Mergers & Acquisitions: Pernod Ricard and V&S Spirit Case
Table of Contents
1 INTRODUCTION ........................................................................................................................... 3
1.1 BACKGROUND…………………………………………………………………………………3
1.2 COMPANY HISTORY .................................................................................................................... 3
1.3 PROBLEM FORMULATION ............................................................................................................ 5
2 METHODOLOGY.......................................................................................................................... 6
2.1 METHODOLOGICAL ASSUMPTIONS .............................................................................................. 7
3 THEORIES AND FRAME WORK .............................................................................................. 8
3.1 LIMITATION ............................................................................................................................... 10
4 CULTURE ANALYSIS ................................................................................................................ 10
4.1 CULTURE DEFINITION ............................................................................................................... 10
4.1.1 Culture Shock .................................................................................................................... 11
4.2 SWEDISH CULTURE AGAINST FRENCH CULTURE ....................................................................... 11
4.2.1 Sweden and Swedish ........................................................................................................ 11
4.2.2 France ............................................................................................................................... 12
4.3 GEERT HOFSTEDE FIVE DIMENSIONS MODEL: FRANCE VS. SWEDEN ........................................ 14
4.3.1 Definition of five dimensions model .................................................................................. 14
4.3.2 France vs. Sweden............................................................................................................. 15
5 ORGANISATION CULTURE .................................................................................................... 20
5.1 DEFINITION OF ORGANISATION CULTURE ................................................................................. 20
5.2 ORGANISATION CULTURE IN PERNOD RICARD .......................................................................... 21
5.2.1 Company Profile ............................................................................................................... 21
5.2.2 Company Organisational Culture..................................................................................... 22
5.3 ORGANISATION CULTURE IN V&S SPIRIT ................................................................................. 23
5.3.1 Company Profile ............................................................................................................... 23
5.3.2 Company Organisational Culture..................................................................................... 23
6 APPLYING THEORIES ON A STUDY CASE ......................................................................... 24
6.1 DEFINING INFLUENCING FACTORS ON DECISION LEVEL OF INTEGRATION ................................ 24
6.1.1 Concept Definition ........................................................................................................... 24
6.1.2 Task Characteristics ......................................................................................................... 26
6.1.3 Cultural Characteristics ................................................................................................... 28
6.1.4 Political Characteristics ................................................................................................... 30
6.2 THE OUTCOME ......................................................................................................................... 31
7 STRATEGIC INTEGRATION PROCEDURES....................................................................... 33
7.1 TRANSITION STAGE ................................................................................................................... 34
7.2 INCORPORATION STAGE ............................................................................................................ 34
8 RECOMMENDATIONS .............................................................................................................. 35
8.1 IMPORTANT POSITIONS IN POST ACQUISITION: THE MARRIAGE STYLE..................................... 35
8.1.1 Clarifying The Point.......................................................................................................... 36
8.1.2 Communication ................................................................................................................. 37
9 CONCLUSION.............................................................................................................................. 39
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Mergers & Acquisitions: Pernod Ricard and V&S Spirit Case
10 LIST OF REFERENCES ........................................................................................................... 40
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Mergers & Acquisitions: Pernod Ricard and V&S Spirit Case
1 INTRODUCTION
1.1 Background
Mergers and acquisitions (M&A) have become an increasingly popular strategy for achieving
corporate growth and diversification, with M&A activity in the 1990s smashing all existing records,
both in the number of transactions and the size of the deals. The world wide value of M&A
increased from $462 billion in 1990 to over $3.5 trillion in 2000. (Thomson Financial Services,
2001). In general the reason a company decides to embark on merger or acquisition activity is to
increase cash flow or reduce risks which would create more money for the shareholders. Intrinsic
value can be created, if the combined business would generate an increase in aggregate cash flow.
An increase of value can be achieved in many ways: financial gains, economies of scale, better
management of combined business or changes in the capital structure.
Despite M&A popularity, and its strategic importance, the performance of most mergers and
acquisitions has been disappointing; international ones are particularly difficult to manage. At the
same time some companies have been very successful in managing acquisitions and one of the key
factors contributing to M&A success is sociocultural integration. Following the acquisition
transaction some degree of interoganisation integration is necessary. However, the sociocultural
integration defined as the combination of groups of people possessing established norms, beliefs,
and values, can lead to sharp the significant interorganisational conflict. National or community
culture is a pervasive influence on the behavior of community members and the national culture in
which the organization operates will to some extent influence the type of culture and style of work
that organization adopts.
1.2 Company History
Pernod Ricard is a French company that produces alcoholic beverages The company's most famous
products, Pernod Anise and Ricard Pastis, are both pastis, and often referred to as simply Ricard or
Pernod. The company also produces several other types of pastis. Pernod Ricard was founded in
1975 out of the merger of the two leading French aniseed-based spirits specialists: Pernod, founded
in 1805 and Ricard, created by Paul Ricard in 1932. The company which builds its self through
acquisitions it is now one of the world's largest beverage groups, behind only Diageo.
Pernod Ricard has 17,680 employees in 70 countries worldwide. 57% of group sales are generated
outside Europe and more than 89% outside France the company generated. The venture began in
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Mergers & Acquisitions: Pernod Ricard and V&S Spirit Case
December 1974 when Pernod and Ricard were still long-standing competitors in the French
aniseed-based spirits market. Nevertheless, they decided to join forces to win foreign markets.
From 1985 to 1993 Pernod Ricard built a global network (Italy, Ireland, Cuba, Australia, and Asia).
Then, from 1997 the company started to reorganise before the 2000-2005 era of major acquisitions
and reorientation around its core business, Wines and Spirits In order to focus on its strategic
business of Wines & Spirits, Pernod Ricard decided to withdraw from the non-alcohol sector. It
completed the acquisition of Seagram, then Allied Domecq, making it the No. 2 in this sector. Yet
the recent take over of V&S Spirit, a Swedish company, maker of Absolut vodka, from the Swedish
government made head lines and put Pernod Ricard close to the world leader in its sector. Pernod
Ricard speculates that the deal would bring it savings of between 125m and 150m Euros per year.
Pernod Ricard’s development over the last 30 years and more is an extraordinary success story, best
illustrated by a few significant ratios: over the last five years, the company has multiplied its sales
(in Wines & Spirits) by 3.5% and its market capitalisation and operating margin by 4%, making the
company the second largest global player in our industry today. The integration of Allied Domecq
is now complete and allows the expected benefits from the resulting synergies are currently being
felt. With the acquisition of V&S, Pernod Ricard became the world's co-leader in the Wine and
Spirit industry.
Vin & Spirits was founded in 1917 founded as a national monopoly for the production, import,
export and wholesale trade of alcoholic beverages in Sweden. Absolut vodka is the world's thirdlargest premium liquor in terms of volume, after Diageo PLC's Smirnoff vodka and Bacardi rum.
The group was a wholly owned entity of the government of Sweden. Headquartered in Stockholm,
the capital of Sweden, the group employs approximately 2,500 people. Until 1994, the group had
the position of a national monopoly for production and distribution, but this was abolished when
Sweden joined the European Union in 1995. However, the Swedish alcohol retailing monopoly,
operated by Systembolaget, is still in force. On March 31, 2008 it was announced that the Swedish
government intended to sell V & S Group to Pernod Ricard for 5,626 billion Euros.
The production of the group's international spirits takes place in Sweden, Denmark, Great Britain
andSt.Croix Islands, while production of their local and regional spirits takes place primarily in
Sweden, Denmark, Finland, Germany and Poland. In Northern Europe, the V&S Spirit Group is the
largest importer and distributor of wine. The group offers their own brands of wine and also
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Mergers & Acquisitions: Pernod Ricard and V&S Spirit Case
produces brands by well-known international companies. Distribution in the Nordic area is
primarily handled through the group's distribution centers in Sweden, Denmark, and Finland.
The vodka market is very important one, which is enjoying robust growth driven by cocktail
consumption. As it is also one of the most attractive premium categories in the US market (the
world’s leading market for international vodka brands), Pernod Ricard is planning to reinforce its
presence in the USA market and explore opportunities in emerging markets such as Asia. Clearly,
they are ready to capitalise on any growth opportunities that may arise. Following this acquisition
of V&S, Pernod Ricard firmly intends to play a leading role in the consolidation of the Wines &
Spirits sector.
1.3 Problem Formulation
