profile or person, situations, or events. Descriptive research comprises the choice of perspective, aspects, levels, terms, and concepts (Eriksson & Wiedersheim-Paul, 2001). The authors also say that it is essential to observe, register, systematize, classify, and interpret. In addition, a high-quality description is often a necessary base when the researcher wants to explain, understand, predict, and/or decide (ibid). Explanatory studies are according to Saunders, Lewis & Thornhill (2000) termed as studies that establish casual relationships among variables. Further, Eriksson & Wiedersheim-Paul (2001) say that to explain signifies to analyze cause-effects relationships and that an explanation of what causes produces what effects. According to Reynolds (1971), explanatory research is focused on developing explicit theory that can be used to explain the empirical generalizations that evolved from the descriptive research, which gives a cycle of theory construction, theory testing and theory reformulation. The emphasis is on studying a situation or a problem with the aim of explaining the connection between different variables (Saunders, Lewis & Thornhill, 2000). Our study based on the research questions and purpose stated earlier is primarily descriptive as it aims to shed additional light on issues already investigated by other researchers.

3.2 Research Approach There are two categories that studies can be divided in, qualitative and quantitative research. Quantitative research involves numerical data or limited data that usefully can be quantified and can vary from simple counts, such as the frequency of occurrences, to more complex data such as test scores or prices. (Saunders, Lewis & Thornhill, 2000) Qualitative research is described as the opportunity to investigate a subject as real as possible (ibid). It is the conclusions of a qualitative research that are based on non-quantifiable data, such as attitudes, values, and perceptions (Lundahl & Skärvad, 1992). According to Saunders, Lewis & Thornhill (2000), the nature of qualitative data has implications for both its

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collection and its analysis. To be capable of capturing the fullness and richness related with qualitative data it cannot be collected in a standardized way, like quantitative data (ibid). Instead the purpose with qualitative research is to provide a better understanding of the studied area (Holme & Solvang, 1991). On the other hand, for a qualitative research, information is gathered to gain a deep and thorough understanding, and to make descriptions of situations as a whole, in which the research problem exists. It is involves gathering, analyzing and interpreting data that is impossible to quantify, and is based on meanings expressed through words. (Holme & Solvang, 1997 and Saunders et al., 2003) According to Holme and Solvang (1997), a qualitative approach is characterized by closeness to the respondent or source and intends to capture its value, attitudes and perceptions concerning the investigated area. Consequently, the researcher aspires to achieve a complete understanding and overview of the problem rather than just concentrating on certain specific variables. (ibid) Based on our purpose and research questions, as well as the discussion above, we have chosen a qualitative approach as it was the most suitable approach for this thesis. This approach was needed since we wanted to gain a deeper understanding of the issues involving our purpose, the conditions companies should fulfill in the pre-merger phase in order to ensure success. This indicates that we do not intend to make any generalizations, but instead by studying a relatively small sample we will be able to do a deeper investigation of several variables close to the source of the study and by that better reach the understanding we desire.

3.3 Research Strategy According to Yin (2003) there are three conditions that decide which research strategy to choose, namely, the type of research questions created, the control a researcher has over actual behavioral events and the focus on modern in contrast to historical phenomenon. Further, the author says that in the field of social sciences there are five key strategies; experiment, survey, archival analysis, history and case study. Yin (2003) claims that the main condition for distinguishing between the various research strategies is to identify the type of research question being asked. The most frequent types of questions are formulated as “who”, “what”, “how” and “why”. According to the author, generally, “what”-questions can either be exploratory, where all strategies can be used or about occurrence, in which surveys or the analysis of archival records are preferential. When it comes to “how” and “why”-questions, they are probably more appropriate in case studies, experiments or histories (ibid). In our study, the research questions are based on “how”-questions, which we will have no control over the actual behavioral events and our focus on the study will be on a modern event. We can either conduct a survey or a case study (or studies). As stated earlier in our thesis we will have a qualitative approach, so a survey is not suitable, as surveys are quantitative in nature. For that reason, our selection of research strategy is to work with case studies. Besides, the qualitative approach calls for a more fully understanding of our purpose, which can be best achieved by implementing this strategy. According to Denscombe (2000), the characteristic for a case study is that it comprises a large amount of details, which a survey usually not is capable of. Yin (1994) claims that, a case study can involve either a single case or multiple- case study. The single-case study investigates only one case carefully whereas a multiple- case study

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investigates tow or more cases. Additionally, studying multiple cases is often more convincing, and therefore the overall study is considered to be more solid. (ibid) In order to reach a sufficient basis for analysis we have chosen to conduct two case studies within two different organizations. Each case study involves one respondent, which will make the empirical basis more convincing. We found that two cases would be suitable with respect to our limited timeframe and limitation of the study in connection to our level or research.

3.4 Data Collection The data collection can either be primary (collected for the first time) and/or secondary (information that already exists) data. Secondary data is often more suitable to use in the beginning of the study. (Eriksson & Wiedersheim-Paul, 2001) Facts for case studies can be collected in six different ways; documents, archival records, interviews, direct observation, participant-observation, physical artifacts. There is no source, which on its own has total advantage over the others. (Yin, 2003) According to Yin (2003), a good case study relies on using as many sources as possible. A major advantage of case study data collection is the possibility to utilize many different sources of evidence (ibid). Using different data collection methods within one study is called triangulation and the motive for using triangulation is to make sure that the data is telling you what to think it is telling you (Saunders, Lewis & Thornhill, 2000). Yin (1994) claims that there are three different types of interviews: open-ended, focus and structured. In the open-ended interview, respondents are asked for facts, as well as for their opinion of the facts, and the interview is not structured in any special order. In a focus interview the respondent is interviewed for a short period of time and the interview may still remain open-ended and assume a conversational manner, but the investigator is more likely to follow a pre-determined structure developed from the case study protocol. At last, a structured interview involves strictly pre-determined questions and can by that be characterized more as a combination of a survey and an interview. (ibid) In this thesis the main data used were the sources of evidence from interviews and documentation. Our main primary data collection method was the interview because of the possibility to focus directly on the topic of this case study. The data collected was gathered through two separate interviews with representatives from Cloetta Fazer and CashGuard Group. We are aware of the advantage of personal interviews over interviews conducted by telephone, however, because of the limited time frame and the large geographic distances; we have chosen telephone-interviews as how to collect our data. Before conducting the interviews the respondents were sent an e-mail with a brief introduction regarding the subject of our thesis, approximately one week before the interview, so the respondents had an opportunity to prepare themselves. Both interviews were performed in Swedish because this was the mother tongue of both respondents and both the researchers. The length of the interviews varied from 25-30 minutes. After the interviews we contacted both companies through e-mail, as there were some question marks regarding some issues. To receive a more correct analysis of the two interviews, we followed Yin´s (2003) recommendation and used a tape recorder, however, throughout the interview notes by hand

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were also taken. Directly after each interview, we tried to rewrite the notes, since it tends to be easier to remember more after a long time has passed. When gathering our secondary data through documentation, the most important thing was to receive substantial and supplementing evidence from other sources, and due to their general value, documentation includes an explicit part in a case study’s data collection process (Yin, 2003). In this thesis the data was collected through documentation from the respondents’ companies, by visiting their websites (www.cloetta.se, www.cashguard.se), which provided us with general information about the companies.

3.5 Sample Selection In all kind of industries and companies, mergers are taking place. Regardless of which industry they belong to, companies face the similar merger-related obstacles. Therefore we have chosen not to investigate a specific industry since we believe that companies’ experiences of mergers and hence also our findings of this thesis can be rather easily applicable across industries. The two companies that we have chosen are examples of successful mergers in Scandinavia and that encouraged us to further investigate this phenomenon. According to Epstein (2004) part of this union activity takes the form of acquisition in which the integration process is far easier. Our ambition with this thesis has to been to explore mergers of equals, by that we mean merger where there is a 50/50 ownership. In comparison with acquisition, merger of two relatively comparable companies is far more complicated as a new organization has to be created and power struggles are often involved. Thus, companies that fulfilled our sample criteria’s were large companies that had merged with another company from a country in Scandinavia, also that was equal in their merger. We contacted Telia-Sonera, Cloetta Fazer, Stora Enso, CashGuard Group, Föreningssparbanken and Nordea, however, only two companies responded, to our request namely Cloetta Fazer and CashGuard Group. When we contacted Cloetta Fazer, we first explained our research topic to the communication department, and were referred to Kenneth Söderholm, Personnel Director at Cloetta Fazer. The contact with CashGuard Group, was made directly by phone to Anders Eklund, who is the former vice president at CashGuard, and has also been vice president at Security Qube System (SQS). These persons were identified to be the most suitable in terms of relevant knowledge and experience to answer our research questions since they both were involved directly in the pre-merger process at respective companies.

3.6 Data Analysis According to Yin (2003), a case study should start with a general analytical strategy, which will help to treat the evidence fairly, produce compelling analytic conclusions, and also exclude other possible interpretations (ibid). The author further claims that these are the three different general analytical strategies:

• Relying on theoretical prepositions: The researcher collects data with the research questions and previous studies as a basis, and according to Yin (2003), this is the most preferred strategy.

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• Thinking about rival explanations: A strategy that is particularly helpful when doing case study evaluations and its object is to try to define and test rival explanations (Yin, 2003).

• Developing a case description: A strategy that should be used only when there is little

or no previous research, as the researcher uses a descriptive way to present the data (Yin, 2003).

After selecting one of the three strategies and the data has been collected, the researcher can start to work through the data in an analytical way (Miles & Huberman, 1994). Moreover, the authors state that the qualitative analysis consists of three simultaneously occurring flows of activities:

• Data reduction: The motive for doing this is to make the data sharp, sorted, focused, discarded, and organized, to make it possible for the researcher to draw and verify conclusions (ibid). At this stage a within-case analysis is also often conducted with the aim of comparing the collected data with the theories used (ibid).

