Research Methods and Modeling Techniques Essay

Mergers and acquisitions (M&As) are important modes through which firms undertake their domestic and international strategies. M&As research is important because these transactions have significant implications for firms’ performance (Laamanen & Keil, 2008). When a firm carries out an international M&A it gains full control over the foreign unit (Arregle, Hebert & Beamish, 2006). In addition, once established, these transactions are difficult to change, because they have long-term consequences for the  firm (Capron & Pistre, 2002). Given its high relevance, numerous empirical studies have addressed the M&As research such as the overview by Noe & Rebello in 2006, as well as theoretical articles written by Chi in 2000 and Shaver in 2006. However, even after decades of research on this issue, the empirical research provides no clear consensus on the impact of these transactions on the firms’ performance. For instance, Child, Faulkner and Pitkethly (2001) found that cultural differences are likely to have a negative impact on the firms’ post-acquisition performance. According to Morosini, Shane and Singh (1998) international M&As have become major strategic tools for corporate growth of multinational corporations. M&As increase the efficiency and effectiveness of whole industries, and also affects individual companies’ competitive ability (Hitt, Ireland & Harrison, 2001). Most of the times M&As are the only way to acquire resources and knowledge that are not available in the market. A transaction is known as an acquisition when a buyer acquires all or part of the assets or businesses of a selling company. In case the target company is purchased despite its active resistance the transaction is also known as hostile takeover. A merger, in contrast, is the corporate combination of two or more independent business corporations into a single enterprise, usually the absorption of one or more firms by a dominant one. Most of transactions are considered as acquisitions. One possibility is to literally merge two companies, in which case one company automatically assumes all the assets and liabilities of the other. In this case, the merger must have the approval of at least 50 percent of the stockholders of each firm concerned. The alternative is to simply acquire the sellers stock by purchasing it on the stock market or in exchange for shares. This development usually takes place by increasing slowly, but surely revenues over time in the market the company has become part of. Knowing the clients needs products get adjusted, differentiated and new products get launched. Now it’s been a while since the acquisition and it is more than obvious that this kind of venture was a great idea from Adidas and now it is up to them to try to improve even more and pretty soon overcome Nike as global leader in department of sports equipment, and in unity with Reebok it will be much easier. The closing of the Reebok transaction on January 31, 2006 marks a new chapter in the history of the Adidas Group. By combining two of the most respected and well-known brands in the worldwide sporting goods industry, the new group will benefit from a more competitive worldwide platform, well-defined and complementary brand identities, a wider range of products, and a stronger presence across teams, athletes, events and leagues. The merged companies will maintain their individual brands yet, together, will cover a larger variety of sports and geographic regions, with Reebok’s strength in U.S. sports and Adidas’ more international presence. Their combined clout will also give them stronger bargaining power with retailers. The combination of Adidas and Reebok accelerates the Adidas Group’s strategic intent in the global athletic footwear, apparel and hardware markets. The new Group will benefit from a more competitive platform worldwide, well defined and complementary brand identities, a wider range of products, and an even stronger presence across teams, athletes, events and leagues. Adidas is a German company and has 14,217 employees with global sales of 81 million in 2004 (http://www.fashionbrandsonline.net/adidas-reebok-merger-and-what-the-real-motives/). Reebok was originally a British company, moved to the United States in 1979 and started production of Reebok products in 2004, global sales of 40 billion dollars. Through the merger of Reebok, Adidas will significantly increase market visibility, integrating the two companies complement each other’s consumer base and geographical advantages. This will allow them to be able to narrow Nike lead in the market share to a minimum. The main goal is to benefit from the best sides of each company and emphasize on it. In case of Adidas it is focus on producing sporting goods in all of the categories especially in area of soccer, basketball and tennis. Reebok is in charge of providing market share by emphasizing on their main feature and that is cricket and stylish products well promoted by the celebrities from the music world such as Nelly and Jay Z. PROBLEM STATEMENT Previous research offers no validation that there is a clear relationship of  an improvement of KPI for companies, which participate in M&A transactions, when comparing the figures of the newly merged company, with those of the involved companies separately in case the transaction never happened. The various purposes explained before shows why companies engage in mergers or acquisitions, however, give rise to the presumption that there are positive effects companies benefit from when combining their businesses with those of another carefully selected entity. The overall goal is to get all the necessary info related to the overall situation of the company after merger and to see how the transition went and if the situation at the company is better then before the merger. So the first question is will the new company get a rise in sales and is there a chance to overcome Nike as overall leader in sports brand industry? There’s no such thing as a merger of equals: one company always brings the dominant culture. Smart companies will go out of their way to be protectionist and preserve certain parts of the smaller entity. There may be certain aspects of the culture you want to preserve and value in the firm you’re merging with. Keeping the foundation that made the other company successful must be of essential value. Management