In general the acquisition performance is measured in related acquisitions by examining the
synergic benefits arising out of economies of scale and economies of scope1. An acquisition might
form a part of a strategy of related diversification and therefore be expected to provide synergic
benefits. Such benefits could be in the form of operating efficiencies and economies of scale
requiring high levels of integration. Research has shown that many companies consider acquisition
to be a superior vehicle in which to invest the corporate resources. However in some cases the result
of the acquisition does not always support this position. Following acquisition some degree of
integration is necessary but on what level of integration managers chooses to implement in the
combined organisation is critical to the acquisition outcome because under or over integration can
result in failure.
Many factors contribute to a successful acquisition but one of the key aspects is cultural
perspective, which must be considered when a company is planning a foreign merger as business
cultures vary widely from one country to another. While solutions can be found to practical and
technical problems, cultural differences can cause difficulties at an executive level.
For example, for the case of Pernod Ricard and state-owned V&S, with their bases in France and
Sweden, they may be a short distance from each other, but the differences in business culture may
be much more significant. With their separate approaches to business operations, how could an
acquisition be undertaken?
1
Salter and Weinhold, Mergers & Acquisitions (1979); Lubatkin, International Joint Ventures (1983)
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Mergers & Acquisitions: Pernod Ricard and V&S Spirit Case
How can this acquisition be accomplished considering the cultural perspective?
Exploring the sub questions listed below it will be possible to identify the accomplishments of this
acquisition and determine under what circumstances it can create synergy that the company hopes
to benefit from:
-What level of integration is in progress at this stage?
-What integration strategies do the companies have to plan in this particular acquisition?
2 METHODOLOGY
There are a number of different approaches in order to conduct to research the acquisition of Pernod
Ricard and V&S Spirit and I will use three main methodological approaches, on which to base my
strategic approach to build up an analysis of the project.
Understanding these methods can be challenging considering the individual theories and
frameworks analysis. A research approach can be either deductive (testing or applying a theory) or
inductive (building a theory)2. Since my research approach will be deductive an analysis of three
approaches described below will determine which one can be used on this project.
System Approach
The system approach has a language of its own that consists of a number of concepts that are
specific to the approach. In the system approach the researchers are open to what a system model
may contain in the ideal situation - this is a determined by the use for which the model is intended
and by the level of detail desired. If the model is intended only for reproducing (for descriptive
purposes) the researcher may include a number of factors of reality. On the other hand if the model
is to be used primarily for steering, several potential factors may be omitted (or must be excluded).
The system approach has several interests and these systems however do not exclude one or the
other.
-System analysis: To portray a real system in a systems model without changing the real system.
This means the system has both a descriptive and explanatory purpose.
-System construction: to depict a potential real system in a systems model. This model will be the
basis for constructing a new real system. This new system may in return be a development of
another existing real system, which has been depicted and clarified through a system analysis.
2
Lewis C.W.L., International Business- Competing in the Global Marketplace. 4th edition, 2003
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Mergers & Acquisitions: Pernod Ricard and V&S Spirit Case
-System theory: contains systems models and producer/product relations valid for more than one
real case. These models and relations may refer to more or less well defined classes of systems.
Analytical approach
The analytical approach is based on the assumption that reality is independent of its observers. A
fundamental issue in this approach is how to attain the knowledge of the objective. In other words
how are we to differentiate between objectives facts and subjective sense impressions?
Two main questions can be asked for this analytical approach:
-What are given?
- How can we explain what are given?
The aim of the analytical approach is to develop a picture of objective reality. Models in analytical
approach tend to contain quantitative elements. On the other hand models that are not quantitative
do not adhere to the law of mathematics, and must meet strict requirements as to their origin and
form to qualify as models.
Actors approach
The idea of the actors approach is based on the idea that concepts within social reality are
ambiguous and continuously reinterpreted. In other words the actors approach is unlike the
analytical or the systems approach in that it postulates that the reality’s ambiguity and changeability
are a result of (among other things) the creator of knowledge’s interaction with and search for
logical connection.
2.1 Methodological Assumptions
The analytical approach and the system approach assume that there is an objective reality- a reality
that independent to its observers. Yet the analytical and system approach differ in how reality is
constructed. The analytical approach proclaims reality’s summative character with a casual relation.
The system approach asserts that objective reality is not summative but does have a synergic
character with a final relationship. However, the actor approach denies this objective viewpoint and
assumes that reality is a social construction-a human invention- in which people stand in dialectical
relation to the construction of reality.
Based on knowledge of these two companies and the importance of socio culture interaction in
M&A, I consider that the appropriate approach to the problem is the system approach. Systems
reality is assumed to consist of components that are often mutually dependent on each other. The
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Mergers & Acquisitions: Pernod Ricard and V&S Spirit Case
constitution of these components brings about synergistic effects: this means that not only the
content of the individual components, but also the way they are put together, provides information.
In the systems approach, we as consultants will look for forces that influence the system as a whole,
forces that prove to be influential (they may prove to be destructive or even disastrous to the
system). I will be looking for persistent forces and their results on the producer-product
connections. Most importantly I will be looking for the positive and negative results among the
relations of the parts. I consent with that in order to explain or to understand an individual
component it is not enough to study the component itself or in isolation.
To describe the acquisition of Pernod Ricard and V&S Sprit, I will have to indicate the positions of
the different components and relations at a given time and considering all the characteristics of the
system. I plan to build up:
Systems analysis: a description, explanation and understanding of the existing real system.
Systems construction: to build a new system based on the systems analysis.
Based on the different groups of systems models I assume that the self-organising system is the
proper way of performing our work. It has the ability to feedback in a negative as well as a positive
sense. Negative feedback is necessary to protect the system from disturbances and variations.
Positive feedback is necessary to discover serious deviations in the environment and to introduce
concepts that are more explanatory than the old ones. This makes it possible to organize a new
structure in the new situation when it is not possible to maintain with the previous structure.
3 THEORIES AND FRAME WORK
In this chapter, theories or models that I believe have has a great impact on the subject of
understanding mergers and acquisitions of companies in a cultural perspective will be presented.
In order to find out if the company is to accomplish its objectives and to assess its complete position
on the market, the company should have complete analysis i.e. internal and external analyses
including the market competitive situation and strategic analysis. For the specific case of Pernod
Ricard and V&S Spirit, I will analyse the structure of both companies to assess the organisational
culture and management structure using the Hofstede Model of Cultural Dimensions (five cultural
dimensions). I will analyse both cultures in general because the culture of both nations has an
influence on the organisational culture. The Hofstede Model of Cultural Dimensions - power
distance, individualism, masculinity, uncertainty avoidance and long time orientation - can be of
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Mergers & Acquisitions: Pernod Ricard and V&S Spirit Case
great use when it comes to analysing a country’s culture especially in group oriented culture such as
organisations and this will give us a picture of how significantly the culture of a country, influence
an organisation such as a company. By going deep into this analysis I hope to evaluate of the
organizational culture using the case study described above to provide evidence whether culture can
be managed.
The position of an organisation with regard to these dimensions is determined in part by the
business or industry the organisation is in. Scores on the dimensions are also related to a number of
other 'hard' characteristics of the organisations. These lead to conclusions about how organisation
cultures can and cannot be managed. Managing international business means handling both national
and organisation culture differences at the same time. "Organisation cultures are somewhat
manageable while national cultures are given facts for management; common organisation cultures
across borders are what keep multinationals together." Geert Hofstede3
Then I will test a theory developed as “national cultural distance and cross-border acquisition
performance” to the study case to anticipate how this acquisition will perform. The theory puts to
test the alternative hypothesis that national culture distance enhances cross border acquisition
performance by providing the access to the target or allowing the acquisition diverse set of routines
and repertoire embedded in national culture. Then I will explore the most important stages the
acquisition process passes through. These are important to the research because this is where the
critical decisions needed to be implemented and importantly it is during these stages that cultures
plays a role.
Creating a right organisational culture in an international merger environment requires a process of
integration in both companies, which may be difficult for the two sides to agree on, so a
compromise may be necessary. With this analysis I will define the strategic objective for this
specific acquisition in order to assess the success of cultural integration. To this end I will develop a
recommendation for the management: the recommendation in this case is in the form of an outline
of the steps the manager may take in order to have a positive outcome.
3
Cultures and organisations: software of mind. Geert Hofstede & Jan G Hofstede 2005