• Data display: In this stage the researcher takes the reduced data and displays it in an

organized and dense way in order to make it easier to draw conclusions (ibid).

• Conclusion drawing and verification: Here the researcher begins to decide what things indicate by noting regularities, patterns, explanations, possible configurations, causal flows, and propositions (ibid). Though, according to Miles & Huberman (1994), these results should be held lightly and some doubt should be maintained.

Our thesis will rely on the theoretical suggestions that were presented in the first two chapters and the analysis of our thesis will follow the three steps recommended by Miles & Huberman (1994). Validity Ericsson and Wiedersheim-Paul (1997) state that validity is defined as measuring instrument’s ability to determine what it is supposed to assess. There are three tactics that are available to increase the validity and that is; researcher can use multiple source of evidence, establish a chain of evidence during the data collection, and/or let the key information’s review a draft of the case study report. (Yin, 2003) To achieve validity in this research, we sent an e-mail to the respondents, before the interviews, an introduction where the subject of our thesis was briefly described and was made to avoid eventual misunderstandings and to prepare the respondents for the interviews. Moreover, a tape recorder was used during the interviews, which help us to make sure that the respondents’ answers were proportional in regard to the actual questions. Notes were also taken during the interviews, which also contributed to the validity. The interviews were performed in Swedish; because the respondents spoke Swedish fluently, this strengthened the validity. Furthermore, by applying pattern matching, which is according to Yin (2003) evaluating the empirical data towards the theoretical data, was also positively affecting the validity of the thesis. In our thesis, two cases were performed and were compared with each other in a cross-case analysis.

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Reliability According to Yin (2003), the aim of reliability is to be sure that if a future researcher followed the same procedures as described by an earlier investigator and conducted the same case study, this researcher would arrive at the same findings and conclusions. The author continues by stating that the goal of reliability is to minimize the errors and biases in a study. We have therefore, cautiously explained the procedures used in our research, in this chapter as well as in other chapters. In Appendix 1 (English version), the interview guide, shows how our research question were conceptualized. During the interviews a tape recorder was used, which gave us the option to double-check and as much as possible avoid misinterpretations to the respondents´ answers, also hand notes were taking under all interviews. Moreover, we have organized the collected data for each of the cases as well as structured our thesis in a way that it follows the researchers, and/or readers can retrieve any desired material. However, when having conducted the interviews, personal prejudices could have been present to some extent, although, effort was made to formulate questions that neither led nor influenced the respondents.

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CHAPTER 4 EMPIRICAL DATA This chapter contains our empirical data, in the form of two case studies. The data was collected through telephone interviews with Kenneth Söderholm, Personnel Director at Cloetta Fazer, and Anders Eklund, former Vice President at CashGuard. The data from our two case-companies, will be presented in separate sections below. In the beginning of each section we will provide an introduction to the case-companies.

4.1 Case One: Cloetta Fazer Merger background Cloetta was founded 1862 in Copenhagen by the three brothers Christoffer, Nutin and Bernhard Cloetta from Switzerland. In 1901, Cloetta was established in Ljungsbro, Sweden, where the headquarter today is situated, and sixteen years later Svenska Chokladfabrik AB took over the majority of shares from the Cloetta family. The new company is owned by the Svenfelt family, who today, still has great shares in Cloetta. In the late 1980s Cloetta acquired Consiva and Adaco, and the following year Cloetta joined a strategic alliance with Fazer and Brynildsen. In the 1990s, Cloetta was listed on the stock exchange in Stockholm, and made several acquisitions such as Lecora, Sunco and Again, but the most important acquisition took place in 1998 when they acquired Candelia and became market leaders within the chocolate- and confectionary industry in Sweden. In 1891, Karl Fazer opened his French-Russian bakery in Helsinki, to finally in 1897, start with the industrial production of confectionary. During the year of 1963, the production of confectionary moved to Fagersta, Sweden, and in 1967 Swedish Karl Fazer AB was established in Sweden. In the late 1980s Fazer bought A&E Petersen A/S in Danmark (tax free-sales), and in 1993 Fazer started their activity in Gdansk, Poland. 1998 Fazer bought the Danish sales company C.K. Chokolade A/S. In 1990, Cloetta and Fazer made a strategic alliance, where three years later, Fazer acquired Chymos, and thereby initiated its operations in Poland. Swedish Cloetta and Finnish Fazer Konfektyr then merged in the first day of 2000, and became Nordic market leader within the chocolate- and sugar confectionary. Their share of the Nordic market is estimated to be 22 percent. The most important markets are Sweden, Finland, Norway, Denmark, Poland, the Baltic States, and Russia. Cloetta Fazer is a market leader within Sweden and Finland. Their competitors are for example Kraft Foods, Malaco-Leaf, Nestle, and Cadbury. Cloetta Fazer used to have five production plants; two in Sweden, two in Finland, and one in Poland, but has during 2005 closed the production in Poland, and is now closing one production in Norrköping, Sweden. The most priority brands are Fazer Blå, Kexchoklad, Dumle, Geisha, Polly, Center, Marianne, Ässät, Tutti Frutti, Pantteri, Plopp och Tyrkisk Peber. Cloetta Fazer’s turnover was in the year of 2004, 3.024 MSEK, and the amount of average employees is estimated to be 1981. Cloetta Fazer’s mission is to create joy and delight, to all people, no matter age or preference in taste, shall be delighted of the company’s wide assortment of chocolate and confectionary.

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The fusion between Cloetta and Fazer was a merger, on the same conditions according to the pooling-principal, so that neither part could take over. This naturally requires a higher demand on the merger process, since the companies try to get along in all questions, although they may have to compromise. When it comes to acquisition, companies can of course do more their thing without any deeper concern on the right of the ownership, but a weak psychology can lead to disastrous consequences in the company which was acquired, with weak motivation among the employees. Before the merger was established, solid merger activity was going on for about one year, with thorough investigation in each company. Each company went through all functions of both companies; sales (each hade two separate sales-fields, with both salesmen and service consultants), marketing, production, logistics, product development, the whole administration, and then the companies looked where there were possibilities to reach synergy effects. The first synergy effect was within sales in Sweden, which meant that there was a merger in these sales-fields, as Fazer already had a relatively large selling in Sweden, with a seven percent market share. It was incorporated in the sales-fields of Cloetta among other things, which made them estimate to have synergy effects of 75 millions SEK due to this merger, and by that increased profit. Their estimations of synergy effects and increased profit happened as expected. The merger was a success from the beginning, as their aim was to become even stronger at Nordic level and market leader within the confectionary business. The fusion was successful and Cloetta Fazer is nowadays market leader in Scandinavia within the chocolate- and confectionary industry.

4.1.1 Procedure and Criteria for Selecting Merger Partner Cloetta and Fazer have since the beginning of the 1990s had production collaboration, and they have known each other for a long time. The confectionary business has become more international, with big actors like Cadbury, Mars, Nestle, which are penetrating the market, and therefore Cloetta and Fazer considered it to be better to join their forces at Nordic level, in order to be stronger against these giants, as there are not so many other actors in Scandinavia, although in Denmark there is the famous chocolate brand Anthon Berg. The partner criteria were based on how strong the partner was on the market that the company wanted to penetrate. With the help of the coming partner it is then possible to penetrate the market, and by that the assortment can be distributed through the possible merger partner. Further, the purpose with the merger was to cope with the competition within the industry, which means to expand and get bigger, as you have to concentrate your strengths either on carving a niche in a small area, or being big and powerful, which was the case with Cloetta Fazer. Being in the middle would mean that the company does not last for very long. When it comes to parameters, Cloetta Fazer measured the activity by analyzing what kind of strategies existed, what kind of parameters that had been put up for the business, and how future investments had been made in each company. Cloetta Fazer state that the staff is very important and therefore a thorough investigation was conducted of what kind of competence that existed in each company to see who could carry through the fusion, and analyzed what kind of key positions there were and what kind of people existed in each company. When Cloetta and Fazer decided to merge, the decision was based on the assortment of candy of each company, since it should be a complement to the present assortment. This was due to the fact that their clients (ICA, Coop, Axfood etc.), were/are going through such big changes where these clients were/are pushing all suppliers really hard. This created a tough battle of

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the shelf spaces in the stores, which meant that all rival companies needed to have a really good assortment in order to have their shelf space. Therefore Cloetta Fazer highlight the importance to choose a merger partner on the basis that the assortment has to be different, as then they see no point in merging. The merger between Fazer and Cloetta started with Fazer buying such a great share of Cloetta’s stocks that they had to flag for it, as when Fazer cross a five percent limit in company listed on the stock exchange, the company are obliged to flag for it, and registrate how much they own. This initiated the negotiations, and in the fall of 1999 both Cloetta and Fazer realized that they ought to merge. The merge was made with help of the pooling-method, when two companies are of equal strength, so that neither of the two companies could take over some part of the business. In 2005, Fazer has succeeded in buying enough shares that they have majority, but they is still a company listed on the Stockholm stock exchange. Cloetta Fazer also say that they are really interested in companies in Norway and Denmark, as Cloetta Fazer is so small (especially in Denmark), or they want to buy market shares, which means that they are looking at companies that exist in Norway and Denmark. To get new market shares can be the reason for wanting to merge with a company. The interest of Norway is because Cloetta Fazer believe it be really difficult to convince a Norwegian to buy “Kexchoklad” or “Fazer Blå”, even though the loyal customers think that the products are great, it is tough to make the Norwegians realize that. This difficulty is because the consumer is so conservative, since you learn to eat a certain candy and/or chocolate in your childhood, and do not want to change those preferences. Consequently, Cloetta Fazer means that it is difficult to grow or expand with simply your own forces. It is then better to buy a company or merge with a company, and through that company try to reach a greater share of the market. In addition, Cloetta Fazer only sees the merger as an advantage, as they had been cooperating for many years, and they succeeded very well. Cloetta Fazer say that they have not done any big mistakes, except the fact that they only had 12-20 brands that they tried to launch and have all time, and for a small company like Cloetta Fazer, that is considered to be quite weak. As Cloetta had before the merger acquired Candelia, this meant that Cloetta was already experienced in making fusions had learnt from mistakes they had done in the past. However, Cloetta Fazer still have not succeeded in assembled all systems. They have continued with their own IT-systems in each country, and that may have been a mistake, as they could have chosen a common system from the beginning for all units to implement. Cloetta Fazer’s tips for other companies who are thinking about merging is to have structure, meaning that the merger work has to be very clear, in order to see where you can save money, what and where there is one to many. It is important to go through all the functions within both companies, but do not let it take too long, as time is money. In short, fusion activity should be for one year, and then the company strategy should tell in what way things should be done. Additionally, managers should have to go through all the differences between the cultures so that people does not get annoyed on each others differences, but instead starts to understand that it can be an asset to be different, and appreciate it instead of criticizing. Cloetta Fazer has something called ”Affärsakademi”, where all their 60 managers get together two-three times per year, in order to have a seminar, in which they go through certain questions, and by that try to have a common thinking. The seminar also involves questions concerning culture, like the fact that Finnish people are faster in making decisions, while Swedes tend to conduct projects better. These are some questions that are handled, and they

