Davor Filipović, MA
Faculty of Economics, University of Zagreb
J. F. Kennedy 6, 10000 Zagreb, Croatia
Phone: 00-385-1-238-3275, Fax: 00-385-1-223-5633
E-mail: dfilipovic@efzg.hr
Najla Podrug, Ph.D.
Faculty of Economics, University of Zagreb
J. F. Kennedy 6, 10000 Zagreb, Croatia
Phone: 00-385-1-238-3339, Fax: 00-385-1-223-5633
E-mail: npodrug@efzg.hr
Hrvoje Bujanović, BA
Privredna banka d.d. Zagreb
Račkoga 6, 10000 Zagreb, Croatia
Phone: 00-385-1-636-0741, Fax: 00-385-1-636-0743
E-mail: hrvoje.bujanovic@pbz.hr
MERGERS AND ACQUISITIONS: THE CASE OF
CROATIA
ABSTRACT
There is no book, journal of scientific paper in academic literature regarding
M&A that does not analyze organizational change following the transaction.
Employee resistance, changes in business strategy and organizational
structure, as well as changes in organizational culture are being analyzed
and pointed out as crucial variables for M&A success. The main aim of this
paper is to point out the importance of organizational variables for M&A
practitioners’ trough analysis of M&A activity in the Republic of Croatia.
There are a sufficient number of M&A transactions in the Republic of
Croatia that can be analyzed, and this paper will emphasize organizational
change subsequent to M&A focusing on employee resistance and changes in
organizational culture.
Key words: Mergers and acquisitions, Organizational change, Employee
resistance, Business strategy, Croatia
1
1. INTRODUCTION
In turbulent business environment of 21st century organizations are forced to
use different growth strategies in order to successfully position with respect
to competition and to preserve and increase their profit margins. Growth
strategy is part of the corporate strategy which emphasizes corporation as a
whole and provides answers regarding business scope of the corporation and
recourse allocation (Tipurić, 2005). Growth strategies are concerned with
increasing the size and viability of the business over time. A successful
growth strategy will allow company to increase its customer base, market
segments, geographical scope, and/or product lines, which should lead to
revenue growth. Permanent growth enables organizations to build and sustain
their competitive market position. In planning growth strategies, managers
are concerned with three key issues: (1) where do we allocate resources
within our business in order to achieve growth, (2) what changes in business
scope do we see as compatible with growth and overall strategic decision,
and (3) how do we time our growth moves compared to competitors
(Harrison, St. John, 2008)?
Modern business world is cognizant with three ways of implementing growth
strategies including: internal or organic growth, growth through mergers and
acquisitions, and growth through strategic alliances. Company pursues
internal growth by relying on its resources, and also through increase of
products and services sold on existing markets, independent development of
new products and penetration to new markets (Tipurić, 2005). Considering
the fact that internal growth represents the slowest way to grow and
considering that companies cannot accomplish planned growth only by
relying on its own resources, companies often to expand business through
mergers and acquisitions or through strategic alliances (Tipurić, Markulin,
2002).
Mergers and acquisitions, as a part of the growth strategy, but also as a
research field of numerous scientists and consultants, represent prominent
phenomenon of developed capitalist world since the end of 20th century.
Mergers and acquisitions have become popular choice for companies’ growth
and expansion (Seth et al., 2000; Buckly and Ghauri, 2002; Shimizu et al.,
2004). M&A come in waves and extant literature identifies five M&A waves.
Each of the waves had its own characteristics deferring from each other by
motives for M&A activity and also reasons for decline in M&A activity. In
academic community heterogeneity regarding motives and success of M&A
2
prevails. Thus, the main aim of this paper is to point out the importance of
organizational changes which come along with every transaction and
emphasize the impact of those changes on M&A success. There is no book,
journal of scientific paper in academic literature regarding M&A that does
not analyze organizational change following the transaction. Employee
resistance, changes in business strategy and organizational structure, as well
as changes in organizational culture are being analyzed and pointed out as
crucial variables for M&A success. This paper also analyzes M&A activity in
the Republic of Croatia trough the period from 1998 to 2010 and tries to
underline the importance of organizational variables for Croatian M&A
practitioners.