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Mergers & Acquisitions: Pernod Ricard and V&S Spirit Case
3.1 Limitation
The aim of this project is to find out how the success of this acquisition can be accomplished in
culture perspective, which is why I will focus on the cultural point of view while analysing the
organisational culture of both companies. I would like to construct my strategic proposal after I
have illustrated the conclusion, which I believe will enable me to find a suitable strategy for this
type of integration. The analysis and the research I have done on this case has been influenced
mostly by Geert Hofstede pioneering work across cultures.
The importance of strategic integration in merger and acquisitions is due to the fact that strategic
objectives have to be implemented in order to have a successful value creation, which gives the
synergy the management has hoped for. For that reason, in Chapter 7 entitled Strategic Integration
Process, I will discuss the main points in the integration processes in acquisition because they will
have an impact on the recommendation I will provide for the company’s management.
4 CULTURE ANALYSIS
4.1 Culture Definition
Culture is defined as “the totality of socially transmitted behaviour patterns, arts, beliefs,
institutions, and all other products of human work and thought”4.
However a dictionary definition is not or may not be sufficient to understand the concept of culture
and the definition of culture. Very often people have their own ideas of what culture is and they also
think that they know other cultures well either from the media or from holiday visits. Sometimes
people notice that there are minor or major differences or similarities between their own culture and
foreign culture some realise that knowing about the characteristics of other cultures could help them
interact successfully with foreigners.
Culture is a collective phenomenon, because it is at least partly shared with people who live or lived
within the same social environment, where it was learned. Culture consists of unwritten rules of a
social game5. Culture is learned not and derives from one’s social environment rather than from
one’s genes. Some cultures differ very much from each other and the definition above explains why
it is a good idea to learn about a specific culture before you for instance spend your holiday in that
country or do business with people from that culture. In some cases people who spend time abroad;
4
Translation of culture in dictionary http://thesaurus.reference.com/
5
Geert Hofstede, Cultures and Organisations Software of the Mind. 2nd edition, 2005
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Mergers & Acquisitions: Pernod Ricard and V&S Spirit Case
like for example businessmen or diplomats have a hard time adapting to the new host culture; a
phase known as culture shock.
4.1.1 Culture Shock
Very often when expatriates arrive in a new culture many things seems familiar, but soon the
expatriate starts noticing cultural differences. The foreigners may have different concepts of time,
different eating and greetings, habits and sometimes foreigners say yes without meaning it or your
business partner promises to do something at a certain time but does not. Eventually all these
cultural differences may start frustrating the expatriate and gradually develop into a culture shock.
This can results to some expatriates to returning home or in other cases, after passing all stages of
culture shock6, some may fully recover and achieve the ability to function effectively in two
different cultures.
4.2 Swedish Culture against French Culture
4.2.1 Sweden and Swedish
In the world at large especially the English-speaking world, Swedes seem to be universally popular.
Their clean-cut profile as honest, caring, well informed and efficient workers who produce quality
goods delivered on time can contrast, with their reported unpopularity within the Nordic region.
What could be the explanation for this?
Considering factors such as adult literacy, years of schooling and purchasing power, Sweden scores
high in Europe. Foreign debt is low, and foreign aid very high. However, coming back to historic
factors, Swedish values shows that the Swedish fail to see themselves as others see them. In a
survey conducted by Richard D. Lewis, a cross culturist, among 100 Swedish businesspeople the
compilation of their values yielded the following list:
- Conscientiousness
- Loyalty
- Equality
- Love of nature
- Kindness
- Honesty
6
Anne S. Rasmussen & Georg B. Mikkelesen, The Four Stages of Culture Shock from Focus on Culture, 2001
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Mergers & Acquisitions: Pernod Ricard and V&S Spirit Case
- Tolerance
- Love of peace
- Cleanliness
- Modesty7
In this respect they differ from the worldlier Danes and Finn, who are extremely interested in
cultural relativism and constantly worry very much about what others think of them. Swedish on the
other hand worry very much about what other Swedes think.
4.2.1.1 Swedish behaviour in the business environment
Swedish management is decentralised and democratic; the hierarchical structure of a typical
Swedish company has a decidedly horizontal look about it. Power distance is small and the manager
is generally accessible to staff and available for discussion. There is actually a Swedish law that
stipulates that all important decisions must be discussed with all staff members before being
implemented. This collectivist form of decision making may result on that decision that are
considerably delayed as every colleague have right to debate and express his/her opinion.
Yet this Swedish model is not without its critics and some research mentions weaknesses in the
implementation of business i.e. in a book by Richard D. Lewis:
-Avoidance of conflict and taking sides
-Fear of confrontation
-Reliance on team for initiatives
-Avoidance of competition with others in the company
USA, French, British and Finnish managers have experienced frustration when working with or in
Swedish companies with the constant consultation, endless meetings and unclear personnel policies,
guidelines from managers. However, for the Swedish this is the way to do it; to prove that they’re
good because they have to be. On the other hand it has been said that detailed planning helps
Swedish managers to sleep better!
4.2.2 France
In both politics and business the French like to be independent contrary to Swedes and this may
appear frustrating to others (including Swedish). French people live in world of their own, the
7
Richard D. Lewis, When Cultures Collide. 3rd Edition,1996
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centre of which is France. To them France has set the norms for thing like democracy, justice,
government, legal system philosophy, science agriculture, which lead to viniculture, haute cuisine
and savoir vivre in general.
Others consider, perhaps harshly, that the French have a limited knowledge about other countries
and that their attitude towards foreigners is benign (candid), i.e., neither positive nor negative. You
may be not viewed as equals, being different from the French and there may be an expectation that
you will never be able to conform to their own standards.
4.2.2.1 French behaviour in the business environment
If you want get the best out your dealings with French, it may be necessary to study their
psychology and tactics before entering commercial transaction. In general French approach
negations with following characteristics described below.
As the meeting is regarded as a formal occasion they arrive in meetings formally dressed. While
introductions take place surnames and formal introductions are used and will be maintained
throughout negotiations. During the meeting for which they are usually well informed, logic and
precision will dominate their argument, and lead the way to extensive analysis of all matters under
discussion, often resulting in lengthy meetings. This may be because the French do not present their
demands at the beginning but lead up to them with a careful constructed rationale, and in the end
they will rarely make important decisions during the meetings.
Nevertheless the prolonged discussions are regarded by them as an intellectual exercise during
which they familiarise themselves with the other party and perhaps discover their weaknesses. Their
objective in the long run is to establish firm personal relationships.
Clearly these are two very different cultures and both the French and Swedes have their own way of
conducting business, like for example a meeting. For both they believe this is the way to do things
and they are confident of having a positive result in the end! In order to understand further the
differences of these cultures I will look into Geert Hofstede’s work on cultures in the following
section.
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4.3 Geert Hofstede Five Dimensions Model: France vs. Sweden
4.3.1 Definition of Five Dimensions Model
Professor Geert Hofstede from Holland has been undertaking studies on culture for a long time and
developed five dimensions of culture, which measure cultures against each other. The research done
in 67 countries gave him a score of each country in every dimension he created and these are the
dimensions and their definitions:
POWER DISTANCE INDEX (PDI)
Is the extent to which the less powerful members of organisations and institutions (like the family)
accept and expect that power be distributed unequally. This represents inequality (more versus less),
but defined from below, not from above. It suggests that a society's level of inequality is endorsed
by the followers as much as by the leaders. Power and inequality, of course, are extremely
fundamental facts of any society and anybody with some international experience will be aware that
“all societies are unequal, but some are more unequal than others”.
INDIVIDUALISM (IDV)
on one side is opposed on the other side by collectivism, i.e. the degree to which individuals are
integrated into groups. On the individualist side we find societies in which the ties between
individuals are loose: everyone is expected to look after him/herself and his/her immediate family.
On the collectivist side, we find societies in which people from birth onwards are integrated into
strong, cohesive in-groups, often extended families (with uncles, aunts and grandparents) that
continue protecting them in exchange for unquestioning loyalty. The word 'collectivism' in this
sense has no political meaning: it refers to the group, not to the state. Again, the issue addressed by
this dimension is an extremely fundamental one, regarding all societies in the world.
MASCULINITY (MAS)
versus its opposite, femininity, refers to the distribution of roles between the genders, which is
another fundamental issue for any society to which a range of solutions are found. The IBM studies
revealed that (a) women's values differ less among societies than men's values; (b) men's values
from one country to another contain a dimension from very assertive and competitive and
maximally different from women's values on the one side, to modest and caring and similar to
women's values on the other. The assertive pole has been called 'masculine' and the modest, caring
pole 'feminine'. The women in feminine countries have the same modest, caring values as the men;
in the masculine countries they are somewhat assertive and competitive, but not as much as the
men, so that these countries show a gap between men's values and women's values.
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Mergers & Acquisitions: Pernod Ricard and V&S Spirit Case
UNCERTINITY AVOIDENCE INDEX (UAI)
Deals with a society's tolerance for uncertainty and ambiguity; it ultimately refers to man's search