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do it in order to try to understand why it is in a certain way, and how they can develop or improve if necessary.

4.1.2 Role of Organizational Culture In the role of organizational culture it was important for Cloetta Fazer to establish what is was that they wanted to accomplish, like all the functions and the merger work. However, they say that the culture side ,national culture aspect is difficult to go through before merging, and can not be done until after a couple of months. On the other hand, Cloetta Fazer did not see the culture difference as a big threat to developing the structure of the organization, as people find each other no matter if they come from India, England or Sweden, since you have the work in common. They mean that production people will always be production people, as marketing people always will be marketing people, and most often they tend to find each other and those are the ones that will be working together, as coming from the same area or having the same function, you have quite similar language. In addition, Cloetta Fazer say that both were willing to fight, and that it was just like a marriage; first honeymoon, in which you want to show how good you are, and then after one-two years, you finally breathe and everyone starts criticizing each other. There was quite a big difference between organizational cultures used by Cloetta and Fazer. Fazer was a family-company with a long-term planning and thinking, in which almost always quality came before profit. Cloetta on the other hand was a company listed on the Stockholm stock exchange and was very result oriented, and at the same time had more divisions and result departments. Later on, when merging, and after, Cloetta Fazer had to deal with the Swedish-Finnish culture differences. According to Cloetta Fazer, these differences were difficult to measure before the merger, since it is not possible to know how people work together. The choice of which organizational model to have, created a lot of discussions as the companies differed so much in this area, but several discussions led to the model that was correct, and most appropriate. To work with matrix in the process organization was really tough and difficult for one of the partners (Fazer), as it had no experience working like that. The choice of organizational model was discussed by the top management of each company, also called the fusion steering group, who went through the organizational model. After that, the decision was made in the corporate management, and then continued with using ”Affärsakademi”, to go through why you work like you do, and what it means when you work in this form and so on. However, it took a long time for people to adjust to the new model, and Kenneth Söderholm thinks that still there are difficulties in adjusting to the model, despite the fact that the merger took place five-six years ago. Then again, it is always like that, and not everyone can always be pleased or satisfied. According to Kenneth, it is difficult working in a matrix organization, since the employees has to report to two directors in a matrix organization. For example, if a person is work as a marketing director in Sweden he or she has a central marketing director to report to concerning marketing questions, and then locally the employee has a local vice president to whom they also report to. It is a crossroads and balance of whom the employee should obey whose advice should they correct themselves after. The positive aspect of a matrix organization is that employees could work internationally, all the marketing people in different countries work together, and by that the employees learn of each other much faster, so called fast learning.

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4.2 Case Two: CashGuard Group Merger background The CashGuard Group has its main office in Täby outside Stockholm, Sweden and about 125 employee’s work there. In Skellefteå, product development and production of certain products is taking place in Security Qube System AB (SQS) facilities. CashGuard was founded in 1991 and is a Swedish invention for handling cash, and is the leader on the market on handling cash and cash logistic. The entrepreneur and inventor Kjell Lindskog founded SQS in the beginning of 1990. The company has been developed around a unique design for security cases and system solution that complement these cases. SQS has their office in Skellefteå were the production but also all handling with the products is taking place. Since October first 2004, CashGuard and SQS have been acquired. The purchase means that CashGuard can now offer a broader range of solutions for handling cash and cash logistics. CashGuard was the most suitable partner for SQS and vice versa, this to continue developing the “total” solution for cash handling that is why the merger/acquisition is industrial correct. To merge CashGuard and SQS and building a new concern with these two companies gives an excellent condition to continue to develop into a world leading security company. The new CashGuard Group business concept is to develop and to sell products and service with high quality for cash handling and cash logistic. The company has products for cash handling in post office, shops, and banks and for the transport of cash and the products are based on a unique technology, that are combinative with the common goal of handling cash efficiently and protecting it. CashGuard and SQS had known each other well since 2002 and have had a cooperation developing joint products. 2004 CashGuard Group’s net turnover was 156, 5 MSEK. To retain and to develop the strong position within the security of cash handling and cash logistic, the new CashGuard Group strategy is to:

• To develop the sale on the priority markets with help by the distribution partner • To keep the focus on product development within the company’s core technology • To establish cooperation for products that meet the markets demand on volume, price

and quality The difference between merger and acquisition is a definition question. This is how CashGuard Group is looking at merger and acquisition One way to define the difference between a merger and an acquisition is:

• Acquisition is when you buy the whole activity and run it like before. • Merger is when the companies are consolidated together and the balance sheet and

other types of outcomes and different boarder engagements.

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When two companies decide to merge, two boarders agree to consolidate the companies and gain approval for it in the shareholding meeting. This is all just a formality, when generating a company, it becoming a merger in most cases in their existing company. You have a more controlling role if an acquisition is taking place. Before the merger was established it was two completely separated companies, CashGuard and SQS had separate owners’, structure and separate company management. CashGuard was listed on the stock market. One problem was that it could not get out on the market and that it had to be confidential that CashGuard and SQS were on their way to a merger. SQS was a private owned company. A due diligence was made in both companies and they looked at the conditions, balance sheet, going over the risk before the decision on how the over taking would look like. Both companies activities went on like before during this time.

4.2.1 Procedure and Criteria for Selecting Merger Partner Since 2002 CashGuard Group and SQS have collaboration together with developing common products and therefore it was natural for both companies to merge together, because there are just one SQS with the unique technique in Sweden and Europe. Therefore CashGuard had no specific criteria for a merger partner. It became a natural option for CashGuard and if there was one company to merge with it was SQS. As mentioned before, CashGuard and SQS was a natural choice to merge with, since they complimented each other well with their technical advantage in the security industry. Also a goal that both CashGuard and SQS had in common was to continue developing world leading security. It is significant to always try to see both partners’ advantage and to “sell” them to the customers, as they are the most important ones. The companies have to speak about the changes that are necessary to make and what kinds of customer’s advantage that it could lead to. The internal process is as important as the external. To be stronger on the market and to minimize the overhead costs was one purpose for CashGuard and SQS to merge with each other. CashGuard and SQS product range complemented each other well and the new CashGuard Group could now offer a security solution that is gives the customers safety transporting of cash, taking out cash and also giving stores a different kind of security products that compliment each other for handling cash. It is important to be clear to the internal organization, but most of all to make a thorough examination during the pre-merger phase. When the process is finished, you need to communicate with the industry what you want to accomplish when merging with another company. The parameters for CashGuard Group is that the new organization has good opportunities to become a world leading security company on the market and it created a financially and industrially strength within the company. Further the merger gives a larger international power, but also improves the condition to reach out with SQS unique technique within the security industry. In other words, to be as large as possible, to increase the selling of security products, and to expand the product line. CashGuard and SQS had different knowledge within their personal staff, which gave the companies a complemented knowledge within the security technology. It helped the CashGuard Group to be stronger on the market and to build new unique products, when combining the knowledge from both companies. It is important to make the employees a part of the merger. It can be done in different way but one is to have project groups to work with administration, selling, developing, marketing, and production but also with the managers.

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As was mentioned before CashGuard had no specific criteria for a merger partner, SQS was the natural option for CashGuard. CashGuard and SQS had a long cooperation before they merge and had a cooperation agreement since two years back on certain join products. There was well-defined knowledge about each partner, it become natural to consolidate these two companies. There is no other company on the market with a profile like SQS, therefore there are no selection criteria, instead it was a very natural selection and it was totally based on product managing.

When CashGuard merged with SQS it was because the two companies had a product program that was complementing each other’s security technique. CashGuard was working more with traditional money handling and SQS with very advanced money handling with high level of security. There was a lot of product and distribution thinking, behind the decision to merge. Complicated products handling was one of the motives for CashGuard and SQS to first consolidate with each other. It was also to minimize the overhead costs. Only to generate both companies together with the same management structure and that the companies are agreeing on the distributions channels. This is something that CashGuard Group thinks they have succeeded with quite well. Before a merger it is hard to do anything, companies can not or should not do any thing, before a merger is completed. If the deal is not going through, it might harm the company and they are forced to keep it as a big secret, but when the companies are in the middle of it, after taking all the decisions, managers can never inform the employee to much. Not only on the big information meetings, but to take the time and effort to go around on the company and to talk to the employees. There was no mistake before the merger between CashGuard and SQS, although there was a total change in corporate management in all three concerns, CashGuard, SQS and the CashGuard Group. Of course it takes a certain time before the corporate management has settled in and everything is working. One of the most common mistakes that are often made by companies is to underestimate the time it takes to make such large organization changes. To making a merger work companies need to communicate, look at the cooperating possibilities on product and market to making those changes in the organization to match the needed changes. It should be done in a certain tempo, certain speed and it depends on how you feel it is going. It is significant that the employees feel like they also is a part of the process. The most important aspect is to get as many as possible of the staff to be engaged to the process of the merge. The merger between CashGuard and SQS felt natural since these two organizations had a lot in common and melted together well.

