First, this news clip suggested by the ever-vigilant Paul Mills at Ashby School: it shows zoo staff undertaking a contingency planning exercise involving a ferocious-looking rhino.

http://www.bbc.co.uk/news/world-asia-16950361

...and then a slightly longer, but similar example, also from a Zoo in Japan…in fact it looks like it might be the same place??

First, a little background explanation.

Typically, takeovers and mergers transactions create value for shareholders in two ways.

First, the takeover/merger can help a business to sell more goods or services than the competition in new or existing markets.  This effect is known as “revenue synergy”.

Second, the takeover/merger can allow the combined businesses to operate more efficiently together. This effect is known as “cost synergy”.

In both cases, the assumption is that the performance of the combined businesses will exceed the expected performance of each each business on their own. You might see this written as 2 + 2 = 5.  How does this equation work?  Because of synergy.  Something happens to the two businesses combined which cannot happen if they simply operate independently.

So, back to the research by Deloitte looking specifically at cost synergies.

Deloitte highlighted the potential for cost savings that arise following a takeover or merger by looking at the details of 150 takeovers completed between 2004-2007 to analyse the reasons why some businesses were able to make more significant cost savings (cost “synergies”) than others.

Some of their key findings include:

The average overhead cost synergy has been found to be around 17% of the combined overhead cost base of the buying and the target company, where the entities are of comparable size; So, for every £1million of overheads in the two businesses operating independently, a takeover/merger can result in overhead savings of £170,000 per year.  That’s a big saving, though it doesn’t necessarily happen straight away.

The greatest overhead savings can be achieved by removing costs in the IT (average cost synergies of 30%) and finance (25%) functions, primarily through the elimination of duplicate roles, making both businesses use the same IT systems and elimination of duplicated development projects.  Deloitte found that the Sales & Marketing and Research & Development functions tend to offer the least potential for overhead cost reduction;

Capital-intensive sectors, such as manufacturing or telecoms can also exhibit potentially high overhead synergies of over 15% although these savings mainly depend on the elimination of excess capacity in the combined businesses.

At the other end of the scale, labour-intensive sectors, such as media and software, exhibit much lower overhead cost savings of around 10% due to their reliance on their creative talent and people. Management in these sectors clearly perceive a greater risk that the takeover or merger will disrupt the workforce;

However, it is important for students to appreciate that the achievement of cost synergies does not come for free. Up-front minimum investment is required, normally of £1-£1.50 of one-off implementation cost for every £1 of annual cost saving. Furthermore, the full achievement of annual cost savings typically takes three years to deliver.

So, for example, a firm might have to spend £1million to support overhead reductions (e.g. cost of redundancies, closure of duplicated locations) in order to unlock annual cost synergies of £1.5 million thereafter).

Deloitte make a useful summary observation about what a firm needs to do to fully realise the potential cost savings from a takeover. The essence is detailed integration planning, taking a long-term view on which activities and costs are important to the combined businesses.  Deloitte caution against poorly thought-through and short-term cost-cutting which runs the risk of “causing operational disruption and organisational confusion”.

60 years ago we worked 30% longer and took half as many holidays.  For most, pay was poor.  Discrimination in the workplace was widespread, and permitted by law.  Work was often hard, and for working class men it was often dangerous too.  So it’s a sobering thought to think that several decades later, measures of anxiety in the workplace have risen, to the point that stress has replaced back pain as the most common cause of long-term sick leave, according to The Guardian.  What’s going wrong?

The obvious answer is that no-one knows, or it might simply be an effect of our increased willingness to complain.  Some of the reasons suggested in the article might be:

- Technology seems to have spawned more gadgets to bind us to the workplace.
- Unlike the 1950s, our careers are less likley to follow a clear path, bringing pressure to adapt constantly and move with the times.
- A perception that jobs are no longer as secure.
- A worry that somehow many of our jobs might not be ‘meaningful’ and hence are simply less rewarding.

The BBC carries the same story, with quotes like “with the threat of unemployment an underlying concern even in good times, people do not seem much happier about their working lives and many exhibit the symptoms of work-related stress”.  They also focus on the increasing role for women in the workplace.  The increase in the number of workless homes may be linked to changes in the way we work, with fewer men in the workforce and more households with two earners.

Plenty to reflect on here.  During a period in which the total workforce has risen by 25%, the volume of output has increased by 300%.  Perhaps this massive increase in productivity is at the heart of the problem.  Earlier blogs have looked at the growing problem of job dissatisfaction, and the rise of stress.  This problem is not about to vanish, though it has inspired creative solutions.

Tesco Express vrs Sainsbury’s Local?  Game vrs HMV?  Or how about Body Shop vrs Lush?  Check out the views and comments at The Guardian’s Store Wars.

Articles in the supplement look at the ten biggest buyouts with the fastest growing profits, how acquisitions have driven profit growth for a third of the companies listed, as well as the role that ‘supportive lenders’ can play in making acquisitions in a downturn and the ‘flight to quality’ amongst buyers. There are also references to other aspects of the syllabus with 39 of the companies having boosted their profits by expanding overseas, and more of them relying on innovation through increased spending on R&D. Overall I think this will give some interesting additions to BUSS4 research.