absolutely has got to empower people to have a voice in defining what the new corporate culture is going to be. The goal is to find aspects of both cultures that can work in the new combined culture. So basically the second research question would be how the new formed company is going to deal with combining different management values and complexity of joining two corporate cultures? Both Adidas and Reebok went through big financial crises in 90’s so the third and final question would be to investigate what led up to that and what can newly merged company do to avoid that situation. Issues led to big debts to each of the companies involved in this merger and it is of high relevance to research this with big attention. LITERATURE REVIEW To develop a solid answer to the research question, literature review is  necessary and important. Academic literature will help in getting all necessary information to make sure that all the answers have been created properly and that will help in solving the stated problem. The area of Mergers and Acquisitions is a field of great interest to researchers. The will of companies to acquire or merge with another entity is not a new phenomenon as already clearly argued above. There are diverse reasons why a company looks for external opportunities of growth instead of concentrating on its own capabilities of growing organically. Over time, two different tracks of research have developed investigating different aspects and consequences of merger and acquisition transactions. One track is focusing on stock prizes and their fluctuations. This track usually investigates the short-term consequences of mergers and acquisitions around a certain event, which gives it its name: event study. The event can be the announcement of a transaction or the actual transaction date when the deal has not been announced publically before. After all, it does not matter which of the two events will be studied since it is actually the information, which is of importance and priced into the stock and not the event in time like announcement or the actual completion of the deal. The price of the stocks will change the moment investors do change their expectations and take respective actions like going short or long in the securities concerned. Generally, the results of these event studies are that the bidding firms stock prize does fall at the time of the announcement but then recovers shortly after. The stock price of the target firms, in contrast, usually does benefit from the takeover due to the premium, which is normally paid by the acquiring company. Jensen and Ruback (1983) investigate a dozen researches, which are examining event studies during 1956 and 1981. Their overall conclusion is that in those studies the bidding firm does loose while target firms benefit from takeovers. On average, targets do earn 20% when a merger has been announced and up to 30% in case of a tender offer (http://definitions.uslegal.com/m/mergers-and-acquisitions/). In contrast, the companies, which are to acquire do earn just 4% on average in abnormal returns on a tender offer and nothing from merger announcements. Using the cash flow as a measure of economic performance of the investigated companies, Sharma studies the performance of the post acquisition era of the fifty largest companies in the United States between 1979 and 1984. They compare the performance after the merger of the combined new entity with the addition of performance of the companies prior to the merger. Their result is that the more related the two companies prior to the merger have been, more likely it is to have significant performance improvement. Another similar study has been performed by Christian Tuch, which also uses cash flow as determining factor. According to him both acquirers and targets on average earn a lower operating margin on sales prior to the bid (Christian Tuch, International journal of management reviews, The impact of acquisitions, 2007) The intention of the companies is to differentiate their products (Li et al. p.74) from those of their competitors in order to sharpen the brands profile. This leads to the situation that products objectively are still comparable but subjectively for the clients become more difficult to substitute one against each other since it is not just any shoe you buy. Healy and Switzer focus on M&A undertaken in USA. Tuch limits his research on transaction and their consequences to the retail sector in UK. One thing is certain and it is that results vary from case to case. However there are no patterns weather this kind of transaction pay out or not. Switzer uses a larger sample than Healy et al. did and surveys 324 transactions in the US between 1967 and 1987. The performance of the companies involved is measured by the cash flow and it is adjusted by industries average. The author finds that targets and bidders are outperforming its industry benchmarks before and after the merger respectively. METHODOLOGY To generate a research strategy, to collect credible data, the paper will use existing theory to develop hypotheses. Consequently, my research paper will  be based on a deductive research approach. With this approach the theory of the research paper will be proved through collecting quantitative data and explaining the causal relationships between variables (Saunders, Lewis & Thornhill 2009). All the literature previously mentioned in chapter two, will represent the base for this research. It will include the research of all archive with the special attention to databases of New York Public Library, such as EBSCO. Next step would be creating a survey, through which I will have the opinions of the employees at Adidas. Taking this step allows to take in consideration opinions of the employees, which will be better explained in further text. The broader literature on survey methods suggests measures for assessing these response tendencies and some corrections of them. However, these measures and corrections are either not simple, or not adequately used or tested in the context of cross-national survey research. More importantly, there is not much clarity on how, if at all, response tendencies distort survey. This questionnaire will be looking for closed answers by providing different options of answers for people to choose from. First thing that I will do is to contact one of the top management at the Adidas, and get their opinion