4.2.2 Role of organizational culture The culture in CashGuard and SQS was quite the same in both companies before the merger. The companies had a clean company management, a production, marketing and developing section in other words, a very traditional organizational structure. To choose what type of organizational model that CashGuard Group would have was done by the leading managers after anchor with the boarder. Before the merger CashGuard and SQS had an evaluation on the organization, by an inquiry that later on presents openly for everyone at the company. The purpose with this evaluation

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was to find the objects that could be improved, and everyone got a change to be a part and to influence. This inquiry is still done every year at CashGuard Group. There were no major cultural differences, both companies are invent -and developing companies. There was of course a difference in were SQS had there focus on production then CashGuard, where they bought much of there production. The difference was actually in that SQS had a production related organization with many people in “clean” productions roles. CashGuard was a typical sell and service company, and they also had market oriented organization. This created two complete different cultures. SQS in Skellefteå could not compete with the opportunities that a large city could to offer. In Skellefteå people needed jobs and were therefore willing to work hard to be successful. Then these two organizational structures formed CashGuard and SQS were combining together and there has not being any problems.

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CHAPTER 5 ANALYSIS In this chapter we will analyze the empirical data outlined in chapter four comparing with the conceptual framework through within-case analyses. This is followed by a cross-case analysis where the data from the two companies are compared against each other. In analyzing the data we will follow Miles and Huberman (1994) three steps. At first the data, case by case will be reduced through a within-case analysis, in which our sample-companies will be compared to the conceptual framework. After that, a cross-case analysis, in which a comparison of the data from Cloetta Fazer and CashGuard Group will be presented. The ambition with the cross-case analysis is to discover equivalents and differences between the companies. In order to provide the reader an overview of the collected empirical data, the data will be displayed in tables, a method suggested by Miles and Huberman (1994).

5.1 Within-Case Analysis: Cloetta Fazer This section shows a within-case analysis of Cloetta Fazer, in which the collected data from the company will be compared to the theories chosen and stated in our conceptual framework.

5.1.1 Procedure and Criteria for Selecting Merger Partner The theory developed by Marks and Mirvis (2001) identifies four aspects to take into consideration of how to become successful in the pre-merger phase. The first aspect involves partners, where theory says that successful acquirers know what to look for and how to conduct a thorough search to ensure that the companies get what they want. Companies’ selection of candidates covers the obvious financial criteria and strategic. Also expand to include assessment of the human and cultural elements that can undermine an otherwise sound deal. Cloetta Fazer based the partner criteria on how strong the partner was on the market that the company wanted to penetrate. With the help of the coming merger partner it is then possible to penetrate the market, and by that the assortment can be distributed through the possible merger partner. This shows that our data supports theory. The second aspect is the purpose, which according to theory is that a company needs to first know what they are looking for in a merger partner and have an open and full review of these criteria, which permits for debate and companionship building between staff and line executives. If conflict and confusion appears concerning these criteria are not fully addressed up front, it will continue down the road. Cloetta Fazer say that the purpose with the merger was to cope with the competition within the industry, which means you have to expand and get bigger, as you have to concentrate your strengths either on carving a niche in a small area, or being big and powerful, which was the case with Cloetta Fazer. Being in middle would mean that the company does not last for very long. This shows that our data collected somewhat agrees with theory. According to the theory, parameters include those partners in a successful combinations share commonality of purpose, they also recognize and accept the terms of their relationship. The employees are able to focus their energy on a common goal and not on any wishful thinking that might contract the realities of the combination. Cloetta Fazer measured the activity by analyzing what kind of strategies that existed, what kind of parameters that had been put up for the business, and how future investments had been made in each company. Our data somewhat fits the theory.

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The forth and last aspect of how to become successful in the pre-merger phase is people. According to theory, psychological factors can influence the relationships in cases where the role of leads and targets are not so well delineated. Members of one side might be seen by themselves or by the other side as technically sophisticated, worldlier, financially strong or savvy in the market place. Cloetta Fazer state that the staff is very important and therefore they went through what kind of competence that existed in each company to see who could carry through the fusion, and analyzed what kind of key positions there were and what kind of people existed in each company. The theory and the data collected are somewhat in line with each other.

According to Lynch and Lind (2002), success depends on two key issues, which are that first, companies or their consultants have to do a far better job in selecting acquisition candidates, and they need to avoid “falling in love” with a targeted company. Second, once selected a target, business leaders must form their post-acquisition main concerns and behavior more carefully. Cloetta Fazer states that the consumer is so conservative, since you learn to eat a certain candy and/or chocolate in your childhood, and do not want to change those preferences. Consequently, that makes it difficult to grow or expand with simply your own forces. In addition, Cloetta Fazer only sees the merger as an advantage, as they had been cooperating for many years, and they succeeded very well. The theory is not in line with the data collected. According to the theory by Palmer, Parry and Webber (2005), a key issue for small companies is how much actual choice they have. Large acquiring companies may use caution instead of where the smaller companies are financial difficulties. If companies have weak finances it might have difficulties in finding a merger partner and to attract others can be more difficult since they are considered as “uninteresting” to potential suitors. Not only those parties who want to expand their territory but also to chase wider objectives, such as to start internal reforms or to highlight the major companies ideological position. This competitive market for transfers lead to a consideration of the criteria small companies might apply to select an appropriate partner. One possibility is that companies engage in calculative approach and this by requesting bids from competing companies. Cloetta and Fazer have since the beginning of the 1990s had production collaboration, and they have known each other for a long time. The confectionary business has become more international, with big actors like Cadbury, Mars, Nestle, which are penetrating the market, and therefore Cloetta and Fazer considered it to be better to join their forces at Nordic level, in order to be stronger against these giants, as there are not so many other actors here in Scandinavia, although in Denmark there is Anthon Berg. This shows that our empirical data is not supported by the theory. Further the authors claim that when choosing a merger partner, it is not simply based on a calculative rationale and that relationships with potential partners can be important. The relationship involving a merger can be with a company from the same or a different industry, consequently gaining from shared expertise and reinforced dedicated power. Smaller companies might instead pursue relationships on deeper political grounds and mergers with larger companies that have like-minded ideologies. Neither political nor occupational relationships, however, can be regarded as qualification for successful mergers. When Cloetta and Fazer decided to merge, the decision was based on the assortment of candy of each company, since it should be a complement to the present assortment. This was due to the fact that their clients (ICA, Coop, Axfood etc.), were/are going through such a big change that they were/are pushing all suppliers really hard. This created a tough battle of the shelf spaces in the stores, which meant that all rival companies needed to have a really good assortment in

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order to have their shelf space. Therefore Cloetta Fazer highlight the importance to choose a merger partner on the basis that the assortment has to be different and not very similar, or else they see no point in merging. The stated theory is in line with the data collected from Cloetta Fazer. Lastly mentioned by Palmer, Parry and Webber (2005), is that the employees’ closeness can act repulsive rather than to stimulate to merger and in some situations mergers are hindered by a tradition of hostility between the two potential partners. In the selection processes of an appropriate partner and negotiation of acceptable transfers terms, give small companies potential opportunities to address to the concerns relating motivations and barriers to merge. The whole thing about the possible merger between Cloetta and Fazer started with Fazer buying such a great share of Cloetta’s stocks that they had to flag for it, as when you cross a five percent limit in company listed on the stock exchange, you are obliged to flag for it, and registrate how much you own. This initiated the negotiations, and in the fall of 1999 both Cloetta and Fazer realized that they ought to merge. The merge was made with help of the pooling-method, when two companies are of equal strength, so that neither of the two companies could take over some part of the business. This shows that the theory agrees with the empirical data. According to Lynch and Lind (2002), the mistakes that often occur in the pre-planning phase are the inadequate due diligence on the part of the buyer and/or seller, the lack of a compelling strategy, and overly optimistic expectations of synergies. Cloetta Fazer say that they have not done any big mistakes, except the fact that they only had 12-20 brands that they tried to launch and bring up all time, and for a small company like Cloetta Fazer, that is considered to be quite weak. Due to experience with mergers and acquisitions, Cloetta had learned from mistakes they had done in the past. However, Cloetta Fazer still have not succeeded in assembled all systems. They have continued with their own IT-systems in each country, and that may have been a mistake, as they could have chosen a common system from the beginning for all units to implement. This shows that theory does fit the empirical data. Robert Stefanowski, CPA and managing director at GE Capital’s merchant banking business in NYC (2002), has seven tips on how to make a merger work which include that you have to involve top management early in the due diligence process (when merging with a firm within the same industry, senior management have the ability to use its experience and objectivity to estimate the strength and ability of the target’s management to perform after the merger), make sure due diligence is thorough (it is of highly importance that the acquirer has an in-depth understanding of the target’s operations and risks involved), critically evaluate information from due diligence process, be aware of “troubled companies”, involve the integration team early, negotiate tight purchase agreements, and include material-adverse-change clauses. Cloetta Fazer’s tips for other companies who are thinking about merging is to have structure, meaning that the merger work has to be very clear, in order to see where you can save money, what and where there is one to many. It is important to go through all the functions within both companies, but do not let it take too long, as time is money. Additionally, managers should have to go through all the differences between the cultures so that people does not get annoyed on each others differences, but instead starts to understand that it can be an asset to be different, and appreciate it instead of criticizing. Cloetta Fazer has something called ”Affärsakademi”, where all their 60 managers get together two-three times per year, in order to have a seminar, in which they go through certain questions, and by that try to have a common thinking. The seminar also involves questions concerning culture, like the fact that Finnish people are faster in making decisions, while Swedes tend to conduct

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projects better. These are some questions that are handled, and they do it in order to try to understand why it is in a certain way, and how they can develop or improve if necessary. From the theory stated and our empirical data, we can see that more than half of the seven tips do not support the data collected from Cloetta Fazer.