2. MERGER AND ACQUISITION WAVES
Researches regarding M&A are present in economic literature for a long time
period starting form 1890s. It is a well-known fact that mergers and
acquisitions come in waves when firms in industries react to shocks in their
operating environments. Shocks could reflect such events as deregulation; the
emergence of new technologies, distribution channels, or substitute products;
or a sustained rise in commodity prices (DePhampillis, 2010). Thus far, five
completed waves have been examined in the academic literature: those of the
early 1900s, the 1920s, the 1960s, the 1980s, and the 1990s. Of these, the
most recent wave was particularly remarkable in terms of size and
geographical dispersion (Marynova and Renneboog, 2008).
Beginning of the first wave at the end of 19th century in the United States of
America was characterized with huge technological changes, economic
expansion and innovation in industrial processes. An important attribute of
this wave was the simultaneous consolidation of producers within industries,
thus qualifying the description "horizontal consolidation". Nobel Prize
winner George Stigler described the first wave as merging for monopoly. In
that time period more than 1800 firms disappeared due to consolidation, and
many of the US corporate giants such as General Electric, Eastman Kodak,
American Tobacco and DuPont during the first wave trough such
consolidation. The wave came to an end around 1903–1904 due to the stock
market crash (Sudarsanam, 2005).
M&A activity remained at a modest level until the late 1910s as a
consequence of the First World War. The second takeover wave emerged in
3
the late 1910s and continued through the 1920s. The second wave was
considered as a move towards oligopolies because, by the end of the wave,
industries were no longer dominated by one giant firm but by two or more
corporations. Most of the mergers of the 1920s were between small
companies left outside the monopolies created during the previous wave. By
merging, these companies intended to achieve economies of scale and build
strength to compete with the dominant firm in their industries (Marynova &
Renneboog, 2008). The second wave accompanied economic growth and
stock market boom. An estimated 12.000 firms disappeared during this
period, although the impact on the market structure of industries was much
less dramatic than the first wave mostly due to antimonopoly legislation acts.
This wave ended in 1929 with the stock market crash of that year. In the
following four years, due to the global economic depression, many
corporations formed during second wave collapsed into bankruptcy
(Sudarsanam, 2005).
After the Second World War which followed after the worldwide economic
depression, M&A activities decreased significantly. The third M&A wave
took off only in the 1950s and lasted for nearly two decades. The beginning
of this wave in the US coincided with a tightening of the anti-trust regime in
1950. The main feature of this wave was a very high number of diversifying
takeovers that led to the development of large conglomerates. Compared to
first and second wave, mergers in this wave where not large and did not
involve large acquirers and their motive was growth trough unrelated
diversification (Hill & Jones, 2008). The main feature of this wave was a
very high number of diversifying takeovers that led to the development of
large conglomerates. By building conglomerates, companies intended to
benefit from growth opportunities in new product markets unrelated to their
primary business. This allowed them to enhance value, reduce their earnings
volatility, and to overcome imperfections in external capital markets. The
third wave peaked in 1968 and collapsed in 1973, when the oil crisis pushed
the world economy into a recession (Marynova & Renneboog, 2008).
Recovery of the stock markets in the USA at the middle of the 1980s
indicated the revival of takeover activity and start of the fourth wave. The
start of the fourth wave coincided with changes in anti-trust policy, the
deregulation of the financial services sector, the creation of new financial
instruments and markets (e.g. the junk bond market), as well as technological
progress in the electronics industry. Many transactions were financed with
large amounts of debt, and takeovers were often conducted by company's
4
management trough management buyouts (Damodaran, 2002). Except of
management buyouts, this wave was characterized the activity of private
equity funds which conducted takeovers trough leverage buyouts (Lake,
2007). As the main motive for this wave, the academic literature suggests that
the conglomerate structures created during the 1960s had become inefficient
by the 1980s such that companies were forced to reorganize their businesses
(Shleifer, Vishny, 1991). The merger wave of the 1980s includes a number of
mergers designed either to downsize or to specialize operations. Some of
these corrected excessive conglomeration, others responded to excess
capacity created by the 1970s recession (following the creation of the OPEC
oil cartel), while yet others responded to the important advances in
information and communication technologies. The 1980s also experienced
the largest number of hostile bids in U.S. history (Betton, Eckbo, Thorburn,
2008). Like all earlier waves, the fourth one declined after the stock market
crash of 1987 (Marynova & Renneboog, 2008).
