CaseStudySeries

1/2003

Mergers &Acquisitions

The Role of HR in

Preface 1

The Current Merger andAcquisition Environment 2

The Key Roles of the Human ResourceProfessional in the New Economy 6

The Roles of HR in Mergers and Acquisitions 8

Practical Tips 16

Case Studies

Ascendas Pte Ltd 18

Keppel TatLee Bank Ltd 20

Neptune Orient Lines 22

Raffles International Ltd 24

Singapore Exchange Ltd 28

Feedback Form 31

A softcopy of this publication can be downloadedfrom http://www.employmenttown.gov.sg(under “Manage My Workforce” module)

CONTENTS

1

Preface

To put it simply, the term “Merger” refers to the combination of two or more organisationsto form a new company, which often has a new corporate identity. Acquisition, on theother hand, is the purchase of a company by another company.

Besides assessing the risk and potential of the merged entity, it is just as important toderive synergy from the merger or acquisition so that the company can quickly transitinto the new entity and operate at its maximum efficiency. This is crucial in meetingthe various bigger organisational objectives including growth in market share. To achievethis, it is essential for HR to play a pivotal role in ensuring the smooth integration ofHR policies and managing employees of differing work cultures all through the mergerand acquisition life cycle.

This casebook highlights the role and involvement of HR and the critical success factorsin accomplishing the objectives of mergers and acquisitions. For a better pictureof what actually goes on during mergers and acquisitions, we have incorporatedthe experiences and the challenges faced by 5 companies: namely, Ascendas Pte Ltd,Keppel TatLee Bank Ltd, Neptune Orient Lines, Raffles International Ltd andSingapore Exchange Ltd, which had recently undergone either merger or acquisition.

2

1998

$1,250

$1,000

$750

$500

$250

1Q

1997 1999 2000 2001

2,500

5,000

7,500

10,000

12,500

Numberof deals

Deal Valueincluding debt

2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q

The Current

Merger and

Acquisition

Environment

THE CURRENT MERGER AND ACQUISITION

ENVIRONMENT

Over the recent years we have seen increasing growth in the level of merger activitywhich has resulted, in part, from a spirited economy and a corporate urge to merge.However, 2001 was a watershed year partially as a result of a lack luster economy,weakened stock prices and the September 11 impact.

“Global merger and acquisition activity tumbled 50% from last year, while a numberof high-profile transactions were cancelled, hijacked by other bidders or scuttled byantitrust concerns. Of the 30 biggest takeover bids announced world-wide in 2001,five were withdrawn.” (Source: The Asian Wall Street Journal)

“Mergers and acquisitions fell 53% this year as economic growth sputtered, a studyby KPMG Corporate Finance showed… Chief Executives are focusing on cuttingcosts rather than expanding business, with the world’s three biggest economies – the US,Japan and Germany – contracting simultaneously for the first time since 1974.”(Source: The Business Times Singapore)

2001 was one of broken promises. “Dynergy and Enron, Bertelsmann and EMI, AbbeyNational and Lloyds TSB, Alcatel and Lucent - the list of jilted partners is more memorablethan the scattered instances of consolidation.” (Source: Agence France-Presse)

The volumes of global merger and acquisition activity is reflected in the tablepresented below:

World-Wide Announced M&A

1997-2001 quarterly volume totals

(Source: The Asian Wall Street Journal)

(in billions)

3

In 2001, Singapore also saw considerable activity on the Merger and Acquisition frontsuch as the discussions between SingTel and Optus, Singapore Airlines and Air NewZealand, Singapore Airlines and Ansett Australia, UOB and OUB, Hong Leong Bankand Standard Chartered, to name just a few.

Many pundits would argue that the short term future will see an increased level ofmerger and acquisition activity as opportunists seek to take advantage of weak stockprices, and economic challenges being faced by many companies during the currentrecession. “With corporate bottom lines still under pressure as a result of globaldownturn, senior executives know that one way to boost profits is to cut costs, and oneof the easiest ways to cut costs is to merge businesses” (Source: Agence France-Presse).

The DBS-POSB merger has recently been highlighted as a local example of mergersthat really do benefit the shareholders. “The mergers and acquisitions that have sweptAsia in recent years do not always benefit the shareholders. But there are exceptionsand right up there is DBS Bank’s merger with POSBank. Despite being widely panned,the Singapore deal produced the second-best outcome among Asian M&As, yieldinga hefty positive return of 212.8 per cent according to a study done by Finance Asia.”(Source: The Business Times Singapore).

Wong Wei Kong in his article in the Business Times Singapore went on to note: “Theoverall picture however, is not as encouraging. Of the Singapore deals surveyed, lessthan half produced positive returns.”

ACQUIRER TARGET DATE STATUS VALUE(Country) (Country) ANNOUNCED OF DEAL *(billions)

Comcast (U.S.) AT&T Broadband (U.S.) July 8 Pending $47.04

Hewlett-Packard (U.S.) Compaq (U.S.) Sept 4 Completed $25.26

EchoStar Comm. (U.S.) Hughes Electronics (U.S.) Aug 6 Pending $24.03

AIG (U.S.) American General (U.S.) April 3 Completed $23.40

Allianze (Germany) Dresdner Bank (Germany) April 1 Completed $19.66

Amgen (U.S.) Immunex (U.S.) Dec 17 Pending $16.90

Phillips Petroleum (U.S.) Conoco (U.S.) Nov 18 Pending $15.35

Halifax Group (U.K.) Bank of Scotland (U.K.) May 4 Completed $14.90

First Union (U.S.) Wachovia (U.S.) April 16 Completed $13.13

Citigroup (U.S.) Banacci (Mexico) May 17 Completed $12.82

2001 Megamergers

largest announced world-wide deals

There are three chief reasons why merger and acquisition activity slowed in 2001.“Companies hit by the global economic slump generally had less cash to buy out prey;choppy stock markets made it hard to say how much a company was worth and soureconomic conditions made it difficult to predict how profitable takeover targets wouldbe in the future” (Source: Agence France-Presse). Nevertheless, there were some majormegamergers that were accomplished in 2001 as illustrated in the following table:

(Source: The Asian Wall Street Journal)

4

The Current

Merger and

Acquisition

Environment

According to the survey conducted by Finance Asia the “best and worst league tablefor Singapore Mergers” can be summarized as:

In calculating the above return, Finance Asia looked at the market capitalisation sixmonths before a deal’s completion, on the day of completion, six months later, 12months later, two years later and on 16 August 2002. Finance Asia then took thelatter of the five market cap values and compared it with the market cap six monthsbefore the deal to calculate a percentage return.

Confidence in the M&A market in Singapore and the performance of the local economyin 2003 are clouded with concerns over terrorism, a possible war in Iraq, a faltering USeconomy and more recently the Bali bomb blasts.

“All bets are off ” on how Singapore will perform in 2003, Deputy Prime MinisterTony Tan said after the Bali bombing. Many economists believe that growth can pickup next year but concede that their growth forecasts are fragile. (Source: Asian WallStreet Journal)

Parties Return

DBS-POSB +212.8

GE Hldgs-OAC +31.9

F&N-Times Pub +15.1

DBS-Dao Heng +9.6

UOB-OUB -1.4

SingTel-Optus -6.3

DBS-Vickers -12.7

SingTel-AIS -17.2

OCBC-Keppel Capital -17.6

C&C-Astra -28.0

DBS Land-Pidemco -35.2

Best and Worst – Singapore M&A Deals

(Source: The Business Times Singapore)

5

THE MERGER AND ACQUISITION LIFE CYCLE

There are five key phases to the life cycle of mergers and acquisitions. These can beidentified as follows:

Pre Deal

The first phase involves searching for suitable entities for mergers or acquisitions. Duringthis phase it is usual to develop a set of criteria for the selection of a suitable entity. In thisearly phase the organization defines its objectives and desired outcomes of the merger oracquisition and searches for suitable entities. This often involves extensive research andgathering of market intelligence to assess the potential of suitable candidates.

Due Diligence

Once a suitable entity has been identified, usually the next step is to make an offer toacquire or merge with the new entity. This offer is usually made conditional on thecompletion of a due diligence. During this second phase, a review of the new entity isundertaken to ensure the soundness of the deal and to assess any risks involved with thecompletion of the deal. During this phase the organization will typically review thefinancial statements, strategies, business plans, resources and operations of the entity toconfirm their assessment of the commercial suitability of the deal.