5.1.2 Role of organizational culture According to Horwitz et al. (2002), there are four integrated mechanisms of organizational culture that can influence on its performance: organizational direction and shared purpose, early employee involvement, the impact of a strong culture on firm performance, and integration of an extensively held system of norms and expectations. Different cultures may hinder integration around new norms, work practices, individual and organizational identity. A strong organizational culture can be a means to create competitive advantage, increase motivation, and organizational effectiveness if expressed integration processes are settled and put into practice. In the role of organizational culture it was important for Cloetta Fazer to establish what is was that they wanted to accomplish, like all the functions and the merger work. However, they say that the culture side, national culture aspect, is difficult to go through before merging, and can not be done until after a couple of months. On the other hand, they did not see the culture difference as a big threat to developing the structure of the organization, as people find each other no matter if they come from India, England or Sweden, since they have the work in common. In addition, Cloetta Fazer say that both were willing to fight, and that it was just like a marriage; first honeymoon, in which the employees want to show how good they are, and then after one-two years, they finally breathe and everyone starts criticizing each other. Here can be noticed that theory somewhat supports the empirical data. Further, theory by Mark (1999) about the issues of conducting cultural due diligence is used by companies when choosing a possible merger partner. The four categories are:

• Integrating cultural criteria in the earliest merger discussions: This is in line with our empirical data, since Cloetta was a Swedish company, and Fazer was Finnish, and had quite different cultures on both organizational, as well as national level.

• Staffing and preparing due diligence teams with an eye toward cultural criteria: This

is partially in accordance with the theory, since their “Affärsakademi” is the equivalent of a cultural program.

• Adding cultural criteria to due diligence data collection: This is not in line with our

collected data since they have their “Affärsakademi”, and had collaboration for many years.

• Using formal tools to assess cultural fit. The only tool they have is “Affärsakademi”,

and therefore, the empirical data and the theory do not go in line with each other. Further, the culture fit model proposed by Cartwright and Cooper (1995) state that if the acquiring organization or dominant merger partner aims to change the culture of the acquired organization then cultural similarity is not essentially a precondition. The change of culture is a long and complicated process, probably three to five years or even longer. However, certain types of culture are more open to change than others, in that cultures which require a high degree of individual constraint, such as power or role cultures, are less resistant to change

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than those which promote autonomy, such as task or person/support cultures. If the method of acculturation is cultural integration to make a new “best of both worlds” culture, then the more similar cultures, the smoother and easier the transition, given that the marriage is not between two power cultures. There was quite a big difference between organizational cultures used by Cloetta and Fazer. Fazer was a family-company with a long-term planning and thinking, in which almost always quality came before profit. Cloetta on the other hand was a company listed on the Stockholm stock exchange and was very result oriented, and at the same time had more divisions and result departments. When merging, and after, Cloetta Fazer had to deal with the Swedish-Finnish culture differences. According to Cloetta Fazer, these differences were difficult to measure before the merger, since it is not possible to know how people work together despite coming from different cultures. This shows that theory is somewhat in line with our data collected. According to Appelbaum et al., (2000), it is important that CEOs and human resource departments work together to plan the actions that need to be taken into consideration and realize that culture can be a factor that could help or destroy the company, if it were to merge. If it is overlooked and if the differences are too big, it can almost alone damage the deal. The decision of which model of organizational culture will be executed is the most important step at the pre-merger phase and includes using one or the other culture, forming a culture that integrates the strongest characteristics of each culture, or building an entirely new culture that is not based on how each culture was before. The choice of which organizational model to created a lot of discussions in Cloetta and Fazer, as the companies differed so much in this area, but several discussions led to the model that was the most appropriate one. To work with matrix in the process organization was really tough and difficult for one of the partners, as they had no experience working like that. The choice of organizational model was discussed by the top management of each company, also called the fusion steering group, who went through the organizational model. After that, the decision was made within the corporate management, then continued using ”Affärsakademi”, to go through why they work like they do, and what it means when they work in this form. However, it took a long time for people to adjust to the new model, and Kenneth Söderholm thinks that still there are difficulties in adjusting to the model, despite the fact that the merger took place five-six years ago. Then again, it is always like that, and not everyone can always be pleased or satisfied. According to Kenneth, it is difficult working in a matrix organization, since you have to report to two directors in a matrix organization. It is a crossroads and balance of whom you should obey whose advice should you correct your self after. The positive aspect of a matrix organization is that you work internationally, all the marketing people in different countries work together, and by that you learn of each other much faster, so called fast learning. Here can be seen that theory somewhat supports the empirical data.

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5.2 Within-Case Analysis: CashGuard Group This section presents a within-case analysis of CashGuard Group, in which the data collected from the company will be compared to the theories presented in our conceptual framework.

5.2.1 Procedure and Criteria for Selecting Merger Partner The theory defined four different aspects to take into consideration, by executives, staff, specialists and advisors, how to become successful in the pre-mergers phase. Further, the theory states that a careful pre-merger screening comes only from speaking directly with a good cross-section of the management team from the potential partner. For CashGuard and SQS it is a quite special merger situation, since Anders Eklund has be the vice president in both companies. For both of them it was a natural choice to merge with each other and to develop a stronger company, both financially and industrial. CashGuards partner was already decided, if there was one company to console to it was with SQS. The companies product range were complementing each other and this is a help to become as strong on the market as possible. The main driving force to merge for CashGuard and SQS was to minimize the overhead costs and to offer a broader range of security solution to their customers, and to become a leader on the security market. When it comes to parameters, CashGuard and SQS had no parameters, since it was a natural choice to merge with each other. They strongly believed that this would help both companies to develop further, and together CashGuard and SQS could receive larger international power, and also improve the condition to reach out SQS unique technique. By taking advantage of the employees’ knowledge it helped CashGuard and SQS to be stronger on the market and to help to develop new products that compliment each other technical competence. This responds to Mark and Mirvis (2001) theory about four aspects to become successful in the pre-merger phase. According to Mark and Mirvis (2001) a careful pre-merger screening only comes from speaking directly with a good cross-section of the management team from the potential partner and this goes in line with our empirical data. CashGuard and SQS had collaboration together with certain products and therefore it was nothing that was taking by surprise when it came to dress code and organization culture for example. Before the merger of CashGuard and SQS, the companies did a due diligence to see the opportunities and risks with a merger. If companies have a weak finance they might have difficulties in finding a merger partner and to attract others can be more difficult since they are considered as “uninteresting” to potential partners. This is not in line with our empirical data from Palmer, Parry and Weber (2005), since SQS had some technical problem and because of that had to let employees go and cut downs were necessary to get the company on the right track again. Still CashGuard wanted to merge with SQS, there unique technological within security and this was a strong compliment to CashGuard and their products.

When companies are choosing merger partner, it is not simply based on a calculative rationale, but that relationship with potential partner can be important (Palmer et al., 2005). It was a natural choice for CashGuard and SQS to merge since they had been working together since 2002 and knew each other well. In addition, they were in the same industry and had the same common goal to be one of the larger security companies in the world. Their choice of a merger partner was not simply based on calculative rationale, instead of a long-term relationship with each other. This corresponds with our empirical data.

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According to Palmer et al., (2005), the relationship involving a merger can be with a company from the same or a different industry; thus benefiting from shared expertise and strengthened committed power. This goes in line with our empirical data. Both companies were in the security business, CashGuard with more traditional money handling and SQS with very advanced money handling. CashGuard and SQS could take advantage of each other experience and knowledge to be stronger on the security market and also offer broader product range to their customers. The theory by Lynch and Lind (2002), about two key issues of success, and mistakes that occur during the pre-merger phase, will be compared to the empirical data collected from CashGuard Group. Companies or their consultants have to do a far better job in selecting acquisition candidates. Avoiding “falling in love” with a targeted company is one of the recommendations that the authors would make. CashGuard and SQS were an obvious choice as merger partners and also since there was just one SQS company in Europe. CashGuard did not “fall in love” with SQS because they knew what to expect of SQS and there competence. This theory is not in accordance with our empirical data.

Once selected a target, business leaders must form their post-acquisition main concerns and behavior more carefully. As our respondent did not say anything regarding this recommendation, we do not have any empirical data, and thus no analysis. According to Lynch & Lind (2002) theory about what mistakes that often occur in the pre-planning phase the respondents said that there were no mistakes before the merger between CashGuard and SQS. However, as the corporate management was totally changed in CashGuard, SQS and CashGuard Group, the timeframe for such a major organizational change is often underestimated. Further CashGuard Group says that this is the most common mistake that companies do when deciding to merge with another company. When CashGuard and SQS merged with each other they did a due diligence to see if there were any risks they looked at the condition of the companies and also on their balance sheet. This shows that the empirical data inadequate due diligence on the part of the buyer and/or seller and the theory is party in line.

The lack of a compelling strategy is something that CashGuard and SQS did not have. Two years before CashGuard and SQS merged, they had collaboration together with some of their products. Both companies knew the other company’s and strategy, because of this CashGuard and SQS could avoid lack of a compelling strategy; this is not in line with our empirical data.

Overly optimistic expectations of synergies dose not fit CashGuard and SQS, since CashGuard and SQS only wanted to merge with each other, the expectations were high. They knew what to expect from the other partner, both on their competence and on their technical skills. This is not in line with the empirical data.