The fifth takeover wave started in 1993 along with the increasing economic
globalization, technological innovation, deregulation and privatization, as
well as the economic and financial markets boom. This wave is important
because of its size and geographical dispersion emphasizing its international
nature. Remarkably, the European takeover market was about as large as its
US counterpart in the 1990s, and an Asian takeover market also emerged.
Second, a substantial proportion of M&As was cross-border transactions.
Previously domestically-oriented companies resorted to takeovers abroad as a
means to survive the tough international competition created by global
markets. The dominance of industry-related (both horizontal and vertical)
takeovers and the steady decline in the relative number of divestitures during
the fifth wave suggests that the main takeover motive was growth to
participate in globalized markets. Compared to the takeover wave of the
1980s, the 1990s wave counted fewer hostile bids in the UK and US.
However, an unprecedented number of hostile takeovers were launched in
Continental Europe (Marynova & Renneboog, 2006). The fifth wave ended
after the burst of the dot-com bubble and the consequent stock market
collapse in 2000. It is important to point out that terrorist attacks on
September 11th 2001 had a significant impact on the decrease of the M&A
activity in the world. After the fifth wave and subsequent terrorist attacks on
USA M&A activities picked up in 2003 and declined again in 2008 due to
5
subprime mortgage crisis in the United States of America. Figure 1 presents
M&A activity in the world from year 1998 to 2010.1
Figure 1. M&A activity in the world in period 1998-2010
Source: www.mergermarket.com
3. MERGERS AND ACQUISITION AS A CHANGE PROCESS
Despite the increasing popularity of mergers and acquisitions, it has been
reported that, more than two-thirds of large merger deals fail to create value
for shareholders. Ravenshaft and Scherer found that profitability of target
companies, on average declines after an acquisition. The propensity for
mergers and acquisitions' failure to meet anticipated goals is corroborated by
Erez-Rein et al. (2004) and Carleton (1997) who noted that the rate of M&A
failure range from 55 to 70 percent (Lodorfos and Boateng, 2006).
Mergers and acquisitions process should be seen as a series of largely
independent events, culminating in the transfer of ownership from the seller
to the buyer rather than just an independent event. In theory, thinking of a
process as discrete events facilitates the communication and understanding of
numerous activities required to complete the transaction. Thinking of M&As
in the context of transaction-tested process, while not ensuring success,
1
Information regarding M&A activity in the world was gathered from the Mergermarket
data base and includes all deals with value of 5 million Euros or more. Information in all
figures and graphs following in this paper is also gathered from the Mergermarket.
6
increases the probability of meeting or exceeding expectations (DePhampilis,
2010).
Mergers and acquisitions are major change in lives of corporations and those
employed by them. The changes occasioned by acquisitions are often wide
ranging. They may change strategies, operations, cultures, the relationship
between staff and managers, team relationships, power structures, incentive
structures and job prospects. M&A may require individuals to change their
life styles, behavior, personal beliefs and value systems. Acquisitions create
anxiety, fear and often are traumatic events for those who might lose their
jobs (Reilly, Brett, Stroh, 1993). However, it is not just the merger that makes
employees anxious, it is the perceived decline in the organization before the
merger takes place, the lack of other jobs elsewhere, or other constraints that
do not allow the employee to leave that create excessive stress (Davy et al.,
1989; Balmer and Dinnie, 1999; Marks, 1999). The turbulence associated
with acquisitions may impact on career loyalty, organizational loyalty, job
involment and satisfaction with job security. Employees have been known to
experience the merger as a loss of a loved one, or may vicariously live the
situation as a personal crisis and panic (Sherer, 1994).When an organization
merges with another, employees feel as though they have lost control over
important aspects of their lives. That creates heightened stress within the
individual, which usually leads to lower productivity and reduced job
satisfaction (Davy et al., 1989). In case of underperforming target companies,
there may be dissatisfaction with present and therefore greater readiness to
accept the imperative of change. Change is always opportunity for someone
and threat for other. Managers may see change as an opportunity to profit out
of their stock options while lower level managers may see change as a threat
(Sudarsanam, 2005).