Often many transactions do not go beyond this phase because the due diligence highlightsthe inappropriate risks associated with the deal.

Integration Planning

In this third phase detailed plans, milestones and activities are developed to ensure thesuccessful implementation of the deal. This phase is often conducted under very tighttime frames and requires extensive and detailed involvement from experienced personnel.Detailed project management plans are established to ensure the smooth implementationof the deal.

Implement Merger

Phase four requires the execution of the detailed planning conducted in phase three.Again, this phase is usually conducted under tight time frames and requires the executionof many complex plans simultaneously. Strong project management skills are requiredduring this phase. The implementation phase is very visible to shareholders, staff, clientsand competitors and is conducted under tremendous scrutiny of these parties.

Evaluate Merger

The final phase requires reviewing the performance of the new entity to ensure thata successful integration has been completed and that the objectives of the merger oracquisition have been achieved. Performance of the new entity is assessed against theoriginal objectives determined in the Pre Deal phase.

Evaluate MergerEnsuring the success

of the new entityand the achievement

of the mergerobjectives

Pre DealThe searchfor suitable

partners

Due DiligenceReviewing

the riskand soundness

of the deal

IntegrationPlanningPreparation

of the detailedplan for thenew entity

ImplementMerger

Establishingthe

new entity

6

THE KEY ROLES OF THE HUMAN RESOURCE

PROFESSIONAL IN THE NEW ECONOMY

The New Economy

We work in an economy that is poised for merger and acquisition activity.

Aggressive competition, rapid change, the impact of technology, globalisation, legislativechange, consumerism and increasing workforce mobility drive the new economy.

To operate effectively in such a dynamic environment, it is essential for organisationsto harness their greatest asset – their people. Organisations need people who canadapt, respond, anticipate and deliver, to meet client expectations. Effective organisationsseek to maximise the efficiency of their human resources by ensuring that they are wellmanaged and developed.

Maximising Human Capital

The term “human capital” has gained increasing popularity in Singapore as a way todescribe the people working in organisations.

Jac Fitz-enz in his book The ROI of Human Capital describes “human capital” as acombination of factors such as:

• The traits one brings to the job – intelligence, energy, a generally positive attitude,reliability and commitment.

• One’s ability to learn – aptitude, imagination, creativity, and what is often called“street smarts” and savvy (or how to get things done).

• One’s motivation to share information and knowledge – team spirit and goalorientation.

Fitz-enz goes on to describe people as the “profit lever” of the new economy and thatthe organisation’s passive resources “require human application to generate value”.

The Roles Of HR Professionals

Dave Ulrich (1997) identified four key roles for the future HR manager. These roles canbe summarised as:

• responsibility for improving productivity through assisting in performancemanagement;

• responsibility for being a functional expert in the administrative function;

• responsibility for being a facilitator of cultural change; and

• responsibility for being a business partner through the development of aHRM strategy.

The Key

Roles of

The Human

Resource

Professional

7

The roles are multi-dimensional and involve a combination of both short and long-term horizons, administrative and strategic duties as well as a focus on both people andprocesses. They can be represented as such:

During the 1990s we have seen the HR profession strive to move from being an“administrative service” to become a business partner dealing with strategic humanresource issues.

Dave Ulrich (1997) describes HR champions as those who:

• turn strategic statements into organisational actions;

• meet targets and needs – both of the organisation, the customers and the employees;

• align HR plans to organisational actions; and

• identify and improve capabilities for future success.

Whilst many HR professionals have identified the need to shift their focus from satisfyingadministrative requirements to becoming a strategic partner of the organisation, thequestion remains as to how successful they have been in achieving this shift.

Since Dave Ulrich’s book, Human Resource Champions, there has been a growingrecognition that HR professionals of forward-looking organisations will be required toact as business leaders. As business partners and facilitators, HR professionals are expectedto share, plan, promote and manage; as business leaders, they are expected to lead, direct,thrive on chaos and respond to real-time issues. This is a critical role to play through allthe phases of a merger or acquisition.

Productivity

PerformanceManagement

Facilitator

CulturalChange

FunctionalExpert

AdministrativeFunction

BusinessPartner

HRMStrategy

People

Short Term

Process

Long Term

8

The Role

of HR in

Mergers and

Acquisitions

THE ROLE OF HR IN MERGERS AND ACQUISITIONS

When To Involve HR

The success rate of mergers and acquisitions is dismal. Research (Gaplin and Hendron)has shown that during mergers and acquisitions:

• Only 30% of companies acquired their return on the cost of capital

• Close to 50% of executives leave in the first year

• 70% do not realise their projected synergies

There are many reasons that can be attributed to these results. Several of them revolvearound the people and cultural issues.

The Bureau of Business Research at the American International College (1996)reported that the ten pitfalls which had negative impact on successful mergers andacquisitions were:

1. Incompatible cultures

2. Inability to manage targets

3. Inability to effectively implement change

4. Non-existent or overestimated synergies

5. Lack of anticipation of foreseeable events

6. A clash in management styles

7. Excessive premium for acquisition

8. Unhealthy acquisition target

9. Requirement to spin off or liquidate too much

10. Incompatible marketing systems

The Economist (1999) reported:“Study after study of past merger waves has shown that two of every three deals havenot worked… Look behind any disastrous deal and the same word keeps popping up –culture. Culture permeates a company and differences can poison any collaboration.”

A survey conducted by Grant Thornton Business Owners Council across 750 businessowners and senior executives in the USA found that some of the major contributingfactors for the failure of mergers and acquisitions included:

• A poor integration strategy

• A loss of key personnel

• The lack of a compelling strategic rationale

• Inadequate communications

Raymond Stone comments:“The clash between corporate cultures is a major cause of merger failure. For example,it is estimated more than half of all merged companies in the United States fail tocreate value for shareholders because management underestimates ‘the complexityof corporate marriage’. Furthermore, these complexities are intensified whenorganizations from different countries combine… By neglecting the human dimension,managers can destroy the value of the acquired or merged organization. HR managers,therefore need to take a pro-active role in educating line managers about the peopleproblems involved in mergers and acquisitions.”

CEO Magazine reported:“75% of Mergers and Acquisitions are disappointing or outright failures. 50%experience a decline in productivity in the first four to eight months. 47% of seniorexecutives in acquired firms leave in the first year, 75% in the first 3 years.”

9

Inability to SustainFinancial Performance

Loss of Productivity

Incompatible Cultures

Loss of Key Talent

Clash of ManagementStyles/Egos

Inability to Manage/Implement Change

Objectives/Synergies NotWell Understood

63%50%

62%45%

56%37%

53%49%

53%38%

52%37%

52%40%

Ob

sta

cle

s

Importance

Success

A survey conducted by the SHRM and Towers Perrin of over 440 HR executives worldwideshowed that there was a considerable gap between the expected and achieved synergies ofmergers and acquisitions:

Expected And Achieved M&A Synergies

Note: Percentages indicate the respondents that highly expect or substantially achieved (4 or 5 on a 5-point scale) M&ASynergies. Sample over 440 HR executives worldwide.

From this survey it is clear that “growth in market share” and “becoming a leader in industryconsolidation” are the key objectives that organizations are striving for in mergers and acquisitions.The research shows that less than half the participants were able to achieve those objectives.

For a successful merger and acquisition it is essential that HR play a pivotal role throughall the five phases of the process. The survey conducted by SHRM and Towers Perrin alsolooked at the most significant obstacles to successful mergers and acquisitions. The resultscan be summarized as follows:

Most Significant Obstacles To Successful Mergers & Acquisitions

Note: Percentages indicate the respondents rating the obstacles as highly important (4 or 5 on a 5-point scale) to achievingsynergies versus the percentage that were highly successful (4 or 5 on a 5-point scale) in overcoming that obstacle.

Grow Market Share

Be Leader inIndustry Consolidation

Enhance BrandStrength/Reputation

Reduce Operating/Overhead Costs

Enter New Industry/ExpandProduct - Market Portfolio

Access TalentManagement Capabilities

Access ManufacturingCapacity/Expertise

82%49%

68%47%

55%32%

46%27%

44%34%

36%22%

Sy

ne

rgie

s

Expected

Achieved

Access New Technologies/Know-How 24%

30%

23%15%

10

100%

80%

60%

40%

20%

0%

Pre-Deal Due Diligence IntegrationPlanning

Implementation

Total Sample Ideal Level

Successful Companies

Unsuccessful Companies

The Role

of HR in

Mergers and

Acquisitions

A review of these key obstacles highlights the importance of the role of the HR professionalin mergers and acquisitions. It also surfaces the range of areas where HR professionalscan play a key role. These include:

• maximizing productivity

• developing the organizational culture

• retention of key talent

• cultivating the style of the management team

• acting as a change agent

• communicating the business objectives

Typically, experience has shown that HR has been involved too little or too late resultingas a contributing factor to the 70% failure rate in realising projected synergies.

