In such a deal, as far as Human Resources both companies have to address...

In such a deal, as far as Human Resources both companies have to address major internal transformation challenges. Photo: © Syda Productions / shutterstock.com

A merger: what for?

Merging operations represent one of the main methods of development available to companies to enhance their strategic position within their respective environments. If this type of operations has recently been flourishing again, mergers keep raising many questions as regards their actual economic efficiency. Indeed, although there is no doubt companies are much interested in getting closer via this sort of process, the reality of the operations involved shows how difficult it is for companies to improve the performance of the new entity.

A merger has several objectives.

First, it contributes to creating synergies. The term “synergy” refers to any combination of several activities, with a view to enhance performance and reduce costs. These two contradictory objectives are the main reasons behind merging operations.

A merger helps diversify or refocus activities. A company which merges to diversify its activities may purchase another in a very different industry. This way, it reduces the impact of the performance in a particular industry on its profitability.

As for the companies that try to refocus their activities, they merge with others with a better penetration rate on a market or strategic industry.

Merging accelerates growth and increases the company’s power to negotiate. As a result, the whole entity can increase its market share, without really having to make efforts from an internal standpoint. This type of merger is called “horizontal amalgamation”.

Ultimately, a merger helps get rid of competitors: a buyout helps limit competition and quickly gain market shares.

Other than “technical” objectives, a merger involves the union of two cultures: here, DuPont and Dow have two completely different cultures.

The DuPont de Nemours culture, or technicians and brands culture

DuPont is technique, innovation, and products with a high added value. Kevlar, Nylon, Lycra, Téflon, and Fréon are all brands developed by the Wilmington company. The DuPont culture is focused on technically developing products and promoting brands.

The Dow culture, or production and volume culture

Originally, Dow was a utility manufacturer, which involves strong logistics optimization on a very competitive market. When they purchased Rohm & Haas in 2009, they were able to refocus their activities on chemical specialties, but they did not really change their culture, which is turned towards the productive tool.

Conclusion

These are major internal transformation challenges that Human Resources need to address. Merging also involves a transformation of the competitive landscape and represents an opportunity for related companies to position themselves on non-strategic know-how as part of the new entity.