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SUMMARY The corporate body has been likened by us to a human body ; just as we sometimes becomes ill, so does a corporate body. For both ourselves and a company, various symptoms appear as a recognisable prelude to sickness. Company decline is a symptom of an oncoming ` sickness `, which if not identified and -^remedied, may well lead- to failure. Despite the accumulated body of knowledge on the management of corporate bodies and despite a large number of success stories in that context all over the world, some companies are always in danger. One estimate puts it at one in four. Initially, perhaps, this may be due to external factors but if the management is not alert to what is happening, the problems escalate and the company begins to have financial problems, such as cash flow and ultimately, of course, the balance sheet may be seriously affected. By then it may well be far too late ; certainly the damage ( disease ) may have spread widely enough to make recovery much more difficult. We can look at possible strategies that can be adopted by the company management to stop further decline. The strategy should, of course, do more than that : it should also get the company on 9596 the road recovery. There is no single strategy that will fit all situations. It has to be specific to each case, designed to tackle and solve the problems confronting that particular company. We deal with the subject of turnaround and recovery of companies. We assert that a sick company, like a sick person, needs to have a ` doctor ` to diagnose the problem and prescribe and administer the treatment. The parallel between the human body and the corporate body is very close indeed. As with the person, so with the company : the doctor can play a vital role in restoring the patient to health. In both cases, depending on the complaint, a specialist may be needed, although a general practitioner may take the initial diagnosis. Like human patient, the corporate body can only describe the symptoms ; it needs a doctor to identify the basic cause. In both cases patient ' s condition and history have to be documented, certain tests have to be carried out and an analysis of these will lead to the final diagnosis. Thereafter, of course, the prescription is written out and the treatment starts.97 In both cases, one person can make all the difference and if he is experienced and competent enough, a cure follows. The new breed of managers which we among others have chosen to call ` company doctors ` were rare just five years ago, but their numbers have been increasing fast to meet the demands of the marketplace. They have to be decisive, make quick decisions and be strict disciplinaries. The company may be in serious trouble and unless something is done fast, it is as good as dead. The options at this point are very limited : there is the possibility of survival and revival but the action taken has to be immeddiate and drastic if it is to succeed. In this work, we consider the strategy that involves a change of ownership, represented by terms such as : ` acquisition ` and ` merger `. These terms are by no means mutually exclusive. For example, company A may acquire company B and then let the latter operate under its original name but with a change of top management. Alternatively, company B may be merged into company A, in which case B will lose its identity. Such acquisitions are usually negotiated deals98 between the two companies, but is in trouble, it may have options. if company B rather limited Why would B, especially where it has alternatively it company A wish to acquire company if it is in financial trouble ? There could be a variety of reasons. For instance, the acquisition might strengthen its own position an established product line ; might wish to diversify into another related or even unrelated area. The main attraction, of course, is that because company B is in trouble, it can be acquired at a ` bargain price n which company A can largely dictate. Further, the losses of B can be offset against the profits of A, this bringing substantial tax savings. Some countries actually go so far as to offer fiscal incentives to a healthy company for rescuing an ailing company. Then there is * the further benefit that the additional facilities are available for immediate use - there is no waiting period required to formulate the project, execute it and run all the risks of time and cost overruns - and the merits of such a takeover or aquisition become very clear. The new assets acquired may99 prove to be most valuable to company A and in the process company B may well have a better chance of recovery and revival. It should there for be supported by the workforce and management of company B, although they will have to sacrifice part of their management function to their new master, company A. Acqusitions and mergers are usually brought about through a process of negotiation, often friendly, since the process is expected to benefit both companies. Takeovers are in a rather different category, since more often than not they are not so friendly. These are the so called hostile takeovers. They can be initiated by a raider, whose main interest is personel game, although he presents himself in the guise of one who can bring benefits to the existing shareholders. Takeover battles have been most common and most fierce in the U.S.A., but the phenomenon has become quite common in Europe as well, another countries such as Australia and India are by no means immune. Even Japan has caught this infaction, despite the conservatism that prevails there and the fact that Japan has a business style entirely its own. A detailed examination of mergers and acquisitions shows that many of them failed because100 of their flimsy rationale and poor and in adequate exceution. Indeed, in many cases they later have to be divested, usually at a loss. The only parties to profit are the lawyers, the merchant brokers and the go - betweens, who get paid by the hour or in the case of a win, reap commission which is a percentage of the value of the deal. The process of acquisition and merger are design to help to put a company on the path of recovery, but as we have seen, more often than not the exercise actually proves to be counterproductive. While the drama is being played in the backrooms, the workers, together with the middle and senior management of the companies concerned keep wondering or trying to guess what is happening. Their faith is being decided without their having any say whatever and, what is worse, they are seldom informed of what is in store for them if deal goes through. This failure is in communication demoralizes everyone concerned and the grapevine takeovers. For success open communication is essential. There is no doubt that the importance of effective communication throughout the corporate101 structure is well recognised but, unfortunately largely absent. We will point out that the weakest link in the communication process is listening. If no - one listens, any attempt at communication collapses. Merging a company ` in distress with another healtier company is supposed to rescue the former ; in practice it does not always work out, using a host of examples worldwide. The motivation for buying and selling companies varies considerably, but it is important that both parties understand what they want from one another. First, what is the buyer looking for ? It could be : - An opportunity to grow faster with a ready - made market share. - To eliminate a competitor by buying it out. - Better integration - horizantal or vertical. - Diversification with minimum cost and immediate profit. - To improve dividend yield, earnings or book value. - To forestall the company's own takeover by a third company. x& YÜKSEKÖ?HBÎB ?