The results of the research conducted by SHRM and Towers Perrin demonstrates inparticular the lack of involvement by HR professionals in the first two phases of themerger and acquisition life cycle.

If HR is to operate in the role of strategic business partner as described by Ulrich, itis essential that they are actively involved in all stages of the merger and acquisitioncycle including the pre deal and due diligence stage and not just in the performanceof the traditional role as the “functional expert” in later stages of the merger andacquisition cycle.

The obvious conclusion from the results represented in the above graph is thatsuccessful companies have benefited from a greater degree of HR involvement thanunsuccessful companies.

With specific reference to the Asia Pacific context, Watson Wyatt in their survey across190 companies, compared the timing and level of HR involvement between companiesin the Asia Pacific and those in the United States.

HR Involvement In Mergers & Acquisitions

Note: Figures represent the percentage of respondents with high levels of involvement (4 or 5 on a 5-point scale) in eachstage. Sample: over 440 HR executives worldwide.

11

50%

40%

30%

20%

10%

0%

Initial Planning Investigative Stages Negotiation Stage Integration

Pe

rce

nta

ge

Stages

Asia Pacific

United States

The results showed that in the Asia Pacific, there was little involvement of HR inthe early stages of the Merger and Acquisition life cycle. This “little involvement”in the early stages may account for the need for extensive involvement in thelater stages. The differing results between Asia Pacific and the United States in theearlier stages may also be partially accounted for the greater need for due diligencerequirements on accrued benefit liabilities (including retirement, redundancy, health,annual leave, long service leave) and termination provisions in the more developedUnited States environment.

The Role Of HR In The Pre Deal Phase

Typically in Asia, there is little involvement of HR professionals in the first phase ofmergers and acquisitions. However, there is a critical need for HR to be involved inthis phase.

One of the first critical areas that HR can be involved is in assessing the potentialcompatibility of cultures. This involvement could also extend into phase two of theprocess as part of the due diligence. This could involve reviewing an array of thingssuch as leadership style, mission, vision and values of the organisation, team strength,performance and reward management systems, customer focus and organisationalcapabilities.

One of the challenges that HR faces is obtaining this information in an environmentwhere the organisation may not want to alert other parties of their intent to acquire ormerge. As such, much of this information is usually obtained on an informal level orthrough the use of third parties.

When Does HR Get Involved?

12

The Role Of HR In The Due Diligence Phase

During this phase, the organization determines the associated risks and the soundnessof the deal. It is at this stage that the organization determines whether it will purchasethe entity and its correct value.

Many of the HR activities identified in the pre deal phase are continued with greaterdetail in the due diligence phase to ascertain the correctness of the perceptions obtainedin phase one.

It is during the due diligence phase that potential problems and risks are often identified.

It is particularly important that the HR representatives access professional helpwhen dealing with acquisitions in countries outside of their own areas of expertise andknowledge. During this phase it is important to determine any liabilities that may bea result of partial or unfunded benefits such as retirement schemes, long service leaveand other accrued benefits.

Within the Singapore context, it is important to ensure, effective from 1 October 2000,that all short-term employee benefits have been recognized as expenses for the accountingperiod in which they were incurred and that suitable provisions have been made in thebooks to fund for the future payment of such benefits. [Singapore Accounting Standard17 (2000)].

Acquiring an organization that has not allowed sufficient provision for accrued benefitscan result in a major expense for the acquirer.

Some countries require that payroll taxes are processed on a “pay-as-you-earn” basis (PAYE).It is important to identify that any such taxes have been paid and that there are nooutstanding liabilities.

For Singapore companies it is important to ensure that Central Provident Fund (CPF)contributions and payments for deductions to other entities such as the ChineseDevelopment Assistance Council (CDAC), MENDAKI, Singapore Indian DevelopmentAssociation (SINDA), etc. are current and that there are no outstanding liabilities.

It is during the due diligence phase that HR professionals are expected to review thecontracts of employment. This can include a wide range of activities such as:

• assessing the viability and costs of integrating and rationalizing HR systems aswell as determining their compatibility

• ensuring contracts are in place

• reviewing termination terms

• identifying the impact of any local laws governing employee terminations

• identifying any special terms or conditions for management

• identifying any benefit entitlement issues such as long service leave

• identifying any issues around operating hours and working days

• identifying any triggers in the contract that may result in a termination or releasefrom employment (such as an acquisition or merger)

• identifying any terms that relate to contracts for a specific period

• identifying the risks associated with the loss of key talent

• identifying any ownership issues regarding intellectual property

Performance management and reward systems are also items for due diligence includingthe identification of any future obligations for guaranteed or variable bonuses.

HR practitioners should also value the people-related transaction and ongoing costs aswell as identify any potential people-related savings that may result from the merger.

Implications of any Union relationships or obligations are usually also explored as part ofthe due diligence.

The Role

of HR in

Mergers and

Acquisitions

13

In summary, one of the most critical roles for HR during the due diligence process is toidentify any contractual obligations, benefit entitlements and resource savings that mayimpact on the value of the deal.

The Role Of HR During The Integration Planning

It is during this phase when the HR professionals’ skills in project management andchange management are a critical asset to the life cycle of the merger or acquisition.

HR is usually involved in a wide range of planning issues such as:

• Talent management;

• Retention initiatives for key personnel;

• Determining transition strategies to move people to new roles, provide trainingand reskilling;

• Outplacement processes and policies;

• Determining the new management team;

• Determining the direction for the new organisational culture;

• Determining the leadership style for the new organisation;

• Designing the communication strategy for staff and other relevant bodies suchas Unions and the Ministry of Manpower;

• Appointment criteria for new positions;

• Development of the contract terms of employment for the new entity;

• Determining the level and appropriateness of integration;

• Developing brand alignment strategies; and

• Determining work environment and work location issues.

The details and planning that are put into this phase is a critical factor in the success ofthe implementation of the acquisition. For a successful implementation, quick, decisiveand focused action is needed. This can be better achieved if detailed planning wasconducted prior to implementation.

The Role Of HR During The Implementation Phase

Effectively, during the implementation phase, HR is required to deliver on the plansdeveloped during the integration planning phase as well as respond to unexpected andnew requirements – which are often many and unpredictable.

One of the key roles for HR professionals during the implementation phase is theco-ordination of communications to staff. It is critical that the new organisation maximiseproductivity and focus on client and shareholder satisfaction as soon as possible. HR canplay a pivotal role in maximising employee engagement through effective and timelycommunications to staff.

In every case study cited in this research, every respondent highlighted the criticalimpact of effective communication. Essentially through any change process, employeeswant to know “what is in it for me?” (WIFM). This could include such issues as, WillI have a job? Who will I report to? What are my rights and benefits if terminated?What have my clients been told? What is the media saying? What will be my futurerole and responsibilities? What are my new benefits and terms of employment? Whocan I talk to for help and information? The questions raised are extensive!

Until staff receive satisfactory communication and clarification on the answers to thesequestions, performance and productivity can be severely impaired. During the integrationplanning phase, it is advisable to develop a comprehensive Q and A sheet that identifiesand responds to likely staff issues. One benefit of providing this information in a writtenformat is that it helps ensure reliability and consistency of the message across the groupin times of change and uncertainty.

14

The Role

of HR in

Mergers and

Acquisitions

An important element of the communication programme during the implementationphase is the issue of timing and messages. Items that need addressing include such thingsas what do you tell the media verses what do you tell your staff? Who do you tell first?Experience has shown that timely releases of consistent, transparent information is animportant factor to the success of staff trusting the organization through the changeprocess. It is often tempting to “hide” or “soften” bad news such as downsizings andrestructures but, in reality staff expect change during mergers and acquisitions andlook towards management to conduct their communications with integrity.

