A:

Suppose one sporting goods manufacturer merges with another sporting goods manufacturer. Before the merger and acquisition (M&A) deal, each company had its own production capital, dedicated labor to producing, advertising, analyzing, accounting and other tasks. Following the M&A deal, some of these labor inputs might be redundant. In the short term, this means that employees for both companies may need to be moved around or fired.

Understandably, the target company's employees would feel quite anxious. Those who had hired them are likely no longer making critical labor decisions. Beyond the obvious change of being fired or moved around, the continued performance and loyalty of surviving employees depends on the efficacy of the M&A process itself.

Immediate Effects on Target Company Employees

The uncertainty of the merger or acquisition signals risk to target company employees. This uncertainty might manifest in unhealthy ways if the employees disapproved of the transition. It's reasonable to assume that employees who feel threatened or scared might prove less effective than those who feel secure and contented.

Historically, mergers tend to contain job losses. Most of this is attributable to redundant operations and efforts to boost efficiency. The most consistently threatened jobs are the target company's CEO and other senior management, who often are offered a severance package and let go.

Target company employees are also expected to understand the new corporate culture, management structure and operating system. If new management struggles to communicate adequately and aid in this transition, discontent among the ranks can be expected.

Employee Benefits for the Target Company

By and large, the target company's employees do not have to fear for their current accumulated benefits. The Employee Retirement Income Security Act protects post-retirement pensions and other benefits. The acquiring firm knows that it needs to protect the loyalty and reassure the target company's employees during and after the deal.

The treatment of retirement plans is a complex subject and one that the acquiring company needs to consider heavily before reaching a deal. It often proves very difficult to transfer existing target employee assets into a new retirement system.

In some circumstances, the employees of the newly created entity receive new stock options such as an employee stock ownership plan or other benefits as a reward and incentive. This might serve as a form of compensation for discontinuing prior benefits.

Surviving a Difficult Time

The hardest-hit employees are almost certainly those who lose their jobs after an M&A deal. They should be informed in advance of the possibility of staff reductions and given some time to look for new jobs.

Other employees should anticipate unfamiliar territory. They will meet new coworkers and probably have to work harder to catch up with these new contemporaries. The level of this difficulty largely depends on the communication between the surviving employees and their new management. Of all the reasons why M&As fail, poor communication might be the most pernicious.

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