Abstract
The ease of doing business ranking in India is improving very fast, because of policy reforms, like Real estate Regulation bill, Insolvency and Bankruptcy bill (IBC) Goods and Sales Tax bill(GST). Research suggest that mergers and acquisitions environment has been very phenomenal in generating momentum in business. The national company law tribunal (NCLT) nod to Vodafone idea conglomerate will open Pandora of mergers in future for market supremacy, sustainable customer solutions, leveraging more financial resources in India. Mergers and acquisition come with lot of opportunities but due diligence is needed. Apart from value creation and shareholders wealth maximization, the focus should be on sustainable customer satisfaction. This paper highlights various contours that are required to make merger and acquisition successful. This study focuses on how mergers and acquisitions affect the consumer’s buying behavior, brand equity and advertising pattern of new venture. The current study examined the motivation to recognize either the assumed benefits of the deal of Mergers and Acquisitions have increased or not.
When one company takes over another and clearly establishes itself as the new owner it is called acquisition. The Target Company ceases to exist. Acquisition can be in the form share purchase where by control of interest in the target company is acquired. For example in September 2016 Tata Power Renewable Energy private limited acquired shares of Weespun Renewable Energy limited for around 1.4 billion USD(9249 crore INR)there by increasing the Green energy portfolio by 1.4 GW.
In mergers two or more than two organization constitute one organization (Alao, 2010). Merger is the legal activity in which two or more organizations combine and only one firm survives as a legal entity (Horne & John 2004).In a merger two or more firms approach together and became a single firm while in acquisition big and financially sound firm purchase the small firm.
Mergers are of different types, Horizontal merger (merger of companies involved in same industry and in direct competition e.g. Idea and Vodafone, Flipkart and Myntra) Vertical merger (operating in same industry but at different levels within the industry supply chain e.g. Reliance and Flag telecom group) a conglomerate merger (where completely unrelated companies come together to achieve synergy benefits).
In a typical merger, the shareholders of the transferor company are allotted shares as consideration for their holding in the transferee company. As recent as August 2016, an amalgamation of Aditya Birla Nuvo Limited (ABNL) with Grasim Industries Limited (Grasim), both being listed on stock exchanges, was announced in a bid to unlock shareholders’ value and create a 9 billion USD (60,300 crore INR) consolidated enterprise. India’s largest oil producing company, Cairn India Limited (Cairn), merged with the metals and mining giant Vedanta Limited (Vedanta) in an all-share deal amounting to 2.5 billion USD, whereby the public shareholders of Cairn would be allotted equity and preference shares of Vedanta.
There are two theories explaining why firms or corporates acquire or merge with other firm.
- Monopoly theory : this theory postulates that the firms use the route of merger and acquisition to raise the market power (Steiner 1975, Chartjee 1985) example Flipkart taking over Myntra to be market leader
- Efficiency theory: this theory postulates that mergers and Acquisitions M&A are planned to reduce the cost of achieving the economies of scale (Porter1985 Shelton 1988) example.
Over the decades, the practice of merger and acquisition (M&A) has attained considerable significance in the contemporary scenario, and is used broadly to reorganize business entities. There are many benefits of M&A. Srivastava (2012) stated that M&A can improve cost efficiency through economies of scale. Others have shown that M&A can increase sales by gaining market share. Through M&A, firms can also buy new technologies, products, and distribution channels and can thus achieve a desirable position in the market.
The main objective of Merger and acquisition by the firms both in the developed and developing countries is to work with other companies that can be more beneficial then working alone. The return on equity along with shareholders wealth increases which helps in decreasing the operating expenses for the firm. With mergers and acquisitions M&A business takes the path of exponential growth instead the linear growth which generates continuous interest. The final nod given by National company law tribunal to the Vodafone Idea merger on august 30, 2018 will make the Vodafone idea limited the largest telecom operator in India in terms of subscribers and revenue surpassing Bharti Airtel. This will further give the Vodafone idea limited short in the arm to take on both Bharti Airtel and JIO.
Apart from public sector undertakings whose prime concern is the social welfare, the main objective of every business organization is profit maximization to increase the wealth of shareholders. Every organization adopts different strategies, techniques and marketing mantras to maximize the profit to keep the interest of shareholders going in the cut throat competitive business environment. There exist certain events for which every organization has to respond differently .in order to maximize gains like entering into a new market ( Jio Entry into 4G market)launching new product ( Mahinda XUV 500) increasing portfolio ( HUL) need strong financial resources else the competitive advantage will be lost.
In this paper We are trying to highlight how marketing along with advertising pattern and customer behavior of the new merged venture evolve .There has not been ample research on marketing aspect of M&A. Results from a survey of 232 horizontal merges show that market related performance after the M&A has a much stronger impact on financial performance then does cost saving e.g. Hindalco could have not reached the zenith if relied on cost saving.
There is growing belief that all the value creation takes place after the acquisition (Haspeslagh & Jemison, 1991 p,129) the topic of post-merger integration has received increasing attention however marketing related issues of post-merger integration such as whether and how two firms marketing activities are integrated and how this affect the merged firms have been neglected. In recent Vodafone Idea merger both companies kept the individual brands intact and there has been no post-merger integration strategy visible, which gives Reliance Jio an edge to rise the ladder. The fear of losing customers during the integration phase is evident in case of Vodafone idea integration. The technicalities of integration keeps the managerial energy absorbed inside internal issue which within no time loses sight of the customer related issues. This has cascading effect on service quality
There are three issues which should be kept in mind in M&A. First is how the marketing integration process (extent and speed of integration affects the integration outcomes (Magnitude of cost saving and market related performance) second investigate how these relationships are affected by certain moderators (customer orientation of integration, market growth, product /service industry, relatedness of the firms. Third importance is market related performance (compared with cost saving) for M&A performance.