In addition to the content and the timing of communications, the medium ofcommunications is also important. The use of tools such as email helps ensure thatconsistent messages can be distributed in a timely fashion to many employees acrossdifferent locations and time zones. However, there may be the need for other forumswhere two-way question and answer sessions can be held. Documenting communicationsis important for ensuring staff receive a consistent message during such times of change.

As well as the important role of implementing the employee communication programme,there are several other activities typically conducted by HR professionals during theimplementation phase. These include:

• Acting quickly to restructure the organization and select the right people foreach role including people management, assessment and development;

• Aligning business strategies with people practices;

• Establishing financial and legal liabilities and compliance management;

• Managing cultural and organisational change;

• Issuing new employment contracts with revised terms and conditions;

• Developing and harmonising HR policies and programmes across the group;

• Responding to staff queries and providing management support;

• Liaising with Unions and other bodies that may be involved in disputes;

• Establishing the new Culture including the Mission, Vision and OrganisationalValues;

• Providing training and development and reskilling;

• Implementing strategies for the development, sharing and retention of knowledgecapital;

• Assisting with restructures, job descriptions, job values and organisational structure;

• Assisting in organisation and process redesign;

• Implementing retention strategies;

• Implementing brand alignment strategies;

• Implementing work environment and work location plans; and

• Implementing the other HR components of the integration programme such asthe merger of HRIS architectures, the development of new induction courses andso forth.

15

Employee retention through the integration phase is often cited as a key role for HRprofessionals. A study conducted by Right Management Consultants that includedinterviewing a number of executives involved with the people side of mergers andacquisitions produced six important principles for making the transaction more successful:

1. Decide how critical employee retention really is – this will vary considerablydepending on the nature of the business.

2. Look for talent in unexpected places – some of your key resources may not be topmanagement.

3. Recognise that nothing is forever – some retention strategies are only appropriatefor the short-term transition phase.

4. Don’t be too desperate to retain any one person – for key management, short termcontracts with severance bonuses may be all that is needed for the integration phase.

5. Retention bonuses often backfire – sometimes good people leave because they arenot part of such a scheme.

6. Be open to creative approaches that earn trust – its not just all about cash bonuses.Consider options such as career management and new skills development.

The critical role for HR professionals during the implementation phase is to help ensurethe organisation maximises employee engagement to assist in achieving the initial objectivesof the merger or acquisition through a successful integration.

The Role Of HR In Evaluating The Merger

It is often tempting for management to get caught up in the excitement of searching forand acquiring new business opportunities. An important phase in the merger andacquisition cycle is the post merger phase when a review of the achievements of themerger can be assessed against the original or revised objectives.

The failure rate for successful mergers is high at around 70%. (Source: Gaplin and Hendron)It is important for the management team to review the progress and success of theimplementation phase.

Our research in preparing the attached case studies highlighted that even after someyears there are several organisations in Singapore who have not really achieved successfulimplementation from the HR perspective. Benefit programmes have not been harmonised,different performance management systems are still operating, economies of scale havenot been achieved through re-engineering and repositioning of the operations and aunified sense of purpose, mission, vision and direction have not been obtained.

In addition to comparing the achievements of the new organisation against the originalobjectives, often HR professionals will use a range of tools such as cultural surveys tobenchmark and monitor the success of establishing the new organisational culture.

In maximising the engagement of the human capital in the new organisation, it isimportant that this review process is conducted and appropriate remedial action isidentified and taken to ensure the successful outcome of the integration.

16

Practical

Tips

PRACTICAL TIPS

Factors Which Influence Success And Failure

The London Business School and Egon Zehnder International (Hunt et al. 1987) researched60 organisations within the UK and USA to identify factors which influence success andfailure. The key success factors identified were:

1. Conducting prior auditing

2. Assurances given to the selling organization at the stage of implementation wererigidly adhered to

3. A clear vision of the directions by the new owner existed

4. Credibility and respect needs to be earned by the buying organization (throughobserving such things as thoroughness, technical knowledge and behaviour ofkey executives)

5. Offering a perceived benefit to the selling organization (for example, access to abigger market)

6. Interaction between buying and selling organizations was clear and non-ambiguous

7. People must know where they stand

8. Appropriate employee benefits and incentives

Summary Of Practical Tips

This summary is taken from the experiences shared in the five cases featured as well asthe author’s extensive experience in mergers and acquisitions with Buck Consultants andits clients.

• Recongnise that HR has key role to play in- Assisting the organization capture the expected merger synergies- Creating a new competitive and integrated company- Keeping customers satisfied- Retaining key staff and maximizing performance of all employees

• Recognise that HR should be involved in all stages of the merger and acquisitionlife cycle – in particular, they should participate in the early phases.

• Regular open and two-way communication between the management and staffor interested parties, through several mediums.

• Where HR lacks the internal expertise such as dealing with mergers and acquisitionsin a foreign country, they should seek professional help to ensure that contractualliabilities and employment obligations are fully appreciated and costed into thevalue of the deal.

• Effective, timely, transparent, two-way communications is required in all phasesof the deal to all relevant parties.

• Failure to recognise accrued and non-accrued benefit and contractual obligationsduring the due diligence phase can impede the financial success of the deal.

• During the merger and acquisition phase, staff and clients will be critically assessingthe leadership skills of the new management team – in particular they will belooking for good communication skills, decisions made with a sound businessacumen that also demonstrate human concern, perceived fairness, openness,integrity, sound and timely decision making, and good listening skills.

• Move quickly to get the new structure in place and the right people in the rightjobs – avoid making decisions based on “politics, history and baggage”. Ensureresponsibilities and accountabilities are clear.

• Set a 100-day plan and celebrate early wins – proceed with a sense of urgency.

• Consider the impact and involvement of third parties such as clients, prospects,suppliers, unions and government regulatory bodies.

• Maintain an external focus with a close eye on client satisfaction and competitor activity.

17

Case Study

Public

Service

• Ensure the steering committee has strong skills in planning, project managementand change management.

• Anticipate staff questions and prepare standard question and answer sheets.

• Identify critical competencies required and key staff for retention and put in placean appropriate retention strategy.

• Move swiftly on retrenchment and outplacement plans and ensure a revitalizationprogramme for remaining staff.

• Consider the use of “fresh blood” to help instill the new organizational culture.

• Identify and instill new cultural values demonstrated through all the leadershipactivities including the establishment of a mission and vision for the new business.

• Recognise that during the period of change, staff will be under additional stressand provide appropriate short term support.

• Harmonise employment terms swiftly.

• Develop career and succession paths for the new organisation.

• Check that expected merger synergies are being realized and captured – if not,adjust and review activities or objectives as appropriate.

“Coming together is the beginning.Keeping together is progress.Working together is success”

- Henry Ford -

CONCLUSION

Indeed, it is a business imperative to merge and acquire companies. Despite every intentionto derive synergy from the mergers and acquisitions, only one third of all such deals aresuccessful. To fully gain the benefits of mergers and acquisitions, it is important torestructure the organisation and quickly induct the employees to its new goals and culture.

The experiences of the 5 companies featured in this casebook suggested that in a mergeror an acquisition, open communication between the management and the staff level isone of the major success factors. It is understandable that employees want to be kept inthe light as to where they stand and how they can continue to contribute and grow in thenewly emerged establishment. As such, careful planning and execution of plan with theinvolvement of HR is crucial, as a majority of the strategies introduced would have impacton the organisation’s most important stakeholder – its valued employees.