Robert Stefanowski, CPA and managing director at GE Capital’s merchant banking business in NYC, has seven tips on how to make a merger work. That include that companies have to involve top management early in the due diligence process (when merging with a firm within the same industry, senior management have the ability to use its experience and objectivity to estimate the strength and ability of the target’s management to perform after the merger), make sure due diligence is thorough (it is of highly importance that the acquirer has an in-depth understanding of the target’s operations and risks involved), critically evaluate

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information from due diligence process, be aware of “troubled companies”, involve the integration team early, negotiate tight purchase agreements, and include material-adverse-change clauses. At CashGuard it is important to communicate and look at the cooperating possibilities towards the market and the company’s products, but also make the necessary changes in the organization to match the market and products. The first tree tips; involve top management early in the due diligence process, make sure due diligence is thorough and critically evaluate information from due diligence process and tips number five, involve the integration team early are in line with our empirical data. Tips number four be aware of “troubled companies”, number six negotiate tight purchase agreements and number seven include material-adverse-change clauses is not in line with our empirical data, it was a natural choice for CashGuard and SQS to merge, since they had have a joint production together for two years before the companies decided to merge.

5.2.2 Role of organizational culture According to Horwitz et al., (2002) there are some key factors for success in M&A, which are four integrated mechanisms of organizational culture and this can be an influence on the performance. These mechanisms are; organizational direction and shared purpose, early employee involvement, the impact of a strong culture on firm performance and lastly integration of an extensively held system of norms and expectations. These four integrated mechanisms are partially in accordance with the empirical data. The first two statements, organizational direction and shared purpose and early employee involvement are in accordance since, CashGuard and SQS had a common goal to be larger on the security market and also that they were both invent- and development companies. The two last statements, the impact of a strong culture on firm performance and the integration of an extensively held system of norms and expectations are not in line with our empirical data because the companies’ cultural difference was not a problem, this it was quite the same. Further, the theory by Mark (1999) concerning the issues of conducting cultural due diligence is used by companies when choosing a possible merger partner. The four categories are:

• Integrating cultural criteria in the earliest merger discussions: This is not in line with our empirical data, since CashGuard and SQS had quite the same culture in the companies, as they are both invent- and developing companies.

• Staffing and preparing due diligence teams with an eye toward cultural criteria: As

there was no major cultural differences between CashGuard and SQS, it did not require a deeper cultural due diligence, and therefore it does not support the theory.

• Adding cultural criteria to due diligence data collection: This is not in line with our

collected data.

• Using formal tools to assess cultural fit: This empirical data and the theory do not go in line with each other.

According to Cartwright and Cooper, (1995) in order to more specifically investigate the different organizations culture and how it plays a role in merger. The authors present four types of cultures, that has more and more appeared as a prominent factor in influencing the integration process and thereby merger outcomes. Our empirical data and the theory do not go in line, since CashGuard and SQS did not have any cultural problems when they merged

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together, as both companies were invent-and developing companies and even though there was a difference in what SQS and CashGuard focus on. SQS’s focus was more on production than CashGuard, since they bought much of their production.

The theory by Appelbaum et al., (2000) “the importance of culture in organization”, shows that organizations must be aware of the cultural impact of a merger and that a merger can destroy a deal or to help one. In the case of CashGuard and SQS the cultural similarity did help the companies. The difference was that SQS had a production related organization and CashGuard had a marketing oriented organization. Since these two companies merged there have not been any problems. The theory of Appelbaum et al., (2000) and our empirical data do not go in line in the two first choices of organizational model, but the last gives support to the theory.

5.3 Cross-Case Analysis: Cloetta Fazer and CashGuard Group This section presents a cross-case analysis in which the data obtained through within case analysis will be compared against each other.

5.3.1 Procedure and Criteria for Selecting Merger Partner When comparing Cloetta Fazer with CashGuard Group, we find that both correspond in partner and parameters, but differ somewhat in purpose and people. Partner: Cloetta Fazer looks for how strong the partner is on where the other company is the major actor, and can they then see that with the help of the coming partner they can penetrate the market; their assortment can then be distributed through the possible merger partner. For CashGuard and SQS it is a quite special merger situation, since Anders Eklund has be the vice president in both companies. For them it was a natural choice to merge with each other and to develop a stronger company, both financially and industrial. CashGuards partner was already decided, if there was one company to console to it was just only with SQS, there is only one SQS in Europe. The companies’ product ranges were complementing to each other and this is a help to become as strong on the market as possible. Purpose: Cloetta Fazer says that in order to cope with the competition they have to get bigger and bigger. Either the company are really small or carve a niche in a small area, or big and powerful. However, are the company in between; they do not last for very long, as they are neither small nor big. The main driving force to merge behind CashGuard and SQS is to minimize the overhead costs and to offer a broader range of security solution to their customers, and to become a leader on the security market. Parameters: Cloetta Fazer says that before the fusion it is incredibly important to analyze what kind of strategy the company have had, what kind of parameters they put up for the business, and how they invest in the future. In other words companies measure their activity. When it comes to parameters, CashGuard and SQS had no parameters, since it was a natural choice to merge with each other. They strongly believed that this would help both companies to develop further and together CashGuard and SQS could receive a larger international power, but also improve the condition to reach out SQS unique technique. People: Cloetta Fazer says that it is important to go through what kind of competence that exists in the companies, which can drive this fusion. It makes a big difference if there are a lot of old fogeys in the companies or dynamic people who think that fusion sounds really

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interesting, that the employees will be a part of another company as well, and want to go forward as a human being. It is important to analyze what kind of key positions there are and what kind of people they are. By taking advantage of the employees’ knowledge it helps CashGuard and SQS to be stronger on the market and helps to develop new products that compliment each other technical competence. Cloetta Fazer states that the consumer is very conservative; the consumer learns to eat a certain candy and/or chocolate in their childhood, and do not want to change that. Therefore, it is difficult to grow or expand with simply the own forces, and then it is better to buy a company or merge with a company, and through that company try to reach a greater share of the market. In addition, the merger Cloetta Fazer was only an advantage, as they had been cooperating for many years, and they succeeded very well. CashGuard and SQS was an obvious choice as merger partners, (since there was just one SQS company in Europe). CashGuard did not “fall in love” with SQS because they knew what to expect of SQS and there competence. According to Cloetta Fazer, the most important thing when merging is structure, meaning that the merger has to be very clear, in order to see where the company can save money. It is important to go through all the functions within both companies, but not let it take too long, as time is money. In short, fusion activity should take about one year, and then when all decisions have been made, directly implement how things are going to be done. Also, the company should let the managers go through all the differences between the cultures so that people does not get annoyed of each others differences, but instead starts to understand that it can be an asset to be different, and appreciate it instead of criticizing. Cloetta Fazer has something called ”Affärsakademi”, where all their 60 managers get together two-three times per year in order to have a seminar, in which they go through certain questions. This is a help to try to have a common thinking. The seminar also involves questions concerning culture, like the fact that Finnish people are faster in making decisions, while Swedes tend to conduct projects better. These are some questions that are handled, and they do it in order to try to understand why it is like. However, they still have not succeeded in assembled all systems. They have continued with their own IT-systems in each country, and that may have been a mistake, as you could have chosen a common system from the beginning for all units to implement. According to Anders Eklund at CashGuard Group it is important to communicate and look at the cooperating possibilities towards the market and the company’s products, but also make the necessary changes in the organization to match the market and products. In addition, as mentioned before, it was a natural choice for CashGuard and SQS to merge since they have had a joint production together for two years before the companies decided to merge.

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A comparison of our two sample-companies in terms of the determinants of success is displayed in Table 5.1.

Table 5.1: Determinants of success Theory Cloetta Fazer CashGuard Group Partner + + Purpose +- + Parameters +- +- People +- + Avoid falling in love - +- Form post-merger main concerns & behavior more carefully

- -

Involve top management early in due diligence process

+ +

Make sure due diligence is thorough - + Critically evaluate info from due diligence process

+ +

Be aware of “troubled companies” - - Involve the integration team early + + Negotiate tight purchase agreements - - Include material-adverse-change clauses

- -

Note: Codes: + Data agrees with theory +- Data somewhat agrees with theory

- Data does not agree with theory Choosing a merger partner The comparison indicates that the difference of choosing a merger partner is not that big between Cloetta Fazer and CashGuard Group. Cloetta and Fazer have since the beginning of the 1990s had production collaboration, and they have known each other for a long time. The confectionary business industry has become more international, with big actors like Cadbury, Mars, Nestle, which are penetrating the market. This is why it is better to join forces at Nordic level, in order to become stronger against these giants. There are not so many other actors in Scandinavia, but in Denmark there is Anthon Berg. According to CashGuard Group, SQS had some technical problems and because of that had to let employees go and cut downs were necessary to get the company on the right track again. Still CashGuard wanted to merge with SQS, since their unique technology was a strong compliment to CashGuard and their products. According to Cloetta Fazer, the assortment of candy is a decisive factor, since it should be a complement to the present assortment, as their clients (ICA, Coop, Axfood etc.), are going through a big changes that they are pushing all suppliers really hard. This creates a tough fight of the shelf spaces in the stores, which means that companies need to have a really good assortment. Cloetta Fazer say that there is no point in having a merger if the assortment is almost the same and do not differ a lot. It was a natural choice for CashGuard and SQS to merge since they had been working together since 2002 and knew each other well. In addition, they were in the same industry and had the same common goal to be come one of the larger security companies in the world. Their choice of a merger partner was not simply based on calculative rationale, instead of a long term relationship with each other.