for truth. It indicates to what extent a culture programs its members to feel either uncomfortable or
comfortable in unstructured situations. Unstructured situations are novel, unknown, surprising, and
different from usual. Uncertainty avoiding cultures try to minimise the possibility of such situations
by strict laws and rules, safety and security measures, and on the philosophical and religious level
by a belief in absolute truth; 'there can only be one truth and we have it'. People in uncertainty
avoiding countries are also more emotional, and motivated by inner nervous energy. The opposite
type, uncertainty accepting cultures, are more tolerant of opinions different from what they are used
to; they try to have as few rules as possible, and on the philosophical and religious level they are
relativist and allow many currents to flow side by side. People within these cultures are more
phlegmatic and contemplative, and not expected by their environment to express emotions
LONG TIME ORIENTATION (LTO)
Versus short-term orientation: this fifth dimension was found in a study among students in 23
countries around the world, using a questionnaire designed by Chinese scholars. It can be said to
deal with virtue regardless of truth. Values associated with Long Term Orientation are thrift and
perseverance; values associated with Short Term Orientation are respect for tradition, fulfilling
social obligations, and protecting one's 'face'. Both the positively and the negatively rated values of
this dimension are found in the teachings of Confucius, the most influential Chinese philosopher
who lived around 500 B.C. However, the dimension also applies to countries without a Confucian
heritage8.
4.3.2 France vs. Sweden
According to Professor Geert Hofstede this is the chart of France versus Sweden using the five
dimension model:
8
All definitions are exact words of Professor Geert Hofstede from http://www.geert-hofstede.com visited
26/06/08
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Graph 1: Chart of France versus Sweden using the Hofstede Five Dimension Model
Graph II: Chart of Sweden with Five Dimension Model
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Mergers & Acquisitions: Pernod Ricard and V&S Spirit Case
Graph III: Chart of France with Five Dimension Model
Power distance
French has a high power distance than Sweden meaning that in that in French society inequality
among people is expected and desired. In French culture there are people, which are often described
by the term “bourgeoisie”, meaning those belonging to the upper class. This indicates that the
hierarchy in French organisations reflect the existential inequality between those higher-up and
those lower down, centralisation is popular, subordinates expect to be told what to do and privileges
and status symbols for managers are both expected and popular.
In Swedish society where that power distance is lower, you experience the opposites of the
examples cited above. This is evidence that in this society they believe that inequality among
people should be minimised and here privileges and status symbols are frowned upon.
Individualism
According to the chart both countries have an equal degree of individualism. In an individualism
society every one grows up to look after him/herself and his/her immediate (nuclear) family. In
collective society people are born into extended families or other groups, which continues to protect
them in exchange for loyalty. For both the Swedish and the French the employer-employee
relationship is a contract supposed to be based on mutual advantage. Hiring and promotion
decisions are supposed to be based on skills and rules only. Yet in an individualist society every one
expects to have a private opinion. The analysis above shows that the French are more strongly
opinionated because they expect to make decisions from those discussions and they have tendency
of persisting with them. However for both societies, self-actualisation by every individual is an
ultimate goal.
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Mergers & Acquisitions: Pernod Ricard and V&S Spirit Case
Masculinity
In masculine vs. feminine societies values are an issues: in masculine countries dominant values in
society are material success and progress while in feminine countries dominant values in society are
caring for others and preservation.
The chart shows France to be a masculine society. The masculine countries tend to a corrective
society which believes that maintenance of economic growth should have a higher priority and the
performance of a society is an ideal. In a masculine society people tend to sympathize with the
strong because the live in order to work. In these societies managers are expected to be decisive and
assertive. Here there is emphasis on equality and competition among colleagues and performance is
measured on this terms. The resolution to conflict is to fight them out (direct confrontation).
Sweden is considered feminist society. In Feminist societies people work in order to live they stress
on equality, solidarity, and quality of work life. Conflicts are resolved through and compromise and
negotiation. In this society managers uses intuition and strive for consensus. Feminist countries are
characterised as permissive societies where the welfare society is an ideal, and preservation of the
environment should has a higher priority.
Uncertainty avoidance
The degree of uncertainty avoidance is another dimension to this analysis (weak uncertainty
avoidance society vs. strong uncertainty avoidance societies). Those countries identified as weak
uncertainty avoidance countries tend to adopt a relaxed attitude to the uncertainties of life and they
are willing to take risks. In contrast strong uncertainty avoidance countries protect themselves
against the uncertainty of life by making formal and informal rules, to which members of the
society should adhere.
The chart shows that the French have a much higher score in this dimension indicating that it is a
strong uncertainty avoidance society, while the Swedish, with a lower score, are a weaker
uncertainty avoidance society. For the French the uncertainty inherent in life is felt as a continuous
threat, which must be fought. To them, time is money and precision and punctuality comes
naturally. There is an emotional need to be busy and work hard, as security is a motivation. In this
society there is suppression of deviant ideas and behaviour a resistance to innovative ideas they
have a negative attitudes towards young people and they have a belief in experts and specialisation.
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Mergers & Acquisitions: Pernod Ricard and V&S Spirit Case
For the case of Sweden a weak uncertainty avoidance society the opposite is not experience but
rather there is a different attitude toward uncertainty, which is generally regarded as a normal
feature of life. In these types of societies time is a frame-work for orientation and they are tolerant
of deviant and innovative ideas and behaviour. Motivation comes from achievement and self esteem
from a sense of belongingness.
In summary the weak uncertainty avoidance societies have a more relaxed approach to those tasks
given by nature, contrary to the stronger uncertainty avoidance society which have a firm approach
toward those tasks and tend to correct those they sees as correctible.
Long Time Orientation
This fifths dimension was added late and fundamental to this dimension is Confucianism as
describe above. Here values associated with Long Term Orientation are thrift (prudent) and
perseverance; values associated with Short Term Orientation are respect for tradition, fulfilling
social obligations, and protecting one's 'face'.
From Graph 1 of France versus Sweden using the Hofstede Five Dimension Model, we can see that
Sweden has a score of over 40%, which defines the society to belong to long time oriented society.
Unfortunately, we do not have the score for France, as it was not included in the study. However
knowing what we know about French culture it can be suggested that the French society belongs to
the group of short time oriented societies. The French are keen on their traditions and would be
obliged to fulfil their social obligations for societal acceptance. It is difficult to measure both
countries in this dimension. However whether factors in both societies are opposite to each other,
they will be related to societal values, i.e. the masculine versus feminine dimension which touches
values in both cultures.
In Summary
In general we can see the gap between both cultures, but using the five culture dimension model in
some dimensions there similarities in behaviour in both societies it is evident that there are
similarities in behaviours in both societies i.e. for both the Swedish and the French the employeremployee relationship is a contract supposed to be based on mutual advantage.
These synchronized similarities are one start point for the cultures to compromise on issues that
they may collide on.
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5 ORGANISATION CULTURE
5.1 Definition of Organisation Culture
Organisational culture, or corporate culture, has been defined as “the specific collection of values
and norms that are shared by people and groups in an organisation, that control the way they
interact with each other and with stakeholders outside the organization9. Organisational values are
beliefs and ideas about what kind of goals members of an organisation should pursue: in other
words, ideas about the appropriate kinds or standards of behavior organisational members should
use to achieve these goals. From organisational values develops organisational norms, guidelines or
expectations that prescribe appropriate kinds of behavior by employees in particular situations and
control the behavior of organisational members towards one another”10 senior management may
define a corporate culture. They may wish to impose corporate values and standards of behavior
that specifically reflect the objectives of the organisation. In addition, there will also be an existing
internal culture within the workforce. Work-groups within the organisation have their own
behavioral quirks (habits) and interactions which, to an extent, affect the whole system. Task
culture can be imported. For example, computer technicians will have expertise, language and
behaviors gained independently of the organisation, but their presence can influence the culture of
the organization as a whole.
Organisation culture contains the attitudes, experiences, beliefs and values of an organisation. For
instance Geert Hofstede demonstrated that there are national and regional cultural groupings that
affect the behavior of organisations. Hofstede identified five dimensions of culture in his study of
national influences: above we used the study to compare both cultures and definition into those
differences and similarities. I will not discuss this analysis on the organisation culture any further,
but just mention that the study has demonstrated those patterns in organisation culture.
One researcher known for his work in this area is Edgar Schein-a Professor at the MIT Sloan
School of management in Massachusetts (USA) - who defines organisational culture as "the residue
of success" within an organisation. According to Schein, culture is the most difficult organisational
attribute to change, surviving organisational products, services, founders and leadership and all
other physical attributes of the organisation. His organisational model illuminates culture from the
standpoint of the observer, described by three cognitive levels of organisational culture.
9
Henri Mintzeberg, Mintzeberg On Management Inside Our Strange World of Organizations,1989
Charles W. L. Hill, and Gareth R. Jones, Strategic Management, 2001, Houghton Mifflin.