Given the scale of change that an acquisition can cause in both firms that are
part of the transaction, change management concepts may be applied to
improve post-acquisition integration. These concepts include assessing speed
of change, establishing clear leadership, clarity of communication,
maintaining costumer focus, making tough decisions and dealing with
resistance, and are crucial for M&A success from organizational perspective
(Galpin & Robinson, 1997). The pace of implementing the post-acquisition
changes is a conflicting issue in the literature, with some researchers arguing
that immediately after the deal is closed there is a period when employees at
the acquired company expect and even welcome change (Shrivastava, 1986),
while other researchers argue that firms should go slow and prepare
7
employees for change and reorganization (Yunker, 1983). Proponents of
quick change, argue that since employees anticipate reorganization in the
acquired company, quick-change implementation helps reduce uncertainty.
Some researchers argue that slow-change implementation is not a result of
strategic planning, but a sign of ineffective management (Haspeslagh and
Jemison, 1991). However, there is an argument that employees in a state of
shock after an acquisition can only accommodate a limited amount of change
initially, and therefore, are in favor of step by step approach (Buono and
Bowditch, 1989).
The "2 + 2 = 5'' effect between two business units that will increase
competitive advantage by achieving synergies and improving overall
performance is usually primary purpose of merging and acquiring new firms
(Appelbaum et al., 2000). Since synergies are rarely realized M&A literature
indicates that there has been intense interest in examining human and cultural
aspects of M&As as traditional explanations have not adequately explained
the high rate of M&A failures. The literature drawn on cultural differences is
derived from the organizational behavior school of thought. The effects of
culture can take place in the early stages of the acquisition process but are
especially crucial in the post-acquisition management period (Quah and
Young, 2005). Systematic research indicates that the greatest danger for
value creation that should come out M&A comes after two companies try to
integrate operations. Fralick and Bolster point out that culture can be a break
or make factor in merger equation (Fralick and Bolster, 1997). Incompatible
culture is major reason why financial benefits anticipated from mergers are
often unrealized for Carwright and Cooper (Carwright and Cooper, 1993).
Weber emphasizes that magnitude of cultural differences can effectively
impede successful integration during M&A resulting in poor performance
(Weber, 1996). It is widely acknowledged that cultural compatibility alone is
not guarantee to M&A success, but is not wrong to say that cultural
heterogeneity creates tensions and affects financial and managerial
performance (Jamison and Sitkin, 1986; Kanter and Corn, 1994; Brock et al.,
2000).
Human resources tend to react negatively after being acquired. However, the
strength duration and dysfunctional effects of such reaction vary between
different M&As (Larsson et al., 2002). This negative employee reaction is
often referred as a "cultural clash" (Buono and Bowditch, 1989; Chatterjee et
al., 1992; Cartwright and Cooper, 1995; Brock el al., 2000). Cultural clash
has been shown to have dysfunctional consequences such as lower
8
commitment and cooperation between acquired employees (Bouno el al.,
1985), greater turnover among acquired employees (Lubatkin et al., 1999), a
decline in shareholder value of the buying firm, and deterioration of
operating performance of the acquired firm (Chatterjee et al., 1992).
According to Carwright and Cooper, and Carey certain culture types can be
disastrous and can lead to cultural ambiguity, confusion and hopelessness.
Therefore, the management of the human factor in M&A has been recognized
as an important source of success by number of researchers. Lodorfos and
Boateng conducted a research in chemical industry in period 1999-2004, and
had 32 interviews with senior managers of 16 M&A deals. Their study
identifies culture differences between merging firms as the key element
affecting M&A success. Almost all interviewers agreed that M&As often
failed to achieve expected outcomes of the merger because of lack of cultural
fit or incompatible cultures (Lodorfos and Boateng, 2006).
Mergers and acquisitions may often result in the breach of implicit employee
contracts such as expectations of future benefits or benign work conditions.