-h102 - To enjoy the prospect of turning around a sick company. On the other hand why companies available for sale ? Some of the reasons are : - Declining sales or earnings. - An uncertain future. - Owner wants to slow down or retire with no successor in sight. - Desire to maximise growth under the umberalla of a larger company. - To raise cash for a more promising line of business. - A lack of adequate financial and management skills. - To concentrate time and effort on what it can do best. The stages that have to be gone through in order to conclude a deal, either directly or through an intermediary, include : - Search and exchange of information about each other. - Preliminary investigation followed by series negotiation.103 - Contract development and closing the deal. A comprehensive list of motives for mergers contains as many as 13 items, the more important among them being : - Larger scale for better economies and profitability. - Expand market share and eliminate a competitor. - Diversified and thereby restructure to weather the storms. - Better and fuller utilization of manageral and financial resources. Other motives could include these points : Acquisition is a cheaper and faster method of entering a new market or a new country. It's easier too, since entrepreneurial skills, which are required when you start from scratch, are rarer. There are indeed a multitude of motives, although one or two may predominate in a specific situation. The decisions taken are often based on inconsistent and even incomplete information. With a particular acquisition or merger, some of the motives may even be conflicting and104 incompatible. What is worse, they may be delibaretly suppressed during the negotiation stage, their later revelation leading to serious conflict once the deal has been consummeted. This can pose problems which would have been much easier to solve had they been aired during the negotiations, well before signing and sealing the deal. Acquisition and merger can help a company to attain better integration - vertically and horizontally - and they are also a way of ensuring that you do not have all your ` eggs in one basket `. But one surprising feature of the acquisition and merger phenomenon is that even competing companies can find it rewarding to cooperate and merge, provided the law of the land ( on monopolies, for example ) permits it. In the 1960s, there were serious personnel and industrial relations problems as a result of acquisitions and mergers, but these seem to be fewer now that management is more alert to them. There is a lack of detailed information on this aspect, however perhaps the problems are swept under the carpet in order to present a brighter picture. More work and research is required105 in this area so that the pitfalls are highlighted and can serve as lessons for companies considering acquisitions and mergers. The research should include the long time results of acquisitions and mergers on management and other personnel, the degree of centralisation, wage differentials, the impact on pensions, fringe benefits and working conditions. The time period on which such a study is based should ideally include a complete business cycle, with its highs and lows. Having established that motives for aquisition and merger are complex, diverse and change over time t it is difficult to form a clear - cut picture of the policy that relates to them. Bach country's policy is unique, being based on multiple techno- economic and socio-political criteria. Over a period of time the national merger policies seem to have become less liberal in Europe. There are also somewhat contrary trends in that mergers involving large companies are subject to close scrutiny in some countries, because of the need to conform to the laws relating to monopoly and the like, whereas in some other countries, such as Italy, small and medium size companies are shielded and protected against bids for merger made by large companies in order to gain control106 of the market. More and more countries are regulating and controlling, either explicitly or implicitly, the aguisition and merger business. This has been a growing feature of the attitude taken by governments since the mid-1970s. While initially merger control was merely an instrument for the control of competition, the matter has now become much more complex. Merger control is now often used as an instrument for policies relating to the labour market - by safeguarding employment ; and the industrial structure - control of capacity and competition. The merger of two companies involves the marriage of two corporate cultures, often quite different. Merger failure is usually ascribed to a clash between the cultures of the two parties, but this need not be so. Problems supposedly arising from clash of two dissimilar cultures can and have been surmounted by the acquiring company sending the right signals. The word M merger ` is usually dreaded, because there have been so many failures in the past - all the more reason that care should be taken by the acquiree ( the current in - word for the company107 making the acquisition ) to send the right types of signal. These are that there will be : - A foundation for a new employment relationship. - A spirit of mutual adjusment. - Integration by cooperation. The last item means that a firm merges, it is not merged : a subtle but most important difference. Although acquisitions and mergers are on the increase, they do not necessarily live up to the expectations of those who initiate them, even when the recipe for success is closely followed. We have outlined above the types of signal which, if sent to the acquired company, can ensure success. Another recipe for success is stated to be a strategic and organisational fit between the two companies. Of course, a perfect fit is neither possible nor should it be sought. Failure in this context can occur because : - The agreement, instead of being a cohesive whole, is fragmented due to the involvement of outside specialists and