ANALYSIS

49

During the fall of 1999, Cloetta and Fazer began with its negotiations about joining forces into a merger. It started with Fazer buying such a great share of Cloetta’s stocks that they had to flag for it, as when they cross a five percent limit in company listed on the stock exchange, they are obliged to flag for it, and say that they have that much. This initiated the negotiations, and in the fall both Cloetta and Fazer realized that they ought to merge. The merger was made with help of the pooling-method, when two companies are of equal strength, so that neither of the two companies could take over some of the business. In 2005, Fazer has succeeded in buying that many shares that they have majority, but it is still a company listed on the Stockholm stock exchange. When it comes to CashGuard and SQS, they both were in the security business, CashGuard with more traditional money handling and SQS with very advanced money handling. CashGuard and SQS could take advantage of each other experience and knowledge to be stronger on the security market and also offer broader product range to their customers. The comparison between Cloetta Fazer and CashGuard Group is displayed in Table 5.2 below.

Table 5.2: Choosing a merger partner Theory Cloetta Fazer CashGuard Group Difficulties in finding merger partner

- -

Not only on calculative basis + +- Same or different industry + + Note: Codes: + Data agrees with theory +- Data somewhat agrees with theory

- Data does not agree with theory In this section, Cloetta Fazer and CashGuard Group will be compared to each other, when it comes to the pre-deal planning period. Cloetta Fazer say that they have not done any big mistakes, except the fact that they only had 12-20 brands that they try to launch and have all time, and for a company that small, it is quite weak. Before the merger of Cloetta Fazer, Cloetta had bought Candelia, which meant that Cloetta was already experienced in making fusions, and by that learnt a lot. When CashGuard and SQS merged with each other they did a due diligence to see if there were any risks and also look at the condition of the organization and also at the balance sheet. Two years before CashGuard and SQS merger, they had collaboration together with some of their products. Both companies knew the other one’s company and strategy, and because of this CashGuard and SQS could avoid lack of a compelling strategy. Since CashGuard and SQS only wanted to merger with each other, the expectations were in order. They knew what to expect from the other partner, both on their competence and on their technical skills.

ANALYSIS

50

The comparison between Cloetta Fazer and CashGuard Group is displayed in Table 5.3.

Table 5.3: Pre-deal planning period Theory Cloetta Fazer CashGuard Group Inadequate due diligence - +- Lack of compelling strategy - - Overly optimistic expectations of synergies

- -

Note: Codes: + Data agrees with theory +- Data somewhat agrees with theory

- Data does not agree with theory

5.3.2 Role of organizational culture Cloetta Fazer says that it is important to “ask” the organization what it is that they want to accomplish; all the functions and the merger work. However, the culture side (national culture aspect) is difficult to go through before merging, and can not be done until after a couple of months. On the other hand, the culture difference is not as big as you think, as people find each other no matter if they come from India, England or Sweden, since you have the work in common. Production people will always be production people, as marketing people always will be marketing people. Most often, they, fore example production people, tend to find each other, and those are the ones that will be working together, as coming from the same area or having the same function, they have quite similar language. In addition, they all want to fight, and it is just like a marriage; first honeymoon, were they want to show how good they are, then after one-two years, they finally breathe and everyone starts criticizing each other. According to CashGuard Group, the first two mechanisms are in accordance since CashGuard and SQS had a common goal to be larger on the security market and also that they were both invent-and development companies. The two last statements show that the companies’ cultural differences were not a problem, since the culture was quite the same. A comparison of our two sample-companies in terms of the four integrated mechanisms of organizational culture is displayed in Table 5.4.

Table 5.4: Four integrated mechanisms of organizational culture Theory Cloetta Fazer CashGuard Group Organizational direction and shared purpose

+ +

Early employee involvement - + The impact of a strong culture on firm performance

- -

Integration of an extensively held system of norms and expectations

+ -

Note: Codes: + Data agrees with theory +- Data somewhat agrees with theory

- Data does not agree with theory

ANALYSIS

51

In this section, a comparison between Cloetta Fazer and CashGuard Group, concerning the four types of culture will be made. There was quite a big difference between Cloetta and Fazer’s organizational cultures. Fazer was a family-company with a long-term planning and thinking, in which almost always quality came before profit. Cloetta on the other hand was a company listed on the Stockholm stock exchange and was very result oriented, and at the same time had more divisions and result departments. This was the major difference before merging, but later on in the merging process, came naturally the Swedish-Finnish culture differences. Since CashGuard and SQS did not have any cultural problem when they merged together since both were invent-and developing companies. Even though there was a difference in SQS and their focus was more on production than CashGuard, where the company bought much of their production. The comparison of four types of culture of Cloetta Fazer and CashGuard Group is shown in Table 5.5.

Table 5.5: Four types of cultures Theory Cloetta Fazer CashGuard Group Power +- - Role +- - Task/achievement +- - Person/support +- - Note: Codes: + Data agrees with theory +- Data somewhat agrees with theory

- Data does not agree with theory The following section will provide a comparison between Cloetta Fazer and CashGuard Group when it comes to the choice of organizational model. In Cloetta Fazer, there were a lot of discussions about the choice of which organizational model to have, as the companies differed much in this area. It is important to really discuss and to decide which model that is the correct, and most appropriate. To work with matrix in the process organization was really tough and difficult for one of the partners (Fazer), as they was not used to that. The model was discussed by the top management of each company, also called the fusion steering group, who went through the organizational model. After that, the decision was made in the corporate management, who then continued with using ”Affärsakademin”, to go through why they work like this, and what it means when they work in this form. It took a long time for people to adjust to the new model, and Kenneth Söderholm thinks that still there are difficulties in adjusting to the model, despite the fact that the merger took place five-six years ago. However, it is a common situation, not everyone can always be pleased or satisfied when doing this kind of large organization changes. It is difficult working in a matrix organization, since the employees have to report to two directors in a matrix organization. For example, if a person is work as a marketing director in Sweden hi or she have a central marketing director that they have to report to concerning marketing questions, and then locally the employee have a local vice president to whom they also report to. It is a crossroads and balance of whom the employees should obey whose advice should they correct themselves after. The positive aspect of a matrix organization is that the employees can work internationally, all the marketing people in different countries

ANALYSIS

52

work together, and then they learn of each other much faster, so called fast learning. In the case of CashGuard and SQS the cultural similarity did help the companies more than destroying it. The difference was that SQS had a production related organization and CashGuard had a marketing oriented organization. When these two cultures’ was mixed together it has not created any problems. A comparison of our two sample-companies in terms of organizational model is displayed in Table 5.6.

Table 5.6: Organizational model Theory Cloetta Fazer CashGuard Group Using one or the other culture - - Form a culture that integrates the strongest characteristics of each culture

+ -

Building an entirely new culture that is not based on how each culture was before

- +

Note: Codes: + Data agrees with theory +- Data somewhat agrees with theory

– Data does not agree with theory

FINDINGS AND CONCLUSIONS

53

CHAPTER 6 FINDINGS AND CONCLUSIONS The purpose of this study has been to gain a better understanding of the conditions companies should fulfill in the pre-merger phase in order to ensure merger success. In this last chapter, we review and discuss the contents and issues of the thesis. After that we will answer the research questions stated in chapter one and draw conclusions from the analysis in chapter five. Finally, implications for management, theory and further research will be provided. After conducting this study, we found that the area of the pre-merger phase is highly complex and the fact that there is not much research on this topic was confirmed. Our findings indicate that it is external factors such as increasing number of mergers among customers and competitors combined with economic motives as minimizing the costs that led our sample-companies to merge with their respective partner. Regarding the procedure and criteria for selecting a merger partner, our findings generally supported theory, even though Cloetta Fazer and CashGuard Group operate in different industries. When it comes to the role of organizational culture and its impact in the pre-merger phase, we found that Cloetta and Fazer had different organizational cultures, while CashGuard and SQS did not. However, neither of the companies involved in the two mergers did a cultural due diligence, as both Cloetta Fazer and CashGuard Group had production collaboration prior to the merger. When data was analyzed from our sample-companies against the variables used to define what measures should companies take or what requirements they should fulfill during the pre-merger phase in order ensure merger success, we found that both Cloetta Fazer and CashGuard Group in their pre-merger phase satisfied the conditions (as specified in theory) leading to a successful merger, even though their ways to success in the merger have looked different from each other. In the section that follows, conclusions and implications of this study will be provided.

6.1 Research Question One: Procedure and Criteria for Selecting Merger Partner When it comes to the conditions that companies have to fulfill in the pre-merger phase to ensure merger success, Cloetta Fazer and CashGuard Group had rather the same results. Both Cloetta Fazer and CashGuard Group first analyze what kind of competence that exists in the companies. According to Cloetta Fazer it makes a big difference if there are old conservative staff or if the staff is dynamic. CashGuard Group uses the benefit of the employees’ knowledge to become stronger on the market but also develop new products that use complementing technical competence of each other. The small difference between Cloetta Fazer and CashGuard Group maybe the fact that they are in different industries and that Cloetta Fazer aims at broaden their market, while CashGuard Group wants to become one of the world leading companies within the security industry. In addition, the purpose for merging with each respective partner was evaluated in different manners, as Cloetta and Fazer wanted to become bigger, while CashGuard and SQS wanted to minimize their overhead costs and offer a broader range of security solution. Parameters were something that both companies took into consideration before entering the merger, but since both Cloetta Fazer and CashGuard Group each already knew their upcoming merger partner and had cooperation, they saw the merger as a natural step. However, it seems like if it was more of a forced option for Cloetta Fazer to merge, since they needed it in order to compete against other major actors within the chocolate- and confectionary industry. For CashGuard Group, the merger option was more natural, as SQS was the only existing company in Europe that had such unique technique. Both Cloetta Fazer

FINDINGS AND CONCLUSIONS

54

and CashGuard Group do not consider that they made any mistakes, even if Cloetta Fazer only tried to launch 12-20 brands and have separate IT-systems in Sweden and Finland, but as both had prior experience of the other company, there were no major mistakes made in the pre-merger phase. Furthermore, the common criteria for choosing partner appears to be that both companies think that it is important for a possible merger partner to have an assortment that compliment or add something for them, and further develop the company. As Cloetta Fazer is within the chocolate-and confectionary industry, they are not an innovation company and their products are unique, but not in the same way as the products of CashGuard Group. Cloetta Fazer had more options for possible merger partners, as there are many European actors within the chocolate- and confectionary industry, even if Cloetta Fazer only looked at Nordic companies. CashGuard Group on the other hand is forced to constantly develop as technology continually makes breakthroughs, and their products are one of its kinds. In view of the above discussion regarding how procedures and criteria used by companies for selecting a possible merger partner be described, the following specific conclusions emerge: • Companies do not seem to have any specific criteria for selecting a merger partner.