They consist of 'personal compacts', the mutual obligations and commitments
that exist between employees and the company. Such compacts include
formal, psychological and social components. Breaches of these contracts or
fear of such breaches may intensify hostility to change. In order to make
change acceptable the acquirer must offer, to those affected, payoffs that are
demonstrably superior to their existing payoffs. Change must be seen to be in
the interests of the affected. Such perception is a much a matter of substance
as of the transparency of the process delivering change. In case of
underperforming target companies, there may be dissatisfaction with present
and therefore greater readiness to accept the imperative of change
(Sudarsanam, 2005).
Considering the research evidence about the importance of corporate culture
and human factors in M&A success it is crucial to assess culture
compatibility before the deal (Schreader and Self, 2003). While strategic
change and the consequent change in the architecture of the merging firms
my result in culture change, culture change my often be precondition for both
organization structure change and strategic change (Sudarsanam, 2005).
Behavior of acquirer is extremely important for successful acquisition.
Honesty, sensitivity, competence and willingness to share with target
employees the benefits of the acquisition are important variables for success.
No matter what kind of change should take place in target company its
9
influence on employees has to be taken into consideration. Honest dealing
and care for employees are indispensable to ensure a willing cooperation and
commitment to change.
4. M&A ACTIVITY IN THE REPUBLIC OF CROATIA
Since M&A activity is linked to the development of capital markets, first
transactions in the Republic of Croatia were done after the war. It is
necessary to emphasize that capital markets in the Republic of Croatia –
Zagreb Stock Exchange and Varaždin Stock exchange – were founded in
1991 and 1993. During first four years Croatian stock exchanges worked
without the agency for regulation and supervision of capital markets, and
Croatian Securities Commission was founded in September of 1996. That
Commission was substituted with Croatian Agency for Supervision of
Financial Services in January of 2006. Besides, the Law on takeover was
promulgated in 1997 and new versions of that law were promulgated in year
2002 and 2007. In year 2007 Zagreb Stock Exchange acquired Varaždin
Stock Exchange and ever since there is on stock exchange in the Republic of
Croatia. Table 1 presents comparison of M&A activities in Croatia, EU and
world from 1998 until August 2010.
Table 1. Comparison of M&A activities from 1998 until August 2010
Year
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
until August 2010
Croatia
0
3
4
8
8
11
15
15
22
17
15
7
8
EU
1010
1396
2510
2360
2311
3042
4272
4810
5525
6069
5028
3302
1756
World
1331
1827
3427
3311
3113
4057
5791
6773
7767
8420
7074
4774
2515
It is already been pointed out that merger and acquisition activities represent
major growth modus of contemporary capitalistic world. Dynamics and
volume of M&A activities reflect the economic growth intensity as well as
economic recession and periods of recovery. Table 1. presents M&A
activities in Croatia, EU and world from 1998 until August 2010. Analysis is
10
done on large transactions meaning 5 million Euros transaction value and
more. Analyzed time period from 1998 until August 2010 is chosen because
of few reasons. Firstly, it covers period of growth and prevalent dynamics as
well as period of recession and severe activity decline. Furthermore, major
Croatian M&A activities just started in 1999, after gaining independence and
recovery from warfare.
The end of 20th century and beginning of 21st century illustrate significant
increase of business deals including mergers and acquisitions, strategic
alliances, joint ventures worldwide. It is evident from data in table 1. that
there is effect of September 11th 2001 on reduction of business deals,
especially in USA. The activities in USA declined by 22% in 2002, and
stayed on the similar level until 2004. In EU and rest of the world these
effects influenced the next year activities, not the year 2003 as in USA.
Global financial and economic crisis that started in 2008 affected the volume
of M&A activities in Croatia, EU and world. When comparing year 2007
with year 2009, the M&A activities’ reduction is alarming. Global activities
decreased by 43,3%, EU activities by 45,6% and in Croatia by 58,8% from
2007 until 2009. Figure 2 shows dynamics of M&A activities in the Republic
of Croatia.
Figure 2. Dynamics of M&A activities in Croatia
Figure 2 presents dynamics of Croatian M&A activities from 1998 until
August 2010. The strongest activity was recorded in 2006. In 2006 the largest
transaction was acquisition of Croatian pharmaceutical company Pliva d.d.