Useful Reference Material- Cairnes, Margot “Surviving Super Mergers”, Human Resources, Asia Pacific, October 2001- Fitz-enz, Jac The ROI of Human Capital, Jac Fitz-Enz, AMACOM, 2000- Gaplin and Henron, The Complete Guide to Mergers and Acquisitions(1999)- Kay, Ira and Shelton, Mike “The People Problem in Mergers”, Human Resources, Singapore Volume 4:3- Neiger, David “Merging Interests”, HR Monthly, Australia, October 2001- Powell, Mark “Managing the Asian M&A wave”, Economic Bulletin, Singapore, January 2002- Rubis, Leon “Merger Mania Means Much Work for HR”, editorial director of SHIRM- Schmidt, Jeffery Making Mergers Work, The Society for Human Resource Management, October 2001- Shea, Thomas H. “Employee Retention Through Mergers and Acquisitions”, Workforce Website- Sidel, Robin “Volatile U.S. Markets Cool Desire for Mergers” The Asian Wall Street Journal. January 6, 2002 p.S6- Ulrich, David The Human Resource Champion, Harvard Business School Press, 1997- Weatherseed, Stephen “What makes a successful merger”, Insight Newsletter, May 2001- CFO Magazine, April 1996, Bureau of Business Research at American International College- “After the Deal”, The Economist, January 1999- “Asian financial services M&A wave”, Human Resources, Singapore Volume 4:10- “Big gains vindicate DBS-POSB merger:poll” The Business Times, October 30 2002- “Mergers and Acquisitions”, Andersen Website, May 2001- “Mergers and acquisitions down 53%:KPMG”, Bloomberg, The Business Times, December 11, 2001- “Riding the Global Tide”, The Asian Wall Street Journal, October 28, 2002- “Success of M&As Depends on Early HR Involvement,” M&A Asia, December 2000

18

Ascendas

Pte Ltd

Ascendas Pte Ltd

Created on 8 January 2001, Ascendas is the result of a synergistic merger between ArcasiaLand and JTC International (JTCi). The merger combines the strengths and resources ofJTC Corporation’s two subsidiaries engaged in the same business of developing, managingand marketing science, business and industrial parks, and related businesses.

Impetus Of The Merger

The merger is a marriage of two powers: it combines the strengths and resources of twoorganisations engaged in a similar business. Arcasia Land brings with it the strength of itslocal presence in Singapore; while JTCi, through its regional projects, offers the gatewayto expand regionally and globally.

The Beginnings

In August 2000, the decision to merge JTCi and Arcasia Land was made known to themanagement teams of both companies. The news was then officially announced to allemployees shortly after. During the announcement, the apprehension of a possible staffredundancy exercise was addressed. Employees were assured of continual job security.

It was also made known that the targeted launch date of the new organisation would beJanuary 2001. The management believed that the organisation must transit as quickly aspossible into its new identity so as to reduce business-downtime and to help employeesfocus on company’s performance rather than prolonging teething issues from the merger.

The Process

In addition to the appointment of a business consultant and formation of a SteeringCommittee, seven other sub-committees were quickly formed to drive the following keydirectives of the new organisation:

1. Communications2. Human Resources3. Readiness Building4. Business Units5. Finance6. Management Information Systems7. Strategic Planning

The sub-committees toiled relentlessly to continue the daily operations of their presentcompanies while working on initiatives and decisions of the merger. They had weeklymeetings as well as monthly meetings with the Steering Committee. Initially, the staff feltthat the timeline of four months for the merger to happen was indeed aggressive. In retrospect,the staff recognised it as a positive and acceptable move. The swift transition reduceddowntime and allowed the management and employees to speedily focus their energies onbusiness and weathering the global economic downturn, which were more important issues.

The committees decided on two guiding principles for change management. These were:• Employee ownership• Open communication

A HR consulting firm was engaged to conduct a study of the various HR issues of bothcompanies such as:

• Compensation and benefits• Salary structures• HR policies and administration• Job grades and titles

The purpose of the study was to produce a “gap fit analysis” to facilitate the harmonization ofHR issues of both companies. The HR consulting firm’s role was confined to that of providinginformation while the Steering Committee reserved the decision-making responsibilityto drive the project from within.

The Steering Committee and the HR Committee understood that harmonisation entaileddelicate decisions that would affect the lives of employees and had serious consequences

19

Case Study

Yamaha Music

(Asia)

Pte Ltd

that would influence the performance of the new Ascendas. Thus it was unanimouslyagreed that employees must not be worse off in their compensation packages, status orlife styles. With this basic guiding principle, Flexible Benefits was implemented to harmonisethe employee benefits. Salary structures were carefully adjusted to equality. In the process,extensive and numerous communications were conducted to ensure optimal level of employees’acceptance and buy-in. Some of the communications techniques adopted included:

• Dialogue sessions• Newsletters• Emails• Workshops• Brainstorming sessions• Teambuilding activities• Feedback channels

Interestingly, the sub-committees included a “Feedback Box” for its employees to dropanonymous mails. The “Feedback Box” proved to be popular as it provided an openchannel for honest and unreserved feedback – without confrontation or emotionalinfluences. Further communications would then follow to address these feedbacks.

Challenges

One of the main challenges that Ascendas encountered was the adjustment of job titles asa result of the harmonisation of job grades. There were pockets of employees who expresseddissatisfaction with the new job titles applied to them, particularly when the adjustmentreflected a perceived retrograde. After conducting a few open communication sessionswith the affected employees, further adjustments were made as the sub-committeesconsidered necessary.

Success Factors Of Their Merger

Angie Lai, the Senior Manager of HR, and Linda Chee, VP of Corporate & MarketingCommunications, believed that it was the two guiding principles i.e. employeeownership and open communication that helped resolved the challenges encounteredduring the transition.

These two guiding principles also helped the committees and employees to steer clear ofunproductive political entanglements that often plagued many mergers and acquisitions.Above all, these principles helped the committees to navigate through many tough decision-making processes to establish One Company, One Mission, One Vision. One such exampleof a tough decision was in the selection of an appropriate company name to fit the newidentity after the merger.

Although a communications consultant was appointed to help define the new identity ofthe merger, the name “Ascendas” was a direct result of these two guiding principles. It wasthrough teambuilding workshops and intensive brainstorming sessions that the name“Ascendas” was voted for, out of the hundreds of names contributed by staff. Throughthese open communications and workshops, Ascendas also forged its mission to create totalbusiness environments that inspire people to excel, and its vision is to be Asia’s leadingprovider of total business space solutions. Ascendas’ seven core values were collectivelyformed as well with staff participation.

The Birth Of A New Brand

On 8 January 2001, a grand launch at the Fullerton Hotel was organised with the theme,“Partnering With You in Asia”. All the employees were attired in colourful Asian costumes,to signify Ascendas’ commitment to Asia. All employees had a role in the event, whichenhanced team bonding upon the merger.

As a single entity, Ascendas represents enhanced competitiveness and a stronger regionalpresence, putting the new company in a better position to facilitate customers’ expansion in Asia.

Ascendas now has business operations in Singapore, China, India and the Philippines;regional investments and eight representative offices in Asia. It serves over 1,000 customersfrom all over the world, including MNCs and global technology giants. They come fromleading-edge industries such as info-communications, biomedical sciences and electronics.

20

Keppel TatLee Bank Ltd

A Brief Overview

In January 1998, the intention to merge Keppel Bank and Tat Lee Bank was announced.Keppel Bank and Tat Lee Bank obtained approval from the Monetary Authority ofSingapore for a merger that involved a share swap.

It was decided that the new name should reflect the long established history and characterof both banks. Thus, it was renamed Keppel TatLee Bank Limited with the stakes held by:

• Keppel Capital Holdings• The Goh family, (major shareholders of Tat Lee Bank)• Temasek Holdings• Members of the investing public

In August 1998, seven months after the announcement, Tat Lee Bank became a wholly-owned subsidiary of Keppel Bank. The new Keppel Bank shares and warrants were listedand quoted on the main board of the Stock Exchange of Singapore on 17 August 1998,while the existing Tat Lee Bank shares and warrants were delisted on the same day. However,both banks continued to operate separately.

On 26 December 1998, the merger took effect and the new Keppel TatLee Bank was born.

On 11 January 1999, 293 employees were retrenched and a $9.5 million in redundancypayments were made.

How The Process Began

The Merger Steering Committee was headed by the CEO of Keppel Bank and comprisedseven selected members - 4 from Keppel Bank and 3 from Tat Lee Bank.

Sub-committees were also formed to labour through tough decisions pertaining to theconsolidation of business, integration of IT, harmonisation of HR matters and a host ofadministration issues and policies.

An external business consulting firm was appointed to assist with the change managementof the business. However, the Steering Committee decided that the harmonisation ofHR issues would be driven internally and as such there was no involvement from externalHR consultants.

The Role Of HR

It was imperative that the merger should result in a consolidation of resources and cost,especially headcount cost as there were obvious duplication of jobs and functions. The HRTeam, headed by Kuang King Khoong, the HR Director, was responsible for issues such as:

• Alignment of salary structures• Harmonisation of employee benefits• Consolidation of HR policies, administration and systems• Identification of duplicated job roles• Development of an employee redeployment process• Planning of an inevitable retrenchment exercise

The HR Team was also engaged in the extensive negotiations with two separate unions:• Singapore Bank Employees’ Union (SBEU)• Singapore Bank Officers’ Association (SBOA)

The Biggest Impact On Employment

Keppel Bank’s Managing Director and CEO, Benedict Kwek said at that time, “The mergerof Keppel Bank and Tat Lee Bank has resulted in job redundancies. Where possible,employees will be redeployed to relevant fields where they can continue to contributeeffectively. Retrenchment will follow when this is not possible.”