10
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Mergers & Acquisitions: Pernod Ricard and V&S Spirit Case
At the first and most superficial level of Schein's model is organisational attributes that can be seen,
felt and heard by the uninitiated observer. Included are the facilities, offices, furnishings, visible
awards and recognition, the way that its members dress, and how each person visibly interacts with
each other and with organisational outsiders.
The next level deals with the professed culture of an organisation's members. At this level, company
slogans, mission statements and other operational creeds are often expressed, and local and personal
values are widely expressed within the organisation. Organizational behavior at this level usually
can be studied by interviewing the organisation's membership and using questionnaires to gather
attitudes about organisational membership.
At the third and deepest level, the organisation's tacit (unspoken) assumptions are found. These are
the elements of culture that are unseen and not cognitively identified in everyday interactions
between organisational members. Organisational culture has many definitions but the best way to
identify a specific culture in a specific company include both observation and interviews in this case
you many know what in mind constitute that organisation and their assumptions and attitudes of
natural factors going on in the company.
5.2 Organisation Culture in Pernod Ricard
5.2.1 Company Profile
Since its creation in 1975, Pernod Ricard has undergone sustained development, founded on both
organic growth and successive acquisitions. Building on its portfolio of premium brands, its
presence on every continent and its decentralised management structure, and because of that Pernod
Ricard intends to continue to develop internationally.
Group Executives
This is comprised of 5 members of the holding company and their responsibilities are to bring
together the governing member of the holding company the brand owner’s subsidiaries and the
regional holding companies (Pernod Ricard America, Europe, Asia and Pernod pacific).
Management executives
This is made of 12 members - management executives - with executive orders on the level of the
holding company.
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Mergers & Acquisitions: Pernod Ricard and V&S Spirit Case
Board of directors
This group is made of 8 members and the responsibilities of this group are to determine the group’s
strategy and supervise its implementation. This group defines and administers the group
management.
Specialist committees
Comprised of strategic and audit committees, is responsible for ensuring the proper functioning of
the Group. The Board of Directors relies on the opinions and recommendations of the specialist
committees. In all this committee most powerful is one with holding company (group Executives)
there are those with final decisions and mostly to influence the values and objectives of the entire
corporate. On the other hand decisions must be agreed on every level, and then all committees are
complementary.
5.2.2 Company Organisational Culture
The culture in this corporation is difficult to determine since the company has developed from
successive acquisitions mostly from overseas, but its management still draw on its cultural origin in
France. Most importantly most of the decision makers are French nationals. The Pernod Ricard
group states that its strategy and ambitions are founded on 4 key values, which have guided its
development from the beginning. They claim that these key values express the identity of the group
and underline its business culture:
-Conviviality
-Entrepreneurship
-Integrity
-Commitment
Since its creation the company has adopted decentralised management structure this structure
allows the company to:
-Take decisions as close to the consumer as possible
-Empowering the motivation of the teams
-Strength the group’s entrepreneurial culture
On the 30th anniversary of the company, the president Patrick Pernod of Pernod Ricard said “We
have taken over brands, country by country, while taking care to protect local roots, in order to meet
our global ambitions”. For the case of Pernod Ricard, it is clear that national culture has influenced
the organisational culture especially when considering that most decision makers are French
nationals.
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Mergers & Acquisitions: Pernod Ricard and V&S Spirit Case
5.3 Organisation Culture in V&S Spirit
5.3.1 Company Profile
The V&S management group is different and divided into three business areas; V&S Absolute
Spirit, V&S Distillers and V&S Wine: managed by five group staff functions as this chart shows:
Graph IV: V&S Spirit management group
CEO
HUMAN RESOURCES
FINANCE
CORPORATE AFFAIRS &
COMMUNICATION
BUSNESS DEVELLOPMENT
LEGAL AFFAIRS
VS Absolut Spirit
VS Distillers
VS Wine
There is a board of management made of seven executives one of them is the chairman and 4
members are appointed by the employees’ organisation.
5.3.2 Company Organisational Culture
Before the company was sold to Pernod Ricard, the company’s values were cited as:
-Ability to create values in the company
-Courage to responsibility
-Skills to build brand admired and enjoyed by the consumers
And towards employees inside the company those values were
-Dynamism
-Responsibilities
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Mergers & Acquisitions: Pernod Ricard and V&S Spirit Case
-Innovative
-Long time performance
In the last annual report of V&S Spirit, (2007) there was general agreement between the report
from the board of directors and that from corporate governance, indicating ,that there was
consultation on various levels within the company. Here is prudent to mention that Swedish alcohol
industry is controlled by the government so is the company in question, it is obvious that most
organisational culture is influenced very strongly to by the national culture.
6 APPLYING THEORIES ON A STUDY CASE
6.1 Defining Influencing Factors on Decision Level of Integration
6.1.1 Concept Definition
Throughout the progression of the analysis one can see the apparent difference in French and
Swedish culture at both a national and organisational level; yet the integration is possible. Research
on “determinants of acquisition integration level on a decision making perspective” was undertaken
by Dr. Amy Pablo from University of Calgary (Canada) in the academy of management journal. For
the study 50 executives from organisations involved in acquisitions were used to examine how the
cultural and political characteristics of acquisitions influence decisions about the level of
integration.
The research is about how tasks, culture, and political characteristics influence of acquisition
influence decisions about the level of integration to be taken in an organisation. The result
suggested that a better understanding of acquisition integration is best achieved by viewing
integration design decisions through multiple theoretical lenses. Most of the work focused on
evaluation and the decisions to acquire but there was a particular focus on understanding the
acquisition decision processes in general and decisions relating to the acquisition integration. This
research has provided insight into the decision-making process for those organisations involved
because there are important management implications in this process. The role of executives in a
critical module of acquisition process was also examined. In this research they come up with a
hypothesis, which measures those perspectives and its expectations.
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Mergers & Acquisitions: Pernod Ricard and V&S Spirit Case
In summary this research is important because it gives a clear view of the relationship among
integration process and acquisition outcomes; whether the links are weak or strong is helpful to
portray the structures related to this specific case.
Acquisitions can be defined as a form of hybrid in which integration is the means by which such
inter-firm coordination and system control are achieved. Such integration involves actions taken to
secure the efficient and effective direction of organisational activities and resources toward the
accomplishment of some position of common organisational goals and values. These actions may
involves adapting the company’s values, generating activities to realise technical synergies, altering
bureaucratic mechanisms of authority and control to ensure internal coherence and transforming
systems of values, beliefs, and practices to create a matching organisational frames of references11.
As a result, integration can be defined as the making of changes in functional activity arrangements
organisational structure and systems, as well as cultures of combining organisations to facilitate
their consolidation into a functioning whole.
Level of integration can be defined as a degree of post acquisition change in an organisation’s
technical, administrative, and cultural configuration. Therefore the level of integration is an
important concept in acquisition management. Although high levels of integration theoretically
improve a realisation of interdependency, which are based on synergistic potential, they also result
in realisation of negative synergies due to increased coordination costs, and potential for interorganisation conflict. The over-all level of integration that emerges after an acquisition depends on
the acquisition type and on the characteristics of two companies’ operations.
There are two types of acquisition:
1. The buyer buys the shares, and therefore control, of the target company being purchased.
Ownership control of the company in turn conveys effective control over the assets of the company,
but since the company is acquired intact as a going business, this form of transaction carries with it
all of the liabilities accumulated by that business over its past and all of the risks that company
faces in its commercial environment.
2. The buyer buys the assets of the target company. The cash the target receives from the sell-off is
paid back to its shareholders by dividend or through liquidation. This type of transaction leaves the
target company as an empty shell, if the buyer buys out the entire assets. A buyer often structures
the transaction as an asset purchase to "cherry-pick" the assets that it wants and leave out the assets
11
Schweiger, Csiszar, & Napier 1994 illustrated by Amy Pablo in the Academy of Management Journal
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Mergers & Acquisitions: Pernod Ricard and V&S Spirit Case
and liabilities that it does not. This can be particularly important where probable liabilities may
include future, uncalculated damages such as those that which could arise from litigation over
defective products, employees benefits or terminations, or environmental damage. A disadvantage
of this structure is the tax that many jurisdictions, particularly outside the United States, impose on
transfers of the individual assets, where stock transactions can frequently be structured as like-kind
exchanges or other arrangements that are tax-free or tax-neutral, both to the buyer and to the seller's
shareholders.
The first form of acquisition is the one that happened in the case of Pernod Ricard and V&S Spirit
this form comes with the liabilities, given that Pernod Ricard have decided to leave V&S Spirit
intact . For cases such as this, the cultural differences can present challenges. There is no consensus
perspective on what determines the level of integration in acquisition. However focusing on
integration as a means for achieving post acquisition coordination and control makes it apparent
that there are three primary characteristics related to the types of integration feature in acquisitions:
Tasks, cultural, and political.
6.1.2 Task Characteristics
Many
researchers have assumed that in order to understand integration design the strategic
intention of an acquisition must first be understood12. Strategic intent has its core; the recognition of
potential sources of synergy from interdependencies between the values chain of two organisations.
There are two important tasks which must be accomplished to achieve the appropriate degree of
inter firm coordination: strategic tasks and organisational tasks.
Strategic tasks can be defined as the successful sharing or exchange of the critical skills and
resources, which form the foundation for values creation in the organisation. The accomplishment
of strategic tasks requires however that target specific bases of those critical skills and resources are
kept intact.
Organisational tasks are the preservation of unique characteristics of an acquired company, which
are the source of strategic capabilities. Organisational tasks vary with the target capabilities that
have motivated the acquisition.
For Example if the motivation for the acquisition is innovative capabilities for the acquired firm,
the combination of personnel of both companies should remember that.
12
Bueno & Bowdich, 1998; Howell 1970; Kitching, 1967; Shrivastava, 1986 Illustrated by Amy Pablo in her Journal on
Mergers and Acquisitions
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Mergers & Acquisitions: Pernod Ricard and V&S Spirit Case
The link between these tasks is that in integration processes while designing decision of integration
level, these tasks are complementary but the management has a clear difference on them. Both in
the way they design and view them
For the specific case of Pernod Ricard and V&S Spirits, I will look into both the strategic tasks and
organisational tasks behind two companies in order to uncover the coordination for both.
Pernod Ricard
Strategic tasks
Organisational tasks
Investing strongly in the 15 key brands with
Conviviality
global reach
Premiumisation of brand portfolio
Entrepreneurship
Reinforce its position in promising emerging
Integrity
markets
Pursuit of external growth
Commitment
Before it was sold to Pernod Ricard these are strategic tasks and organisational tasks the company
had:
V &S Spirit
Strategic tasks
Organizational tasks
To further develop Absolut into an even Dynamism
stronger and more successful
brand
To build a Nordic structure and become a Responsibilities
leading player in the Nordic Wine and Spirits
market
To build a Nordic structure and become a Innovative
leading player in the Nordic wine and spirits
market
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Mergers & Acquisitions: Pernod Ricard and V&S Spirit Case
to acquire and develop spirits brands with Long time performance
international potential
The difference of tasks in both organisations is tied to the values of the company, yet the cultural
organisation plays a role in how both strategic tasks and the management sets organisational tasks.
Both strategic and organisational tasks have implication for integration activities. Organisational
tasks needs vary with the target capabilities that motivate the acquisition and strategic and
organizational tasks needs are present to a different extend in different acquisition situation.
Therefore strategic tasks needs are defined by a degree to which the realization of intended synergy
depends on sharing or exchange of critical skills and resources. Organisational tasks needs are
defined by a degree to which acquisition synergies depend on the prevention of a unique, contextspecific set of organisational capabilities.
According to both companies tasks characteristics I will argue that:
In making integration design decisions managers decision models will reflect a significant
interaction effect between strategic tasks needs and organisational tasks needs i.e. as
organisational task needs increase the association between strategic tasks needs and level of
integration chosen will decrease.
6.1.3 Cultural Characteristics
In acquisition situations as the broader organisation context, culture is an important “internal
variable”13, meaning that culture is a critical in configuration of a total organisational system,
influencing the effectiveness of the organisation in its environment. As a result culture can have an
instrumental effect on both the coordination and control functions of integration in acquisition, as it
can generate commitment to the larger organisation, improve organisational stability in a situation
of dramatic change, and transmit a sense of identity to organisation members.
From this perspective an organisation’s routine approach to the management of culture has
implications for how it is likely to design integration activities, independent of the tasks based on
the needs of the situation. The cultural characteristics of both Pernod Ricard management and VS
Spirit management:
13
Smiricich 1983 quoted by Dr Pablo in her Journal on Mergers and Acquisitions
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Mergers & Acquisitions: Pernod Ricard and V&S Spirit Case
Pernod Ricard
V&S Spirit
-Conviviality
- Ability to create values in the company
-Entrepreneurship
- Courage to responsibility
-Integrity
-Skills to build brand admired and enjoyed by the consumers
-Commitment
If I consent (in this context) that the culture is an important part of an organisation’s identity, both
Pernod Ricard and VS Spirit companies have a cultural diversity. Due to the cultural culture
differences between the combining organisations a strategy must be designed for how to manage it.
Most firms will emphasise the importance of the employees to their mission and purpose and
usually they point out how various HR (human resources) practices are shaped toward realising the
mission and objectives of the company. Therefore a cultural diversity can result in difficulties in the
way employees fulfil their job14.
All this depends on how the organisation which for the case of multicultural organisation
(acquisitions situation) tolerate or encourages, cultural diversity and therefore more allow the
acquired firm to retain its own values, beliefs and practice. This is the opposite of less multicultural
organisation, which use culture as a powerful control system, emphasising conformity and
adherence to unique organisation ideology. An acquirer’s degree of multiculturalism should be a
predictor of the level of integration chosen for an acquisition.
When an acquirer is highly multicultural a low or at most a moderate level of integration will
probably be chosen, because the acquisition benefits are likely to be based on some resources or
skills shared across organisational boundaries where cultural diversity is valued. When the acquirer
is low multicultural the level of integration should be high because conformity to the acquirer‘s
values, philosophies and practices will be desired.
In my opinion if Pernod Ricard imposes a uniform decision upon the acquisition of VS Sprit it will
result in a conflict of both firms’ values and decrease confidence of the human resources. Here I
agree with the following hypothesis:
In making integration design decisions, the managers’ decisions models will reflect a negative
relationship between the multiculturalism of the acquirer and the level of integration chosen.
14
Stan Lees, Global Acquisitions “Strategic Integration and the Human Factor” p 142, 2003
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Mergers & Acquisitions: Pernod Ricard and V&S Spirit Case
6.1.4 Political Characteristics
Acquisitions are situations in which relational difficulties are commonplace, reflecting the
adjustment by the two organisations to new, and often hierarchically altered, roles, vis a vis each
other15. Sometimes conflict frequently develops between acquiring and acquired firms over the
unit’s mandates and terms of reference. This may happen as a result of pre acquisition use of
ambiguity to facilitate negotiations and the acquirer may have a lack of understanding of the
acquired activities and so fail to internalise the goals of the acquired organisation. In such situations
the acquirer may take actions including the exercise of power to ensure that its goals in acquisition
are being pursued.
The political characteristics of an acquisition will determine how much power will be used to
achieve preferred organisational actions and outcomes. Political characteristics for both France
(Pernod Ricard) and Sweden (V&S Spirit) reflect and influence the behaviour of the decision made
in both companies.
In Pernod Ricard a vertical organisation is evident, where a centralised management staff controls
all management activities. This traditional type of organisation has a strong bureaucratic control
over all organisational activities.
For the case of V&S Spirit a horizontal organisation is evident with few levels of intervening
management between staff and managers. All workers are more directly involved in the decision
making process, rather than closely supervised by many layers of management. Therefore the power
differential and compatibility of acquisition visions should be a predictive of the level of integration
that is chosen in acquisition.
In acquisitions in which the compatibility of acquisitions visions is high a low level of integration
will be pursued because the acquired firm is unlikely to present any challenge to the acquiring
firm’s actions or objectives. This factor should offset the effects of a high power differential, which
its self might result in high level of integration. When compatibility is low and power differential is
high, a high level of integration will be pursued because it is both necessary and possible.
15
Hambrick & Cannella,1993 quoted from the Academy of Management Journal by Amy Pablo
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Mergers & Acquisitions: Pernod Ricard and V&S Spirit Case
However when compatibility and power differential are both low the need to integrate to ensure
compliance with the acquiring organisation’s preferences will be offset by a lack of organisational
ability to enforce this compliance resulting in a moderate level of integration.
The best way to find a solution to political conflicts is through mediation and common solution as a
result of communication between the management
In case of Pernod Ricard (acquiring firm) with a high power differential and a state owned
organisation VS Spirit (acquired firm), I will agree with following the hypothesis:
In making integration design decisions managers’ decisions model will reflect a significant
interaction effect between compatibility of acquisitions visions and power differential. That is as
compatibility of acquisition vision decreased, the association between power differential and the
level of integration chosen will increase.
6.2 The Outcome
In the above section, how manager’s measure determinants (settlements) for deciding the level of
integration, in acquisitions was discussed. However some researchers suggested that decision
makers do not give equal weight to all the information available to them (managers) in decision
situations16. Therefore it is unlikely that in making integration design decisions, managers’
judgements will be equally influenced by the task, culture and political characteristics of the
acquisitions situation.
In some cases obstructions to the acquisition decision process may cause decision makers to focus
more on strategic issues and less on organisational issues than is normally appropriate. In others
cases researchers suggests that financial and strategic criteria take higher priority over human
resources criteria and other organisation variables during acquisition planning.