Zagreb by USA-based specialty pharmaceutical company Barr
Pharmaceuticals, Inc., followed by financial sector acquisition of HVB
Splitska Banka d.d. by Societe Generale de France.
11
Private M&A is transaction that does not require shareholder approval in a
public forum either from the bidder, target or vendor shareholder while
public transaction requires one. Figure 3 indicates that 11% of all Croatian
M&A activities from 1998 until August 2010 are public, while 89% are
private transactions. This is consistent with proportions in other European
countries e.g. Germany with 5% public and 95% private transactions, France
with 8% public and 92% private transactions and Italy with 5,6% public and
94,4% private transactions. Partial explanation for proportion of private and
public transactions for Croatia and previously mentioned European countries
are characteristics of Continental corporate governance which is unique for
all of them.
Figure 3. Croatian M&As’ arena
Domestic transaction is a transaction concluded within a nationally boundary
i.e. a deal involving two or more increment nationals, while cross-border is
transaction that is conducted across national boundaries i.e. a deal that
involves companies from at least two different nationalities. It is evident from
figure 4 that 15,8% of M&A transactions in Croatia are domestic, while
84,2% are cross-border transactions. These statistics are not consistent to
leading European countries that do not have such imbalance. E.g. Germany
has 42% domestic and 58% cross-border transactions; France has 51%
domestic and 49% cross-border transactions; Italy 57% domestic and 43%
cross-border transactions.
12
Figure 4. Cross-border and domestic deals in Croatia from 1998 until
August 2010
Since capacity of Croatian economy and market is limited and less developed
when compared to leading European countries, therefore many activities in
Croatia have cross-border character. Comparison of Croatian proportion of
cross-border activities in total M&A with European countries is presented in
figure 5 with UK representing open system of corporate governance and
Germany, France, Italy and Netherlands representing Continental system.
Figure 5. Comparison of Croatian cross-border M&A activities with crossborder activities of the leading M&A European countries
From 1998 until August 2010, 11% of Croatian cross-border M&A activities
have transatlantic characteristics. Proportion of transatlantic M&A activities
is notably lower than transatlantic M&A activities of leading European
economies (Germany 31,8%, Netherlands 29% and Italy 24%).
13
In table 2 geographical structure of Croatian cross-border M&A activities
from 1998 until August 2010 without transatlantic activities is presented.
Croatian bidders have acquired targets primarily in the Croatian region with
numerous activities in Bosnia and Herzegovina, Serbia and Slovenia.
Germany, Hungary and Austria are also relevant target focus markets to
which Croatia has always been oriented. Out of all Croatian cross-border
M&A activities 33% are activities of pharmaceutical company PLIVA d.d.
Zagreb with acquisition activities in Czech Republic, Poland, Denmark, UK,
Germany, Spain and USA. Nevertheless, Croatia is proved to be attractive
target market for bidders from different countries. Leading countries, in
number of acquisition of Croatian targets, are Austria, Germany, Italy,
Hungary and France. Table 2 shows geographical structure of Croatian crossborder M&A activities from 1998 until August 2010.
Table 2. Geographical structure of Croatian cross-border M&A activities
from 1998 until August 2010
Target's country
(Croatian bidder)
Czech Republic
Switzerland
UK
Poland
Spain
Hungary
Austria
Slovenia
Germany
Serbia
B&H
Deals number
1
1
1
2
2
2
2
3
3
5
6
Bidder's country
(Croatian target)
Denmark
Finland
Greece
Russia
Slovakia
Serbia
Spain
Netherlands
Czech Republic
Island
Sweden
Poland
UK
Slovenia
Switzerland
France
Hungary
Italy
Germany
Austria
Deals number
1
1
1
1
1
1
1
1
2
2
2
3
3
4
4
5
5
7
11
16
14
Austrian, Italian and French bidders significantly participate in financial
sector of M&A activities since leading Croatian banks have been acquired by
banking groups based in Austria, Italy and France. Industrial structure of
Croatian M&A activities partially corresponds to global and European
industrial structure. Leading global and European industries in M&A
activities are customer industries (food, drinks, retail and other services),
industrial product and electronics, followed by financial sector. Industrial
structure of Croatian M&A activities encompasses leading industries such as
customer industries, financial, pharmaceutical, industrial products and
services, and that structure is similar with European countries. Logically,
industrial structure of Croatian M&A activities is comparable to industrial
structure of Croatian economy. Figure 6 presents industrial structure of
Croatian M&A activities.
