Page 6 - CIMA SCS Workbook February 2019 - Day 2 Suggested Solutions

SUGGESTED SOLUTIONS

Operational differences

There may well be differences between how the two companies operate on a daily basis that will
need to be addressed in a merger. For example, the Vita choice for having just 2 manufacturers in
HJM and Force, and adopting a working relationship based on mutual benefit and trust. Funfitt
may well have a different approach to supply chain management.

A decision will need to be made on how the merged entity will function in this area and, again, is
likely to require a period of change. How will staff and those in the supply chain react to this?

A likely benefit of merging is that it results in greater capacity; we know that Vita needs to address
this matter urgently if it is to continue to grow, as both HJM and Force are operating at near full
capacity. A merger with Funfitt may well give access to spare capacity elsewhere and therefore
solve this issue.

Other staff

Whilst I have already mentioned the possible impact on Directors, other staff are also likely to be
at risk, as part of the rational for any merger is to identify efficiencies that can be produced. This
may well result in a reduction in overall staff numbers. There may well be a consequential impact
on morale and performance as a result, both before any redundancies are announced (due to
fears over job security) and afterwards ( as those who remain may feel aggrieved for former
colleagues who have not been retained).

Location

The merger may result in a change in location being necessary for one or both of the current
companies. This can cause further upheaval as staff have to relocate. How will you feel about
moving to a new place if it is decided not to run the merged entity from our current office? Some
key staff that you would like to retain may refuse to move themselves or their family, and so a
loss of key skills could result.

IT systems

These will need to be integrated so that the results of the combined entity can be measured. Such
integration can take a long period of time, and adds to the burden of merging two companies.

Communication with other parties

As the CEO of a quoted company, you are responsible for determining the strategic direction of
the organisation. However, you have a legal and fiduciary duty to act in the best interests of the
company and its shareholders, and therefore you cannot decide alone what might be best for
both those parties; the Board as a whole needs to work together. It may be that you decide that a
merger is not in your own best interests personally, but it might be in the best interests of other
shareholders. To dismiss any approach for a merger with Funfitt out of hand may therefore be a
breach of your legal responsibilities as a Director, for which you could be found personally liable.

I would advise that you inform your fellow members of the Board about the tentative approach
from Funfitt, and be prepared to point out both the positive and negative consequences of such a
merger. The Board can then decide collectively on whether discussion should progress.

KAPLAN PUBLISHING 65