Demographic characteristics of decisions makers may also play an important role in their
integration designing decision. Notable decision making differences exist among individuals
making decisions in the same domain. In some cases pervious experience with acquisition may
influence how managers make integration design decisions. Furthermore acquisition experience
may influence the degree to which decision makers will relay on information about the power
differential in making the integration design decision. Even though power potential may be
16
Duhaime & Schewenk 1985;Stahl & Zimmerer 1984
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Mergers & Acquisitions: Pernod Ricard and V&S Spirit Case
recognised its use is a matter of choice, but choosing to use that power may result in a lack of
familiarity and expertise, making it difficult achieving the objectives17.
Another demographic characteristic that may influence the manager’s integration design decision is
the category that the organisation belongs to. This means that the size of an organisation, and the
industry in which the company is it competing in, this may influence the managers’ awareness of
situational variables (meaning ups and downs of the situation) and their use of that information.
Given the various influences that managers making decisions on integration design are subject to, I
will design the model as is given in the study of Amy Pablo, and point out which tasks Pernod
Ricard as an acquirer needs to weight more in its situation.
To my knowledge at this point the cultural difference may play an important role in decision
making for both managers. On scale of five (five meaning the highest level of integration) the
decisions makers will have numbers of how much consideration every task is given. this mean that I
agrees with the hypothesis presented in Dr Pablo’s journal based on the specific situation of this
particular acquisition and its characteristics.
17
Haspeslagh & Farquahar 1987;Kotter & Schlesinger 1979
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Mergers & Acquisitions: Pernod Ricard and V&S Spirit Case
Graph V: Model of hypothesized Relations
Strategic task
needs
Multiculturalism
Of acquirer
Power
differential
4
-
4
-
3
-
4
-
Organizational task
needs
Compatibility of
Acquisition visions
+
Level
of
Integration
chosen
3
+
My arguments is that all these hypothesis relate to those influences the decision makers have
identified, and the position they have on the lever of integration in the acquisition is significant. In
this case Pernod Ricard has the experience in acquisition situations, which give it a consideration
that is unlikely that those managers will be influenced by the new elements the presented situation.
(V&S Spirit merger) this is why I gave those numbers shown in diagram above on scale of five yet
without overlooking those influence behind that decision design on integration.
7 STRATEGIC INTEGRATION PROCEDURES
The importance of strategic integration in mergers or acquisitions is because strategic objectives
must be implemented for successful value creation, giving the synergy the management has aimed
for. Therefore there are stages in the whole process, which are to been taken into consideration,
which are a critical for all parties involved. After the transaction stage where the buyer in merging
or acquiring partner gathers information, and decide if the deal goes through, they are then ready to.
This stage for the case of Pernod Ricard and VS Spirit has passed.
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Mergers & Acquisitions: Pernod Ricard and V&S Spirit Case
Following this are the transition and incorporation stages, which are important to the research
described here, as this is where the critical decisions needed to be implemented and importantly it is
during these stages that cultures plays a role. The management should know that the decisions of
combining both culture come with a responsibility of having a harmonious environment and in this
stages they have to be careful about how to creating that environment on cultural basis.
7.1 Transition Stage
The transition stage begins when the acquirer partners announce a deal or sign a merger or
acquisition agreements which marks the point at which both parties are serious about committing to
the deal detailing how they will put it together. It is also a point where the integration of combining
firms can be considered and planned for. During this period maintaining secrecy will become
difficult, as more people are likely to become involved in the deals. There is likely to be speculation
among employees and customers and its implication for them. There will be also a greater and
broader interaction among people from the involved companies so it is a time when a culture value
preservation plan needs to be implemented and a process for insuring an orderly integration process
begins.
In this stage the management will have to set objectives which they hope to achieve together. The
transition stage is important because it is at this stage that both companies have to accept each other
and work toward common goals even if they come from different cultural organisations. Such
collaboration is not always easy for larger companies so the role of management is essential in
ensuring that during the transition stage their transition structure will help manage the process of
combining companies to help create an orderly and affective integration.
7.2 Incorporation Stage
The incorporation stage begins after closing and continues until after the target or merge partner are
integrated this stage last until the firm has achieved the level of cooperation needed to achieve the
synergies hoped for. To achieve the level of cooperation the time- frame needed differs depending
on the kind of synergy chosen. There are two synergies which are needed in this process: 1) Cost
synergy “a cost synergy refers to the opportunity of a combined corporate entity to reduce or
eliminate expenses associated with running a business. Cost synergies are realized by eliminating
positions that are viewed as duplicate within the merged entity..”18 , and 2) Intangible synergy ( or
18
Gunter K. Stahl and Mark E. Mendenhall, Merger and Acquisition Managing Culture and Human,2005 p 39
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Mergers & Acquisitions: Pernod Ricard and V&S Spirit Case
human synergy)
which usually arises when two persons with different complementary skills
cooperate. The fundamental example is cooperation of men and women in a couple. Thy need to be
complementally in their everyday tasks in order to build a “successful marriage” In business,
cooperation between people with organisational and technical skills happens very often. In general,
the most common reason why people cooperate is that it brings a synergy and mutual benefit. On
the other hand, people tend to specialise just to be able to form groups with high synergy19. These
synergies are both important because this is the point where change in control has taken place and
the cross culture in the organisation has to be carefully observed due to its delicate role in the
process.
In brief the two stages described above are more important in the process of acquisition as during
these stages that the integration is defined and hope to be followed by both parties , which bring us
back to culture diversity in both companies. Again through these stages the communication and the
culture mutual understanding point will play a role in how the integration can be a success.
8 RECOMMENDATIONS
8.1 Important Positions in Post Acquisition: The Marriage Style
Now that we have seen those factors behind the decision-making on the level of integration in post
acquisition we can look into the best way of using the available information. Acquisition can be
compared to marriage in terms of that like in marriage there are stages need to be passed through in
order for the marriage to work.
In general because acquisition and merger negotiations usually centre on price bargaining and take
over, any information other than that of a financial nature is likely to be limited. As behaviour
during these situations is critical, it is important to access other information in additional to
financial information.
In research conducted by John Hunt in 1988 on UK-USA firms examining the relation ship between
the interpersonal impressions of buying and selling teams and their subsequent assessment of post
acquisition success many of the acquirers interviewed admitted that they could have been better
informed about what they where buying. While this may not have necessarily altered their decisions
to go ahead with the decision of purchase it would have enabled them to make more informed
19
As reference 18, p 40
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Mergers & Acquisitions: Pernod Ricard and V&S Spirit Case
decisions as how to plan the integration and evaluate their chances of their proposed “marriage
contract” is being accepted20.
8.1.1 Clarifying the Point
“Like in marriage, they can be traditional or a collaborative partnership: a “collaborative marriage”
can be compared to: where the acquired organisation continues to operate relatively unchanged after
take-over”. A “traditional marriage” can be compared to an acquisition which exercises a is full
take over In this case it is important to clarify those terms because if the terms of the proposed
“marriage” are incorrectly interfered with or misunderstood by the acquired management they are
likely to be miss communicated to the rest of work force.
If a “traditional marriage” between merge partners is misrepresented as a collaborative one of this
only serves to cause the distress to both sides. On the other hand, an intended collaborative
marriage misread as a traditional marriage is likely to result in wide-scale cultural retrenchment,
which will make future cooperation and integration more difficult, particularly if it is likely that
organisation will continue to operate separately for some month’s s before there is any attempt to
integrate the two separate operations21.
While certain types of culture are less changeable than others change is difficult and a long time
process in some cases some combinations of organization will result on “disastrous marriage”. How
is it possible to avoid this and make it possible to achieve the desirable strategic objectives?
The answer may be in study done by Cartwright and Cooper in 1998 on mergers and acquisitions
examining the variance in performance of a number of recently formed joint venture organisations
in information technology, with a common parent. The study finds that there is a difference between
creating a new culture as opposed to changing or integrating stable existing cultures.
This comes back to the importance of highlight the points rather than changing them. It is likely that
Pernod Ricard as an acquirer and V&S Spirit as acquired, both managements would have outlined
the objectives and agreed on them at the first this will result on harmonious environment both
managers and employees will work on common goals rather than creating new environment t due to
differences both in culture or differences in management decision making. To create a clear
20
&21Cited by Sues Cartwright and Cary l cooper in managing M&A and strategic alliance: integrating people and
culture p 98 110
21
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Mergers & Acquisitions: Pernod Ricard and V&S Spirit Case
understanding of the partnership for post integration planning and management, the checklist below
would serve as guidance to both companies. This check list present the planning, aims, objectives
and outcome both companies hope to accomplishes and have to agree on first, in order to create a
“successful marriage” (a homogenous environment).
Preplanning