Figure 6. Industrial structure of Croatian M&A activities
The largest transaction by deal value the from 1998 until August 2010 is
acquisition of Croatian pharmaceutical company Pliva d.d. by USA-based
specialty pharmaceutical company Barr Pharmaceuticals, Inc. (2,094 billion
Euros), followed by acquisition of HVB Splitska Banka d.d. by Societe
Generale de France valued 1 billion Euros. After that, acquisition of 22,15%
stake of oil and gas exploration and production company INA d.d. by MOL
Hungarian Oil and gas Public Limited Company (870 million Euros)
conducted in 2008 and acquisition of 35% stake of Croatia Telecom by
Deutsche Telecom in 1999 for 788 million Euros followed by additional 16%
stake acquisition of Croatia Telecom by Deutsche Telecom in 2001 for 500
million Euros.
15
From 1998 until August 2010, ten largest transactions by deal value are
acquisitions of Croatian target companies by foreign bidders. However, the
largest acquisition by Croatian bidder happened in 2010 with deal value of
382 million Euros. Croatia based holding company that unifies distributors of
customer goods, producers of foods, cosmetics and hygiene products Atlantic
Grupa d.d. Zagreb acquired Slovenia based food and beverage company
Droga Kolinska. Pliva d.d. Zagreb acquired pharmaceutical company Sidmak
Laboratories and Odyssey Pharmaceuticals Inc for 224 million Euros in
2002.
5. CONCLUSION
Mergers and acquisitions, as a part of the growth strategy, but also as a
research field of numerous scientists and consultants, represent prominent
phenomenon of developed capitalist world since the end of 20th century.
Mergers and acquisitions are transactions of great significance not only for
companies themselves but also for whole spectra of stakeholders. Success or
failure of mergers and acquisitions has an enormous impact on shareholders
and lenders. The ``2 + 2 = 5'' effect between two business units that will
increase competitive advantage by achieving synergies and improving overall
performance is usually primary purpose of merging and acquiring new firms.
Since synergies are rarely realized it has been reported that more than twothirds of large merger deals fail to create value for shareholders, and M&A
literature indicates that there has been intense interest in examining human
and cultural aspects of M&As in order to explain the high rate of M&A
failures.
Systematic research indicates that the greatest danger for value creation that
should come out M&A comes after two companies try to integrate
operations. Human resources tend to react negatively after being acquired.
This negative employee reaction is often referred as a "cultural clash".
Cultural clash has been shown to have dysfunctional consequences such as
lower commitment and cooperation between acquired employees, greater
turnover among acquired employees, a decline in shareholder value of the
buying firm, and deterioration of operating performance of the acquired firm.
Since mergers and acquisitions are popular choice for companies’ growth and
expansion, and also a mean for creating better market position Croatian
companies will have to engage in these transaction more often if they want to
16
be competitive. The Republic of Croatia is faced with soon membership in
the European Union and therefore mergers and acquisitions should be used in
order to compete effectively in European market. Analysis of M&A activity
in Croatia showed that majority of transactions consists of cross-border
M&As is which Croatian companies are bought by foreign investors. The
only bright spot in M&A activity is the example of Atlantic Grupa d.d.
Zagreb. Atlantic Grupa d.d. Zagreb bought Slovenian company Droga
Kolinska and became one of the largest company in food industry in
Southeast Europe. It is extremely important that Croatian companies peruse
growth strategies and also to take into consideration research evidence about
the importance of organizational variables for M&A success. Changes
affecting target employees should be managed carefully both by Croatian
practitioners and foreign investors buying Croatian companies. Research
evidence emphasizes the importance of corporate culture and human factors
in M&A success and one of the crucial tasks for M&A practitioners is to
assess culture compatibility before closing the deal.
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