Keppel

TatLee

Bank Ltd

21

Case Study

A Small -

Medium

Enterprise

Plainly, a staff redundancy exercise was unavoidable. The merger brought together atotal workforce of 2,000 employees. The desired final figure was about 1,300. Therewould be 700 casualties, which triggered insecurities among employees. This took itstoll and resulted in a natural attrition of about 400 employees as the merger transitionstretched over twelve months.

After the Division and Department Heads had interviewed and assessed all employeesand selected the candidates to form the new team at Keppel TatLee Bank, the remainingemployees were placed in a “Redeployment Pool”. As and when a vacancy arose, a namein the “Redeployment Pool” would be “saved”.

The imminent retrenchment led to long negotiations with the unions. Eventually, on11 January 1999, 293 employees comprising 106 management and 187 non-managementemployees were made redundant.

A $9.5 million redundancy payment was paid out. Depending on their length of servicewith the Bank, retrenched employees received a severance package ranging from 0.75month to 1.25 months’ salary for each year of service. They also received their noticepay in accordance with their employment terms. The Bank also paid $225,000 toNTUC as a Training Grant for the retraining of retrenched union members.

Other Challenges Faced By HR

One of the main challenges faced by the HR Team was the rationalisation of salariesand benefits of the two banks. From the analysis of the employees’ pay and benefits,gaps were identified and solutions proposed. The HR Team had to overcome muchresistance from the affected employees. A lot of effort and time were spent incommunication and negotiation.

Another major challenge was to retain the people it wanted. Some IT personnel forexample were critical to the transition but only for a limited period of time. It wasdifficult to hold them, although the economic crisis at that time helped to control thesituation. The HR Team considered adopting a “retention bonus” plan. The conceptwas to retain them for the transition period with an incentive, which would be paid ifthey stayed for the agreed period to successfully complete their tasks. This plan wasnot adopted eventually. The affected employees were subsequently either redeployedor retrenched.

Key Lessons Learned

Kuang was quite relieved that apart from the news of its retrenchment, there were veryfew unfavourable reports from the press. The HR Team ensured that if there were newsaffecting employees, they should hear it from the Bank first.

Throughout the merger exercise, employee newsletters were distributed periodically.Three Communication Sessions were also conducted by the senior management to briefthe department heads and other employee representatives on the progress of the merger.

In retrospect, Kuang feels that the communication could be even more extensive, regularand with greater openness. He stressed that communication is one of the most importantfactors of a successful merger, especially when the public and the press were watchingit closely.

Kuang’s advice for a successful merger is for the management team to keep an opencommunication channel with the employees. Apart from focusing on the business andeconomical aspects of a merger, priority should be given to both the tangible andintangible human resource issues. In his view, human capital is one of the most importantassets of an organisation. How it is managed, particularly during a merger or acquisition,will have lasting impact in the newly merged organisation.

22

Neptune Orient Lines

Neptune Orient Line (NOL) is the largest shipping company listed on the SingaporeExchange with a market capitalisation of S$1.27 billion as of March 2002. The NOLGroup provides services in more than 100 countries and operates one of the largestcontainership and Aframax tanker fleets worldwide. As part of its core business, theNOL Group operates a network of container transportation services on major internationaltrade routes.

In November 1997, NOL’s container transportation division merged with APL Ltd tocreate one of the world’s largest container shipping lines and now the new entity operatesunder the APL brand name.

The merger was a direct result of NOL’s aggressive plans to go global. With offices inmore than 80 countries around the world, APL provides customers with containertransportation services through a network combining high-quality intermodal operationswith state-of-the-art information technology. NOL believed that the merger withAPL would catapult the organisation into the global marketplace with greater speed andeffectiveness and without having to “reinvent the wheel”.

Apart from container transportation in the trans-Pacific, Asia-Europe, trans-Atlantic,Latin America, intra-Asia and Australia markets, NOL also provides supply chainmanagement services for international shippers through its subsidiary, APL Logistics.It also provides crude oil transportation services through subsidiary American EagleTankers (AET).

The Journey Begins

The merger of NOL and APL is believed to have been one of the most challenging in theshipping world. While NOL was based in Singapore and in its thirty-year history hadbuilt a strong reputation for quality and service in both its tanker and containertransportation businesses, APL had more than a century and a half of solid history as anAmerican company, a strong brand name, innovative technology, a logistics businessand an extensive network across 80 countries. It was also twice the size of NOL.There were therefore issues to be dealt with in terms of size and in terms of culture. Asintegration progressed, the exchange of people and ideas between the two benefitedthe new organisation.

But in addition to the work involved in integrating two so different companies, the timingcreated more pressures: NOL purchased APL just as the Asian crisis hit.

The Challenges

In 1997, the economic crisis seized Asia and, compounded with the stress of the merger,NOL suffered substantial losses.

On 3 June 1999, Mr Flemming R Jacobs was appointed NOL Group President andCEO. Mr Jacobs had a sound track record of more than three decades with Danish shippinggiant Maersk, and brought a fresh approach to the recently merged NOL/APL. He realisedthat the integration had merely brought two conglomerates to the stage of co-habitationand there were considerable benefits still to be derived. A dramatic change was requiredto re-shape the organisation if those benefits were to be realised. This led to a majorreview of NOL’s strategic direction and its structural make-up – a job undertaken inconsultation with an international management consultancy.

The consultant helped NOL to chart candidly the performance levels and work historyof its management team, identify the appropriate management structure for the neworganisation and the strengths and talents required to fill new and existing roles. Thishelped NOL to leverage on the depth and breadth of the talents available in theorganisation as well as looking to the global marketplace to fill some of the positions.With this underway, NOL then focused its attention on the needs of its customers,managing operational costs, and critical areas and markets that generate the most valuefor the company.

Neptune

Orient

Lines

23

“NOL has an uphill task of generating profits particularly after two years of heavy lossesas a result of the Asian economic crisis, the merger of two different organisations andNOL’s debt burden,” said Mr Jacobs at the time. He added that, “We are making goodprogress in our organisational restructuring plans and other initiatives to ensure sustainableprofitability for the future.”

Getting the people of both organisations to expand their thinking into a wider world, tostep out of their comfort zone and venture into the world was a major mindset hurdlethat had to be overcome. Mr Jacobs initiated the critical move to inject new blood intothe organisation to increase its leadership skills. The new management team now enjoysa healthy mix of people with more than 20 nationalities at various levels. Some comewith NOL experience while others are drawn from around the world, both from insideand outside of the industry.

With the appointment of Mr Jacobs, the culture progressively has become more openas a direct result of the CEO’s leadership and personality. Initially, people who were usedto a hierarchical organisation found the more open culture somewhat uncomfortable.However, the management team thrived on the challenge of developing an organisationthat was prepared and ready to take on the world. It was not easy and credit has to begiven to the people who believed and invested their time and effort to making thingswork. Compared with the 1999 employee survey, the survey results of 2000 showed amarked increase in some key indicators on employee satisfaction. This has been a resultof positive changes in the business conditions in the marketplace as well as the leadershipof its management team.

A Global NOL

Today, NOL has gone through a series of global business ventures while still managingthe merged NOL as one entity. This includes the purchase of GATX Logistics in early2001, the second largest warehouse-based contract logistics company in the US and oneof the top logistics players throughout North and South America.

NOL Invests In Its People

At the heart of NOL’s corporate strategies is the Group’s commitment to HR managementand development. NOL recognises that people are its most valuable asset to foster growth,diversification and expansion of global businesses. The key to the company’s effectivemanagement of its business operations is to maintain the high quality and calibre ofits employees.

Thus, NOL is committed to investing in the training and development of its employeesat all levels, which led to the launch of the NOL Global Campus in 2001. Its structuredHR development programme ensures that capable employees are provided with theopportunities to upgrade their knowledge and skills relevant to their work. NOL continueswith its philosophy to sponsor outstanding staff for postgraduate studies overseas.