Know your own culture fully

Research the target

Consult the personnel functions

Arrive with the agenda personnel issues and areas for discussions which will test out your
implicit or pre formed theories
Aims

To make an initial assessment of the culture targeted company in order to combine with
their own culture.

To outline the terms of the proposed objectives and measure its achievement in a cultural
perspective (in this case to clarify the differences in both companies) “marriage contract”

To establish the likelihood of acceptance and so ascertain a realistic time-scale for
integration.
Objectives

To evaluate the suitable of intended marriage partner in term of its culture types or marriage
contract.
Outcome

Successful environment for both companies towards a common goal.
8.1.2 Communication
In communicating with the staff, it is much more advisable to communicate face to face, rather then
using standard letters, particularly if the issue relates to staff jobs. An acquisition affecting whole
organisation if is announced in good terms is has an advantage of presenting a greater opportunity
creating a clear first impression and reducing immediate uncertainty. Like in marriage a
communication brings to a mutual understanding of decisions communicated between all families
before the marriage. And it does not end there, in some cases after the marriage the family is likely
to be involved whenever there is significant information to be communicated (a crisis or a joyful
events).
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Mergers & Acquisitions: Pernod Ricard and V&S Spirit Case
It is important to establish a communication philosophy because its represents the core values
driving the plan and guides the management in executing it. The greater the gap between the
communication, and the reality of the situation, the lower the credibility of the leadership. And this
is why the communication in post acquisition is a key element to a better understanding, of the
objectives set to be achieved.
This work should involve preparing a plan of communication and the language chosen for this plan
is important. Using terms for the staff such as “you must adopt” or “you should” may not convey
the right tone and the employees may feel powerless. Expressions such as “we are considering” or
“we will assess the feasibility of” are more suitable for addressing members of the organisation and
are more likely to reduce negative emotions. Particularly when the now merged companies are from
different cultural backgrounds. This is why the communication in post acquisition is a key element
to better understanding and an accomplishment of a success especially in different cultures. In some
case employees in an organisation may interpret some information differently and this may create
some stress for some employees who feel that their efforts may be undermined. Due to culture
differences both companies must outline a plan of communication
Preplanning

Decide when, where, how and who of the acquisition announcement

Prepare and consult with acquiring management or other managers on broad content and
style of presentation in advance.

If possible rehearse the presenter of proposed group announcement to ensure consistency
and critically evaluate the content and style of the performance

Decide on appropriate feedback mechanism
Aims

To introduce the employees to the new and collective organisation that they now become a
part of and to ensure they feel secure throughout that union (marriage)

To set a scene of a future collaboration and integration

To identify potential obstacles to integration and source of concerns (avoid what can block
the consumption of the marriage) and learn more of the culture of the acquired company (learn
to know one and other)
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Mergers & Acquisitions: Pernod Ricard and V&S Spirit Case
Objectives

To diffuse a negative felling and reduce uncertainty

To win a trust and cooperation of the acquired workforce as much as possible (to win a trust
from your partner)
Outcome

Open a portal of a better future
9 CONCLUSION
To conclude this analysis it is clear that the question asked can only be answered by assuming
certain facts about the analysis and information gathered by both companies. If the question is
asked if integration between companies from different cultural backgrounds can be achieved at a
cultural level, on the basis on this research, I have shown that the answer is positive.
Throughout the analysis I established the facts, which demonstrate the relationship between
culture and integration in acquisition
During the second part I examined the weight the management will give to factors influencing the
decisions making on integration and what this means for this particular acquisition and its
integration process
Culture diversity in both organisations may be strong but those stages (explained above in Chapter
8) in integration process are important. and the company has to go through them. In integration
process they are crucial because they will determine whether both companies can work together and
if culture diversity does not pose an obstacle. The Pernod Ricard management must not impose the
decisions on V&S Spirit management the decision coming only from one side even if they are the
owners, without listening and consulting with them to understand how they may cooperate
Therefore in making integration design decisions, managers’ judgements have to overcomes
influences which may be behind it, like the task, culture and political characteristics. The
management should know that the decisions of combining both culture come with a responsibility
of having a harmonious environment.
The two stages described above are more important in the process of acquisition as during these
stages that the integration is defined and hope to be followed by both parties, which bring us back to
culture diversity in both companies. Whether this particular acquisition is or has passed some stages
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Mergers & Acquisitions: Pernod Ricard and V&S Spirit Case
it is important for the management to know that in those stages mistakes are reversible and is
possible to follow a common goal because is through these stages the communication and the
culture mutual understanding point will play a role in how the integration can be a success.
In conclusion the success of the culture integration on this particular acquisition is a process which
will encounter conflicts, that can be resolved through communication and finding a common
solution.
10 LIST OF REFERENCES
Literature review
Management principles and practices for tomorrow’s Leaders. 3rd edition by Gary Dessler
When cultures collide leading across cultures: 3rd edition by Richard D Lewis
Focus on culture Student book: Anne Skaarup Rasmussen and Georg bank Mikkelsen 2000
Cultures and organizations software of mind: Geert Hofstede and Geert Jan Hofstede 2005
Culture consequences comparing values behaviour Institution and Organizations across nations 2nd
edition : Geert Hofstede 2001
Global Acquisitions Strategic Integration and Human factor: Stan Lees 2003
Mergers and acquisition a step By step legal and practical guide: Edwin L Miller Jr 2008
Uncommon sense about organizations cases studies and field observations: Geert Hofstede 1994
Mintzberg on management inside our strange world of organizations: Henri Mintziberg 1989
Methodology for creating business Knowledge second edition: Ingeman Arbnor and Bjorn Bjerke
1997
Mergers and acquisitions: Managing culture and Human resources edited By Gunter K Staal and
Mark E mendenhall 2005
Managing mergers acquisitions and strategic alliances integrating people and cultures 2nd edition
sue Cartwright and Cary L cooper 1992,1996
Economic approaches to organizations 3rd edition : Syste Douma and Hein Schreuder 2002
Strategy Analysis & practice : John McGee, Howard Thomas and David Wilson 2005
Global marketing 4th edition :Svend Hollensen 2007
Secondary data electronic review
http://www.geert-hofstede.com visited 26/06/08
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Mergers & Acquisitions: Pernod Ricard and V&S Spirit Case
http://www.management-aims.com/PapersMgmt/33Vaara.pdf
http://www.pernod-ricard.com/en/pages/321/pernod/Finance/Rapports-Annuel.html
http://www.pernod-ricard.com/en/pages/180/pernod/Corporate-responsibility/Responsibleconsumption.html
http://www.vsgroup.com/en/Corporate-Responsibility/
http://www.vsgroup.com/en/About/
http://www.geographia.com/sweden/culture.html
http://www.frenchculture.org/
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