Merger process

The evaluation and negotiation of a merger are a major business

decision. Each merger situation is different, but most successful
mergers involve the some basic steps.
1.Informal discussion
2.Formation of a steering committee
3.Determining a calendar of events
4.Formal feasibility study
5.Negotiating the merger agreement
6.Membership approval
7.Implementation of the reorganization.
 Step 1-Informal Discussion

1. The first step of the process involves an informal discussion by

the board of directors.
2. The board should consider the history of the cooperative, the
present status, and, above all, what the cooperative should do to
survive, prosper, and meet members’ needs.
3. Some factors to consider at this stage include:
• How well do the business activities match the cooperative’s core areas?
• Do the trade areas fit together or side-by-side?
• Is the merger partner a viable, on-going concern?
• Does the potential for merger merit a formal study?
4. This stage of the merger process generally ends with the board’s
passing a formal resolution to investigate a merger.
 Step 2-The Merger Steering Committee

When the informal study and discussion by the board are

favorable, the next step is to appoint a steering committee
composed of board members from the two cooperatives.
 Step 3-The Calendar of Events
The steering committee defines a calendar of events for the entire merger
process and proceeds with each step.

The calendar of events might include:

 Effective date for the merger
 Target date for approval
 Information meetings: membership, employees
 Announcements: letters to membership, notification of
 meetings
 Tour of facilities by steering committee
 Recommendation by steering committee
 Review of feasibility study
 Approval by board of directors at each cooperative
 Presentation and approval at joint board meeting
 Step 4-Formal Feasibility Study
The most crucial step is the formal feasibility study.
The study should consider the last two year’s financial
information for each organization as well as a projected balance
sheet and statement of operations for the combined operation.
The study should also include historic and projected
financial ratios for the separate firms and the combined
organization including:
• Current Ratio
• Debt Equity ratio
• Member Equity to Total Assets
• Return on Assets
• Expense Ratios
 Step 5-Negotiating the Agreement

• The actual merger agreement will reflect the unique situation

facing each potential set of merger partners.
• Your cooperative’s attorney can assist you in codifying the
actual contract terms.
• Specifying the exact terms of a merger or acquisition brings
up a number of difficult issues.
• These include combining the equity retirement plans,
combining the board of directors, deciding on a name for the
merged cooperative, designing a program for unifying
operations, and selecting a manager for the merged firm.
 Step 6-Member Approval Stage

• If the merger is approved by the board, the next step is to

present the issue to the membership. Communication is one of
the keys to a successful merger.
• Financial and feasibility information can be provided in
condensed form. Informational mailings and/or informational
meetings are often used at this point. Legal requirements
concerning the notice of meetings and what constitutes a
Quorum for a merger vote must be strictly observed.
• The directors of both cooperatives should strongly urge
approval by the membership through letters and personal
appearances at informational meetings. It is important to keep
employees informed.
 Step 7-Implementing the Reorganization

• If both memberships approve the merger, the formidable task of

implementing the merger or reorganization occurs.
• The manager and directors should start managing the transition
as soon as the deal is announced.
• Communication is extremely important at this stage.
 Basic steps in strategic planning in Merger

• Assessment of changes in the organizational environment

• Evaluation of company capacities and limitations
• Assessment of expectations of stakeholders
• Analysis of company, competitors, industry, domestic
economy and international economies
• Formulation of the missions, goals and policies
• Development of sensitivity to critical external environmental
changes
• Formulation of internal organizational performance
measurements
• Formulation of long range strategy programs
• Formulation of mid-range programmes and short-run plans.
• Organization, funding and other methods to implement all of
the proceeding elements
• Information flow and feedback system for continued repetition
of all essential elements and for adjustment and changes at
each stage
• Review and evaluation of all the processes