Tips From NOL

Ms Anne S Benbow, Chief HR Officer considers the three key success factors of a mergeror acquisition are: Preparation, Communication, and Project Management. Ms Benbowremarked, “The management team must be sensitive, inclusive and willing to listen.”She believes that a strong global HR leader should be involved in the merger even beforestarting the process of due diligence to help identify the people-related issues to a merger.“The HR leader must advise management on the human side of things related to change,”she stressed.

24

Raffles International Ltd

As the owner and operator of fine hotels and resorts, Raffles International consistentlydelivers its promise of not only meeting but also regularly exceeding expectations. Thisplays a key role in fulfilling its credo of a hotel being more than its location, décor andamenities – a place where guests are treated so well that they want to come back. With itsestablished brand name and excellent reputation, Raffles International is well recognisedfor providing the highest quality products and services.

Raffles International Limited is the hotel management subsidiary of public-listed RafflesHoldings Limited. Its vision is to be the world-class Singapore-based company in theinvestment, operation and management of hotels and resorts, supported by a strongcustomer base and developing strong brand architecture under the Raffles Internationalmaster brand.

In support of this vision, Raffles International Limited began to develop an internationalexpansion strategy focused on obtaining a presence in capital and gateway cities in regionsoutside Asia. To this end, it decided to acquire Swissotel Holdings AG at a cost of S$420.1million. Through this acquisition, Raffles International gained ownership of the Swissotelbrand and its trademarks and management contracts for 22 hotels including those of6 majority or wholly owned hotel properties and minority interests in 3 hotels.

The acquisition fits the Group’s strategic vision of obtaining a global footprint throughan enlarged portfolio of 38 hotels in 33 destinations that are business capitals, culturalcentres and major leisure destinations.

The acquisition of Swissotel achieves several Raffles Holdings strategic thrusts:

Increased Global Reach

The acquisition complements Raffles Holdings portfolio in Europe and provides asignificant presence in key North American gateway cities. It provided Raffles Holdingswith strategic entry via established operating hotels in North Asia, the Middle East andSouth America.

Enhanced Brand Equity

Swissotel has strong brand recognition in Europe and the Americas and complementsRaffles Holdings’ Merchant Court hotels that are represented primarily in Asia Pacific.Swissotel’s portfolio of deluxe hotels integrates well within the Raffles International’smaster brand architecture. The Raffles brand of hotels and resorts caters to affluentleisure and business travellers who require something beyond five star accommodations.The Swissotel and Merchant Court brands of hotels are aimed at modern businesstravellers with an emphasis on quality and comfort. The acquisition strengthened RafflesInternational two-tiered brand architecture and provided the scale and scope to reachand tap wider market segments.

Operating Benefits Of Scale

The acquisition resulted in the following benefits arising from increased scale:• “network effect” on customer equity and loyalty of the increased number of

hotel locations• ability to spread IT, reservations and sales & marketing investments over a

broader base• improved purchasing power• growth in management contract base by another 20 hotels• improved competitive advantage for securing management contracts

Raffles

International

Ltd

25

Achievement Of Strategic Business Goals

The increased focus on management contracts business raised the income level fromS$18m to S$48m in Year 2000. This achievement was in line with the Group’s strategicgoal to become a pure hotel player.

Enhanced Human Capital

Swissotel’s key executives brought with them in-depth hotel management experience,institutional knowledge and operational excellence. These were integrated with theRaffles experience.

How It All Began

Pre-deal StageArmed with a clear business expansion plan, Raffles Holdings set out to identify potentialhotel operators for acquisition to complement its existing business. Extensive researchwas conducted to determine the suitability of hotel operators who could be a strategic fitto Raffles business goals and financial objectives.

Due DiligenceOnce the target hotel operator was identified, Raffles Holdings immediately set uptwo task forces to conduct due diligence on the target hotel operator. The Task Forceswere assigned according to specific tasks required in a due diligence exercise to ensureeffective results.

The first Task Force was specially assigned to look into the legal issues of each functionalareas and their implication on the overall acquisition. This team, made up of keypersonnel from Business Development, Finance, Human Resource, Legal and Salesand Marketing locked themselves with a myriad of files, documents, contracts,agreements, correspondence and notes to conduct detailed paper searches for anymaterial evidence that would have an impact or implication on the acquisition whetherfinancially or operationally or legally. As this was a very daunting and challenging task,only the best people were deployed to this team.

The other Task Force was divided into Project Teams to gather as much information aspossible on Swissotel in the respective functional and operational areas to aid the acquisitionprocess. The Project Team comprising of the following functional representatives and insome cases, Technical Specialists were despatched to the various Swissotel operationsspread across USA, Europe/Middle East and Asia Pacific:

• Human Resource• Operations• Marketing• Finance• Legal

These project Teams were further complemented by Swissotel’s Senior Regional VicePresident and the local General Manager of the hotel in question.

26

To facilitate the process of information gathering, all the functional representatives eachhad a Raffles International Limited proprietary M & A template for their use when onsite. The template helped them to acquire the right information, ask relevant and pertinentquestions and remain focussed during the entire due diligence exercise.

In the case of the HR function, the following areas were carefully analysed and studied:• Employees’ Employment Contracts and Terms e.g. notice of termination, severance

pay, duration of contracts, etc• Employees’ demographics, qualifications, skills, experience and competencies• Employees’ remuneration details, costs of benefits and related costs• Pension and retirement plans and company’s contractual obligations• Employer’s liability – both written and implied• Agreements with Unions and Work Councils

During the due diligence exercise, it was not uncommon to find protection clausessuch as “golden parachute” put in place. Such findings together with all the abovefindings have significant impact on the overall acquisition strategy including the bidand offer price.

The Integration

Once the deal was concluded, management moved swiftly to integrate the Swissotel’sbusiness, philosophies, people, policies, practices, systems and processes with that ofRaffles International.

CommunicationTo drive the integration process, a communication team was formed to ensure thatmessages to the employees were delivered the way they were meant to be. Mr TommyNg, Senior Vice President of Corporate HR believes that “over communication is betterthan no communication” particularly during a period of extensive change. Every pieceof communication was painstakingly crafted to avoid misinterpretation. Tommy citedone example where two different groups of employees interpreted the meaning of clearcontact lens according to their own perception. One group defined “clear contact lens”as the lens being clear and not coloured whereas the other group thought that the lensshould be washed clean and therefore clear. This incident confirmed the importance ofgood communication and as such efforts were made to ensure that all messages carrythe same meaning throughout the 3 regions of operation, these being USA, Europe/Middle East and Asia Pacific.

Tommy Ng said, “we used e-mails, posters, dialogue and feedback sessions, committeesand task forces, video tapes, telephone conferencing, state of hotel presentations andmany informal settings to communicate our message but nothing beats a face-to-facedelivery”. To this end, the Corporate HR team organised regular site visits, weeklyteleconferences and quarterly video conferences to gather feedback and roll out systems,processes and initiatives. More importantly, Corporate HR used these visits andconferences to strengthen relationships and create employee bonding. To furtherfacilitate the communication process, messages were structured with consideration tosensitive issues such as culture, religion, anxiety, apprehension, language differences,different time zones and union and employees expectations.

Raffles

International

Ltd

27

Systems And ProcessesFrom a business standpoint, the Group consolidated its global sales, distribution andmarketing network and implemented uniform hotel operating standards and procedures.The integration of Swissotel allowed the Group to realise synergies and create opportunitiesfor shared services. The integration process further acted as a catalyst for the establishmentand implementation of various systems and processes such as the Customer RelationshipManagement (“CRM”) system, Human Capital Management System (“HCMS”) andFinancial Management Information System (“FMIS”). These systems are the vitalinfrastructure to support the Group’s medium to long-term growth business objectives.

PeopleThe acquisition was that of an ongoing operating hotel and as such the employees ineach operation were much needed to keep the operations functional and going. However,there was duplication of jobs in some areas such as Human Resource where a team existsin both organisations. Raffles International was keen to promote a system of meritocracyand drove this philosophy by not making jobs redundant immediately. Job holders whoheld duplicate jobs were reassigned and a period of 6 months was allowed for theincumbents to demonstrate their competence level, skills and know-how. Being aSingaporean was not a criterion for retention and the final selection criterion was basedpurely on merit.

Compensation & BenefitsAs much as it would like to streamline and harmonise policies and practices oncompensation and benefits across the Group, these were not always practical or feasibledue to the differences in laws, cultures and norms. It was accepted that there would bedifferences across the Group but still, efforts were made to streamline practices withineach SBU for control purposes. In one such streamlining exercise, it was discovered thatsome senior managers were paid above market. This was subsequently streamlined to thestandard of the Company.