on the questions, which will be part of the survey. By doing this they will be included in the whole process and I could get their opinion on the matter. Since enough time has passed after the merger occurred the answers I get from the employees will enable me to get better understanding of how everything operates since then. The way I will be communicating with them will be via e-mail and the goal is to get as straight- forward and honest answer as possible. The simplest techniques to reduce socially desirable responding are to assure respondent anonymity, indirect questioning (Fisher, 1993), and to keep some distance between the respondent and the researcher (through a telephone or mail survey). However, even these techniques are unable to fully control socially  desirable responding. One reason might be the strength of the tendency among some respondents. Another reason might be the unintentional tendency to exaggerate the possession of socially desirable traits and behaviors among other respondents. (Chandrasekaran and Tellis, 2010) Good way to attract the attention of intended employees for survey is to before hand explain them the purpose of the research, and what I plan to make out of it. For higher number of responses this will be both on the questionnaire and in the e-mail. The number of participants should be at least 50 so I would have a proper picture of the overall situation. The whole survey will be designed based on the Likert scale, which basically consists of five possible answers. Those are: strongly agree, agree, not sure, disagree and strongly disagree. The questions I would like to ask at this stage would focus on information to the previous state, when the companies were separate entities and now whey they are merged company. Examples of the questions that would be part of the survey are if the company changed the policies related to handling their operations, how the company is performing under new management and how did the company transit from two big rivals to the teammates on the task. The whole proposed research would last for 3 months, because in my personal opinion that’s how long it takes to analyze all the aspects relevant to the matter. The first phase would be to analyze the literature that already exists on the matter so I can get a better understanding of the area. Next step would be designing a survey. This step is going to be easier because interviews stage will clarify the question that need to be answered, and this survey would consist of closed questions with few options to choose from. The whole survey will be in English. When we are talking about the resources there aren’t going to be any financial resources required and the only thing this project would demand is dedication and time. ETHICS Given that any changes that happen in an organization may be influenced by the behavior of the workforce in general, it is necessary for communication to be open open on all channels, thus ensuring that there is much confidence as sense of responsibility in each employee to the company. Having in mind that in every organization there is a supply chain that ends and begins with the client, for this reason it is imperative that any decision is made to ensure that there will be no negative impact to customers. And as it is the case in any chain if one link fails, the entire chain will fail. The client himself is not able identify which of the links failed. Therefore, if a company failed to meet any specific requirement of the customer, the whole chain fails. Eventually they may find another brand that will provide that  product. However this situation is not good for any either side. (Slack, Chambers, Johnston, 2007). The company needs to have a strong culture in order to transmit to all those who in one-way, or another are involved in it: shareholders, directors, employees, suppliers and customers. Although the supply chain helps accelerate to reducing costs, when they are managed with skill, the risks increase when they become more complex. The consequences of failure of a company have an impact when that error more quickly vibrates throughout the supply chain. By integrating commercial collaborations with other firms, one of the most difficult obstacles is to manage expectations and ensure that each of the companies reached. The supply chain is only as strong as its weakest link. REFERENCES Adidas Group: Yearly Report 2007: ‘MSCI World Textiles, Apparel & Luxury Goods’, p.39, Retrieved from www.adidas.com (Accessed January 6th) Arregle J, Hebert L, and Beamish P (2006); Mode of international entry: The advantages of multilevel methods. Management International Review 46(5): 597-618. Capron L, Mitchell W and Swaminathan A (2001); Asset divestiture following horizontal acquisitions: A dynamic view; Strategic Management Journal 22(9), 817-844. Chambers S., Johnston R., Slack N. (2007). Operations Management. 5th ed. Harlow: Pearson Education Ltd. 121-140. Chi, T., (2000); Option to acquire or divest a joint venture; Strategic Management Journal 21(6): 665-687. Child J, Faulkner D and Pitkethly R (2001) The management of international acquisitions: Realizing their potential value. New York: Oxford University Press. Divesh S., (2002); Journal of business finance and accounting, volume 29 Healy, P., Palepu, Krishna G.; Ruback, R., (1992); _Does Corporate Performance improve after Mergers?_ Journal of Financial Economics 31 (3), Jensen, Michael C., Ruback, Richard S.,(2003). _The Market for Corporate Control: The Scientific Evidence_; Journal of Financial Economics Laamanen, T., and Keil, T., (2008) Performance of serial acquirers: Toward an acquisition program perspective. Strategic Management Journal 29(6): 663- 672. Morosini P., Shane S., Singh H., (1998). National cultural distance and cross- border acquisition performance. Journal of International studies, 29(1): P.137-158 Noe T., and Rebello M., (2006) The role of debt purchases in takeovers: A tale of two retailers. Journal of Economics & Management Strategy 15(3): P.609-648 Shaver J (2006) A paradox of synergy: Contagion and capacity effects in mergers and acquisitions. Academy of Management Review, 31(4): P.962-976 Switzer, Jeannette A., (1996). _Evidence on real gains in corporate acquisitions_; Journal of Economics and Business 48 (5) Tuch C.,(2007); International journal of management reviews, The impact of acquisitions, Volume 9(2); P 141-170