experts, each with their different opinions and independent108 goals. - The hurry to close the deal leaves some integration issues unresolved. - Both parties leave certain aspects unsaid, sometimes deliberately. These factors cause conflicts as the two companies get on the with the detail of integration. During the negotiations there is hectic activity among so many different people, some from within the organisations but many from without, that is hard to tell who is doing what. These people have never work together as a group before, nor do they share a common expertise or even language, so that proper communication is extremely difficult. Acquisitions and mergers are seen as an instrument for preventing the decline of companies and restoring them to a condition of health. To use a simple but effective analogy, industry is likened to a coal stove : Fresh coal is fed in at the top, and ash withdrawn from the bottom. These keeps the fire going and stove is not choked. Likewise companies can stay viable and healthy by acquiring an attractive business. Such a business may well be in decline but still offers109 great potential to an alert management, while at the same time the seller may be relieved to be rid of it. It is evident that no industry is immune from acquisitions and merger. The overall record of recent years shows that one out of three acquisitions or merger is later undone and the number of divestitures has therefore grown rapidly. Successful mergers seen to have some common factors : - The companies concerned are inclosely related fields. - The deal is financed by stock swap or cash rather than by borrowing. - There is no undue premium in the purchase price. - Management of the acquired company usually stays on. We believe that the n don'ts ` are important for success in acquisitions and mergers : - Don't leap before looking. - Don't pay too much cash. - Don't assume a boom market will always remain so. - Don't stray too far behind or field.110 - Don't swallow something that is too big. - Don't marry different or contrary corportae cultures. - Don't count on the key managers of the acquired company staying on. We noted earlier that each country has its own laws to control and regulate the process of acquisition and merger. The details are too technical for our present purpose. To illustrate the type of process and thinking going on in this field, we shall discuss the policy in Britain and Japan. If company A thinks that it can manage company B, possibly in trouble, and help to improve its operations or arrest its downs 1 ide and put it on the road to recovery, it is perfectly free to persuade the shareholders of company B with facts and figures. This can be overdone, however, as occured with the Guinness / Distillers ' affair in 1986, when the public was bombarded with full - page advertisements from the parties concerned. The management of company B can of course counter company A ' s claim and put forward its own case. then market forces will decide the final outcome.Ill There is a lot to be said for minimum government intervention, but existing merger legislation in the UK and many other countries provides wide enough powers for the government t o intervene. Unfortunately it sometimes intervenes in cases where it serves no useful purpose. Not all transactions are made on a rational basis, nor do they all succeed. Some are made merely to grow big and create an `empire` without regard to true value. In Japan, the emphasis in acquisition, mergers and takeovers should be on the strengthening of joint developments in technology and international marketing for mutual benefit. Thanks to international pressure, Japanese companies and authorities are welcoming investments by foreign firms and this is helping to encourage the flow of technology and finance into Japan. The target companies are often -^in decline or financial distress. They need cash, technology or sound management, or some mix of these. The company may be family - owned or family - influenced. The acquirer will have to learn the rules of112 business in Japan and it helps to have a third party, trusted by the target company in order to help to smooth the purchase. Often money alone may not be enough. It may have to be ` sweetened w with technology. This technique has to be mastered, and it calls for a lot of patience. According to the Turkish Commercial Law ; merger is the establishment of a new company while two or more trade companies merged each other or participation of one or more trade companies to another one. Merger is realised only by same type of companies according to the Turkish Commercial Law. The working activities of these companies may be different. The main elements of merger : - The whole property of the company has to be trans fered to the merged company. - As a result of a merger, some amount of share has to be delivered to the abolished company. If not, it is not a merger but it will be a sale. - The company which transfers whole property to another one, is disolved.113 According to the Turkish Banking Law, article 70, The banks operating in Turkey, may merge with one or more banks. The banks operating in Turkey, we don't mean ` national bank `. It is possible to merge of a national bank and foreign bank. But foreign banks which ar« not subject to the Turkish Banking Law, can not merge with national banks in Turkey. Other than in Turkish Banking Law, merger is the way of financial recovery of banks which are in collapse. In Turkish Banking Law, the provisions applied to acquisitions and mergers are different. In case of merger, one of a bank will lose its identity, but in case of a acquisition, one of a bank operate under its original name but with a change of top management. In Turkish Banking Law, banks can be established only in the form of joint - stock company. ( Turkish Banking Law, Article 5 ) In case of a merger of a national bank with a foreign bank, it is sought to be identity of forms. In any case, if a foreign bank has been established in Turkey, it is compulsory to be established in the form of joint - stock company. It is difficult to estimate how much of the114 acquisition and merger activity worldwide is for the purpose of arresting the decline of these companies, and how is to make a quick profit. But the fact that it is usually companies that are grossly undervalued on the stock exchange which attract raiders and the like, is an indication that something is wrong. Undervaluation is, of course, in relation to the potential of the company. This does mean that with the right strategy and sound management the company could probably do much better in the matter of realising its full potential. Unfortunately, the existing management hardly ever s ems to wake up to the position and do something about it and to that extent acquisition, merger serve a valuable purpose if the new owner can diagnose the malady and provide the right remedy. 114