The principal benefit of M&A is increased value generation. Evans (2000) observed that the best mergers seem to have four strategic reasons that is positioning (to take advantage of future opportunities Vodafone and Idea when it comes to spectrum allocation for 5G), gap filling (to cover weaknesses e.g. Flipkart taking over Myntra to strengthen its position vis a vis Amazon), organizational competencies (e.g. Adidas and Reebok) and broader market access (Facebook and WhatsApp).
Apart from the law of the land a possible consequence is that decisions are made predominantly on the basis of internal criteria, such as internal structures, processes, power distribution, or individual managers' preferences. Against this background, a define customer orientation of integration as the extent to which decisions about marketing integration are driven by customer-related considerations rather than internal considerations.
A high level of customer orientation of integration is present if decisions are strongly influenced by the goal of creating additional customer value rather than reducing the costs of serving customers. In the case of a high customer orientation in PMI, decisions are driven by cost reduction motives to a lesser extent. Therefore, an increase in the extent of integration will produce less cost savings in this situation than in a context of low customer orientation. Furthermore, we predict that a high level of customer orientation can alleviate, at least to some extent, the negative market-related consequences of integration.
When decisions to integrate brands, product variants, or distribution channels are made with a strong focus on customer value, the negative market-related consequences of a high level of the extent of integration should be weaker.
The speed of integration is vital and serves as means to reduce uncertainty among customers. the orientation of customers towards a brand serves as partial substitute for speed in reducing customer uncertainty caused via M&A. Customers will still believing that integration decision are driven for their consideration . The belief of customers in new venture increases brand value and reduces uncertainty. While as in case of high customer orientation integration speed becomes less relevant as a means to reduce customer uncertainty and avoid detrimental effects on market-related performance.
The relatedness of firms market position includes firms market position to the extent its offers are similar in terms of customers’ needs they satisfy in terms of quality and pricing Consistent with previous studies (e.g., Hagedorn and Duysters 2002), a high level of relatedness offers a great potential for cost reductions. Thus, an increase in the extent of integration may result in greater cost savings when the market positioning of the firms is highly related. However compelling argument for why the relatedness of market positioning should moderate the impact of the extent of integration on market related performance. The potential scope of changes (e.g., repositioning the strategic focus of the entire firm) is much greater in M&A between unrelated firms (Larsson 1989).
Because of the reduced potential for changes in highly related M&A, a lower level of uncertainty among customers about their future relationship with the merged firm is likely. Because uncertainty reduction is the major effect of integration speed, an increase of integration speed has a smaller impact on market-related performance when relatedness is high. E. g .The failed case of M&A of Microsoft and Nokia wherein customers could not relate with either firm. In these conditions, internal conflicts, inter organizational competition, holding back of information, and so forth, are likely consequences and will absorb managerial energy that is needed to serve customers. Against this background, an increase in the integration extent will produce greater damage to market related performance when the relative size of the acquired firm is high. With respect to integration speed, the number of customers affected by the transaction is greater when the relative size is high. When the acquired firm is relatively small in proportion to the acquirer, with an increasing relative size, the customer base affected by the integration also broadens. In turn, the potential for rumors about possible changes, which lead to uncertainties among customers, also increases. An increase in integration speed is more likely to be beneficial for market-related performance when the relative size of the acquiree is high.
Brand equity is the term that marketers use to refer to the value created by establishing customer preference for one’s brand. Keller (2013) stated that brand equity reflects the consumer’s feelings and actions toward the brand. It has implications on the prices and profits of the brand in the marketplace and helps market capitalization of the company owning that brand. Strong brand equity helps to improve the marketing of a firm. Aaker (1991) stated that there are five assets of brand equity for the creation of value: brand loyalty, brand awareness, perceived value, brand association, and other proprietary brand assets.
When a company with an inferior brand value is acquired by a company with strong brand value, the brand value of the acquirer gets a hit. The perceived quality, brand association and brand loyalty Results from the MANOV and T test show that greater the perceived difference between the acquirer and the acquired brand the more the brand equity of the acquirer will increase .Hindalco which used the M &A to become one of the largest manufacturers of aluminum in this process the Indian commodities player turned into an integrated global major player and boosted revenues from 30 times from $500 million to 15 billion USD in just 7 years. Hindalco acquired several companies before it pulled up Atlantic headquartered giant Novelis IN 2007. Each take over thought Hindalco the industry related skills and M&A techniques, Hindalco cultivated both kinds of capabilities to acquire a North American twice of its size.
Conclusion
There is dearth of research on successful M&A, apart from few papers the focus has not been entirely on marketing aspect of M&A .Usually M&A process is deemed to be complete when the legalities are done. The competition commission of India takes note of nature of M&A so as to safeguard the customers from any predatory pricing. M&A is a wonderful tool in the hands of shareholders and CEOS to maximize the profits, increase market share, strength the financial position, leverage the resources for attractive portfolio and sustainable customer solutions. Due diligence should be take care by not letting M&A become Frankenstein monster eating the resource pool. By keeping both the merged ventures separate brands , firms can maximize leverage the individual resources pool, cutting edge technology and brand equity to increase the market share ( ADIDAS AND REEBOK has been successful in serving diverse customer pool separately).