• Companies do not seem to consider the possibility of making mistakes in the choice of

merger partner during the pre-merger phase. • Companies who have had some kind of collaboration in the pre-merger phase find it

natural to form a merger. • Irrespective of industry, gaining new market shares and reducing overhead costs is the

most common criteria for companies entering into a merger. • A major criterion is that companies want to develop/improve their products by sharing

their knowledge and resources in order to reach their aims. • It is important to make sure that due diligence is thorough and to critically evaluate the

information from the due diligence process.

6.2 Research Question Two: Role of Organizational Culture When it comes to organizational culture, it differs somewhat between Cloetta Fazer and CashGuard Group. Organizational direction and shared purpose is one common statement that fits both Cloetta Fazer and CashGuard Group, since they both want to gain more market shares within their respective industry. The difference between Cloetta Fazer and CashGuard Group is that Cloetta Fazer needed to take more of the organizational differences into consideration than CashGuard Group, since Cloetta and Fazer had quite different organizational models before the merger. Even though Cloetta and Fazer were from Sweden and Finland the national culture was not as big issue as they could imagine since it is difficult to prepare before the merger. However, it also stated that regardless of national culture, people will always find each other as they have their work in common. The main problem for Cloetta Fazer was due to the difference in organizational culture rather than national culture. It might be more difficult to come up with a common solution for the new organization that satisfies everyone. CashGuard Group had it easier in this aspect, they both were Swedish companies and did not have any major cultural

FINDINGS AND CONCLUSIONS

55

differences or any organizational differences. One thing that might have helped to smooth the process even more was that Anders Eklund was the former Vice President in both CashGuard and SQS. Both companies and their respective partners have come up with a solution that fit them both, even though it is difficult and the employees can have a hard time to accept the new structure. To minimize this, it is wise to involve the staff early in the process of making a new organization structure, which both CashGuard Group and Cloetta Fazer did, but in different ways. Also, both Cloetta Fazer and CashGuard Group had collaboration together with respective partner before the merger and had the time to get to know each other well before the merger took place. Cloetta Fazer’s organizational culture differed from companies’ previous cultures. Fazer was a family-company with a long–term planning thinking where quality most often came before profit and Cloetta was listed on the stock market and was very result oriented. CashGuard and SQS had more similar backgrounds; however, CashGuard was listed on the stock market, while SQS was more focused on production. CashGuard bought much of their production from other companies. The difference was actually in that SQS had a production related organization and CashGuard had a marketing oriented organization. When these two different organizational structures were combined, it did not raise complications. One thing that might have helped CashGuard and SQS with such a smooth merger is that that they have had the same vice president in both companies and that the companies had a joined production two years before the merger. Moreover, Cloetta Fazer seems to be more aware of the cultural differences that can arise when a merger is taking place. This is something that can be helpful and also that companies and managers have to be more prepared for possible misunderstandings and that staff can have difficulties to communicate with each other. In Cloetta Fazer there were a lot of discussions about which type of organizational model that could be used and that it is still difficult adjusting to the new model despite the fact that the merger took place about five-six years ago. One possible aspect of this can be that both Cloetta and Fazer had a long history within the chocolate-and confectionary industry and also that it is between two companies that have a strong organizational model. For them it was better to start with a new organizational structure to make the merger work. Meanwhile, CashGuard and SQS were quite new companies and had not yet developed such a strong culture. Both companies were also a little smaller than Cloetta and Fazer before the merger and the fact that both CashGuard and SQS were from Sweden facilitated the organizational cultural differences since they did not have do consider national differences. In view of the above discussion with regard to research question two: how can the role of organizational culture in selecting a possible merger partner be described, the following conclusions can be made: • It is significant for the companies to have a common goal, i.e. the merger should not fail. • For companies that enter into a merger, it may be better to form a totally new

organizational model than use one of the old models. • Cultural differences are important to be aware of and not ignore them.

• Companies that have collaboration with each other before entering a merger have a better

chance of success.

FINDINGS AND CONCLUSIONS

56

• Involving the employees early in the process is important, to make them feel they are part of the merger process.

6.3 Implications

6.3.1 Implications for management When merging with another company, it is important that management aims at uniting the resources of the two companies, and not having one company acquiring the resources of the other company. Further, management should be aware of the importance of starting the integration planning as soon as possible; i.e. directly after the merger partner has been selected. A cultural due diligence in the pre-merger phase is also important, which provides employees with an understandable portrait of where management desires to take the merged unit. Moreover, management should inform and prepare employees already in the pre-merger phase, as this reduces stress and the possibility of conflicts among employees. Not doing a cultural due diligence nor speaking to the employees can lead to future cultural conflicts if not dealt with properly. Something managers should have in mind and express is to always have respect for the merger partner, be open-minded and willing to change, create trust in the merged unit by involving employees early and actively in shared projects, and also highlight team work between all departments. Additionally, it seems to be a good idea for the merged unit to have a management gathering, in which all implications and matters are discussed.

6.3.2 Implications for theory The purpose of this thesis was to gain a better understanding of the conditions companies should fulfill in the pre-merger phase in order to ensure merger success. In order to full fill this purpose we investigated what Cloetta Fazer and CashGuard Group had taking in consideration in the pre-merger phase to become successful in their merger. When reviewing the literature in an early stage of this thesis we have found that merger is a vast topic and that it is hard to cover all aspects of mergers. Also, the concept of mergers and acquisitions often are used as they were the same. Researchers and authors often mix and treat them as if it is the same. After conducting this study we have noticed that in the theory that we used, there might be a huge difference in merger and acquisition. In reality merger and acquisition are just definitions and companies do not differentiate between these two words.

6.3.3 Implications for future research This study has provided us with an idea of the range and depth of the area of the factors that influence company decisions for a merger. We believe that this is a vast and appealing topic to pursue research. Below are some recommendations:

• Both case-companies are within different industries, but we would find it interesting to investigate two companies in the same industry, in order to see if there are any differences in the criteria for selecting a merger partner.

• Researchers could investigate whether there is tendency towards neglecting the

cultural due diligence in mergers where there has formerly been a history of partnership, long-term relationship or strategic alliance.

• Further research could investigate if there is a difference in how the criteria and the procedure are handled by a European and Asian company that form mergers.

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Interview Anders Eklund, former Vice President of CashGuard Group, 29/11-2005, 9.00-9.30 Kenneth Söderholm, Personnel Director at Cloetta Fazer, 28/11-2005, 14.00-14.40

APPENDIX 1

61

Interview guide (English version) Research question 1 How can the criteria used and the procedure followed by a company for selecting a possible merger partner be described?

• Why did you merge with each other?

• How can you be as successful as possible in the pre-merger phase: - Partner - Purpose - Parameter - People

• Do you have any special criteria for selecting a possible merger partner? • When having defined the motives for merging with another company, how do you

proceed or carry on?

• You may have specific criteria for selecting a possible merger partner, but is that something you really follow, or in reality do you handle it another way?

• Do you consider that you made any mistakes before the merger? Was there something

that you could have done better or in different way?

• Do you have any tips on how to better succeed in the pre-merger phase?

Research question 2 How can the role of organizational culture in the selection of a possible merger partner be described?

• Are there any differences between the two organizational cultures? If so, how does that affect the pre-merger phase?

• Do you have any specific integration mechanisms for different organizational

cultures?

• On what basis did you decide on which organizational model to implement/use?

Other questions

• Do you make a difference between mergers and acquisitions? • What went on in the companies before the merger was established

APPENDIX 2

62

Intervjuguide (svensk version) Forskningsfråga 1 Hur kan kriterierna och proceduren följt av ett företag när det gäller valet av framtida sammanslagnings partner bli beskriven?

• Varför gick företagen ihop med varandra?

• Hur kan företaget bli så framgångsrika som möjligt i fasen innan sammanslagningen?

- Partner - Syfte - Parameter - Anställda

• Har företaget något specifikt kriterium, när det gäller val av framtida

sammanslagnings partner? • När företaget har definierat sina motiv för en sammanslagning med ett annat företag,

hur går processen vidare efter det?

• Har företaget några speciella kriterium när det gäller valet av en framtida sammanslagnings partner, iså fall är det något ni följer i verkligheten eller kan ni undan gå detta?

• Anser företaget att det gjordes några misstag innan sammanslagningen. Var det något

som ni kunde ha gjort bättre eller på ett annat sätt?

• Har Ni några tips hur man kan lyckas bättre i perioden före en sammanslagning?

Forskningsfråga 2 Hur kan rollen av organisations kultur i val av framtida sammanslagnings partner bli beskriven?

• Är det någon olikhet mellan de två företagens organisations kulturer? Om så är fallet, hur påverkar detta fasen före en sammanslagning?

• Har företaget någon specifika integrations verktyg för olika organisations kulturer?

• På vilken nivå bestämde företaget vilken organisations modell som skulle användas?

Övriga frågor

• Gör företaget någon skillnad på en sammanslagning och förvärr? • Vad pågick i företaget innan sammanslagningen etablerades?