Other Policies And PracticesWhile it is preferred to keep HR policies and practices standard, the reality prevents suchstandardisation. Tommy Ng clearly understood this and issued a working strategy acrossthe Group to “think global but act local”. This sensible approach helped made theintegration process more seamless and lessened the resistance to change among employees.

Key Success Factors

And what are the 3 key success factors of a merger or acquisition? “Strong leadership,communication and consistency on deliverables” replied Tommy.

28

Singapore Exchange Ltd

Singapore Exchange (SGX) is the first demutualised, integrated securities and derivativesexchange in Asia Pacific. It offers a diverse array of securities and derivatives products viaits global network of broking members.

SGX was formed on 1 December 1999 by the merger of two well-established and respectedfinancial institutions of Singapore – the Stock Exchange of Singapore (SES) and theSingapore International Monetary Exchange Limited (SIMEX).

Together, the two exchanges serve a wide array of international and domestic investors,including many of the world’s largest financial institutions, and have been among themost innovative exchanges in the world in technological and new product development.

On 23 November 2000, after the merger, SGX was public-listed and propelled toseize the opportunities of the future. It is now able to benefit from the flexibilityavailable to any listed company in terms of capital structure, corporate finance, mergersand acquisitions.

History Overview Of SES

The Stock Exchange of Singapore (SES) was incorporated in May 1973 under theCompanies Act and licensed under the Securities Industry Act, administered by theMonetary Authority of Singapore (MAS). It had established a reputation in Singaporeand internationally as a securities exchange where investor rights are protected andtransparency and integrity prevail.

Over 370 companies are listed on SES’ mainboard and SESDAQ which lists small tomedium-sized companies. It has a total market capitalisation of about S$434 billion as atthe end of December 1999.

History Overview Of SIMEX

The Singapore International Monetary Exchange (SIMEX) was the first financial futuresexchange to be launched in Asia in September 1984. SIMEX traded a broad range ofinternational interest rate, fixed income, equity and energy derivatives on its floor. It wascomplemented by a global, state-of-the-art electronic trading system, SGX ETS (SGXElectronic Trading System). Trading activity had remained consistently buoyantthroughout, and in 1999, SIMEX achieved its second highest annual volume of 25.8million contracts.

What’s The Impetus Of The Merger?

The Answer: Globalisation

The decision to merge SES and SIMEX was driven by global trends. The previous structureof both SES and SIMEX were “mutuals”, i.e. they were legally owned by their members.In response to the forces of globalisation and technology, exchanges are liberalising accessand deregulating brokerage commissions to maintain their competitiveness.

It is in this very fluid environment that exchanges often need to make strategic choices toserve the broader interests of the financial sector, and it is not always possible to alignthose interests with the member-owners.

Demutualisation allows SGX to better serve the needs of its valued customers. Thecombined entity will be able to align more closely the securities and derivatives businessstrategies, minimise operating costs by sharing overheads and increase its value-positioningvis-à-vis other foreign exchanges.

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The New SGX

Although the merger was formed on 1 December 1999, it took 10 months for theintegration exercise to complete. One of the key steps of the integration exercise wasbuilding the cohesion of the management team, of which one-third comprised of newmembers. Many integration activities were organised to act as “melting pots” to unite themanagement team. Less formal sessions like management workshops helped intensifythe level of communication and interaction within the team.

The new management team in turn played a pivotal role in selecting their team members.The newly integrated SGX emerged with 5 Market Divisions and 5 Service Divisions,reporting to the Office of the CEO:

Five Market Divisions:

• Securities Trading• Derivatives Trading• Securities Clearing & Depository• Derivatives Clearing• IT Solutions

Five Service Divisions:

• Corporate Strategy & Marketing• Finance & Administration• Human Resources• Information Technology• Risk Management & Regulation

The Impact On Employment

The Office of the CEO and the management team strongly believe in the value of itspeople – and valuing its people. The merger brought together a total of 660 employees.The management team mandated that a smooth harmonisation and retention of keytalents must be observed throughout the integration. And one of the first people-issuesto deal with was the assurance of job security.

Thus, during the announcement of the merger in end-1998, the CEO and themanagement team assured the people of employment. In fact, it was clearly articulatedthat the merger would give birth to more employment opportunities and existingemployees are welcome to apply.

The Role Of HR

A new HR team was formed to drive the harmonisation initiatives of HR. A strategic HRteam was virtually non-existent before the merger. The then Personnel Department wasmerely playing an administrative role. With the new HR team and the assistance of HRconsultants, investigative studies were conducted to prepare for the harmonisation ofpolicies, salary structures, employee benefits, job grading and titles, and a range of HRadministration processes.

Very quickly, the new HR team recognised that establishing the core competency of itsworkforce was the fundamental move from which other HR integration activities wouldflow. Its extensive works involved the department heads to help chart the core competenciesof the organisation. This core competency strategy springs forth a series of other HRinitiatives such as streamlining of HR processes and the implementation of an appraisalsystem that is in tandem with the global market of exchanges.

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Some Challenges Encountered

In harmonising the compensation and benefits structure of the merger, the HR teammade a decision to pay market rates. However, there are no other exchanges in Singaporeto look to for comparison or salary survey per se. The “market” literally covers the Asiaregion. SGX had the challenge of obtaining reliable data to help align its reward strategywith the market. It was resolved through engaging external consulting resources to obtainmarket comparison that help forged an integrated rewarding structure closely linked tothe core competency system.

The HR team was faced with the task of restructuring employees’ benefits and in somecases there were some emotional moments when the employees expressed dissatisfactionwith the restructuring. Fortunately, the management team was closely involved in thecommunications with the employees and the chairman being involved in the processmanaged to close this issue in an amicable manner. This strong involvement and supportfrom the top were instrumental and important to the success of the harmonisation exercise.

Communications

The management team and the HR team believed in communications and worked todrive the message home. It is critical that communications must be open, yet timely.“And listening is a significant expression of being receptive and understanding on thepart of the management,” emphasised Lew Seng Huat, the Senior Vice President ofHR Division.

Two months into the integration process, apart from announcement meetings whichsometimes involved the external consultants, dialogue sessions with employees werestrategically organised to address any concerns of the staff.

Communications and training exercises were also organised before the implementationof projects that directly impacted the lives of the employees. In addition to dialoguesessions, the HR team also leveraged on their email system as feedback channels, andcommunications were regularly posted on their electronic bulletins that welcomed anysuggestions and questions.

With the assistance of external consultants, the HR team also took the pulse of employees’satisfaction and understanding through formal surveys on four HR people-related issues:Culture, New Benefits, Performance System and Job Grading System.

When asked what are the key success factors of the SGX integration exercise, Seng Huatreplied, “Communications, commitment of the top management, focus on the missionto compete globally.” He added, “Tips for companies about to enter into a merger oracquisition are: keep the integration process simple, recognise that changes takes timeand listen to the people.”

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Attn: Human Capital Development DivisionMinistry of Manpower18 Havelock Road#04-02Singapore 059764Fax : 6535 4811Email : mom_hrps@mom.gov.sg

Case: The Role of HR in Mergers and Acquisitions in Singapore

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The Role of HR in Mergers and Acquisitions

A case study commissioned by the Ministry of Manpower

Written by: Buck Consultants

Acknowledgement:

Our special thanks to Ascendas Pte Ltd, Keppel TatLee Bank Ltd, Neptune Orient Lines,Raffles International Ltd and Singapore Exchange Ltd for their inputs.

Enquiries can be directed to: Human Capital Development DivisionMinistry of Manpower18 Havelock Road#04-02Singapore 059764

Printed in Singapore, Jan 2003ISBN 981-04-8059-8©Ministry of Manpower

All rights reserved. No part of this publication may be reproduced in any form or by anyelectronic or mechanical means, photocopying, including information storage and retrievalsystems without permission in writing from the publisher.

Information correct at the time of print

ISBN 981-04-8059-8

MINISTRY OF MANPOWERHuman Capital Development Division

18 Havelock Road#04-02Singapore 059764Tel: 6539 5192Fax: 6535 4811Email: mom_hrps@mom.gov.sgWebsite: www.mom.gov.sgOneCall Centre: 6438 5122