IMPLEMENTING A
TAKEOVER
THE NBL CASE
STUDY
By
Nigel Sunley
Nigel Sunley was involved in a
takeover of a medium sized FMGC operation. In this practical
article he shares what he learnt during the takeover process. (See
the article on implementing a
takeover for more detailed advice on how to handle a takeover
successfully.)
Background to the Case Study:
National Brands
Ltd (NBL) is a large food manufacturing company and part of
Anglovaal Industries. After performing very successfully in the
early 1990’s, its financial performance deteriorated sharply
and, by late 1998, it became necessary to investigate the
possibility of disposing of
certain sections of the company, perceived to be non-core assets.
After a strategic
review of the business, the decision was taken to dispose of those
operations in which NBL was not either the market leader or in a
strong second place in terms of market share. The operations
chosen for disposal were the product categories of breakfast
cereals, liquid and powdered soft drinks and condiments.
Negotiations for the sale of the breakfast cereals business
commenced in February 1999.
An agreement to
sell the business, comprising a number of well known breakfast
cereal brands and a manufacturing facility located at Wadeville on
the East Rand, to Bokomo Foods was reached in April 1999 and the
transfer of ownership took place on June 1st 1999.
WHY did the takehover OCCUR?
The primary
objectives of Bokomo Foods were:
-
To acquire a
product range which had excellent synergies with their
existing brands with little or no concurrent increase in head
office and other support function overheads.
-
To grow their
market share - the take-over resulted in Bokomo Foods becoming
South Africa’s largest breakfast cereal company in terms of
volumes.
-
To acquire
technical expertise and intellectual capital in the areas of
nutrition and health and in specialised processing techniques
which had considerable synergy with their own and with those
of an overseas company with whom they had existing technical
and commercial links.
-
To acquire a
Gauteng manufacturing base - desirable because of the high
transport costs incurred in transporting products from their
existing plants in the Western Cape to Gauteng.
Rationalization of core
functions.
It was probably
fortunate that relatively little rationalisation of core functions
was necessary. The only core operation involved in the sale was
the NBL factory. This
complemented Bokomo’s existing manufacturing base with virtually
no duplication of facilities. Sales and distribution functions
were simply taken over by their existing Bokomo counterparts which
are in any case outsourced. An interesting scenario arose in
regard to the management of the manufacturing operation -
initially there was a strong perception from the purchaser that it
would be necessary to place an existing Bokomo manager either in
charge of the newly acquired factory or at least in a management
position on the site. However, subsequent re-assessment of the
situation resulted in the decision to leave the existing
management team unchanged and instead to focus on implementing
change through existing management. This clearly carried an
element of risk but was a strong motivating factor for the
existing management team.
Rationalisation of support
functions
In the case study,
rationalisation of support functions was not a major stumbling
block. The only area where change was noticeable was of that of
financial control, where the greater centralisation required by
Bokomo resulted in this function within the newly acquired
manufacturing operation being larger than required. Several staff
members in this function chose to resign voluntarily and the issue
was amicably resolved.
The procurement /
logistics functions also presented an interesting case. There was
a perception within both Bokomo head office and the management of
the newly acquired factory that these could be very largely
operated from head office using ERP, as this was being
successfully done for Bokomo’s existing factories in the Western
Cape. Some preliminary steps towards this process were initially
taken soon after the take-over, but it became apparent that
geographical and other practical constraints outweighed the cost
savings that were initially expected to be made. A decision was
therefore made to leave the existing structure largely unchanged
while at the same time leveraging the increased purchasing power
of the new larger business and improving efficiencies within the
existing function.
Implementing systems and controls
An immediate
non-negotiable aspect of the take-over was the introduction of SAP
at the newly acquired manufacturing operation. Fortunately, an
existing ERP system, MFG-Pro, was already in operation and staff
were familiar with ERP concepts and the day-to-day use of ERP
systems. This, coupled with extensive support from the relevant IT
staff, enabled the transition to be accomplished comparatively
smoothly. The installation of a duplicate computer network running
SAP on the site during the month immediately before the take-over
became effective was a particularly beneficial move.
Implementing Standards and Specifications
Bokomo placed a
particularly strong emphasis on the upgrading of hygiene and
sanitation standards within the newly acquired manufacturing
operation. The problem was soon seen to be two fold. On the one
hand, the site had historically been starved of funds to maintain
and upgrade buildings, plant and machinery. This in turn resulted
in demotivation and lack of commitment by staff in the areas of
hygiene and
sanitation. This was tackled by an immediate sizeable financial
commitment to upgrading of buildings and infrastructure on the
site. At the same time, considerable effort was placed by
management on improving staff attitudes in this area, using the
visible increase in maintenance expenditure as evidence of the
company’s commitment not only to higher standards but also to
the future of the site itself, at a time when unfounded rumours
were abounding to the effect that the site would be closed down.
Groups of staff members were also exposed to other Gauteng
manufacturing sites within the Pioneer Foods group (Bokomo
Foods’ holding company) to provide examples of the standards
that needed to be achieved. The result was a substantial
improvement in standards which is still ongoing.
Standardising conditions of
employment.
All the above
points have come into play at one stage or another in the period
following the take-over. Among the specifics were retention of
bargaining agreements with FAWU at site level for the first set of
wage negotiations after the take-over. For the subsequent year
2000 negotiations, wage negotiations were however conducted
jointly with the other Bokomo Foods’ factories. Customary
practices regarding seemingly petty items such as staff sales,
protective clothing allowances and year-end shutdown procedures
caused problems totally out of proportion to their actual impact
on staff. These have to be seen as indicators of the insecurity
which will inevitably be rife within an organisation which has
been taken over and need to be managed accordingly in a sensitive
manner. The issue of provident and retirement fund transfers has
been the single most complex issue to resolve following the
take-over and is still far from resolved. Overall however, there
have been no major disputes and not a single day’s production
due to industrial relations problems since the take-over.
Implementing Business Culture of the Purchaser
The case study
presents a particularly interesting scenario here with the
purchaser coming from very much an agri-business background,
geographically focussed on the Western Cape and with
overwhelmingly Afrikaner management and language usage, but which
possessed short communication lines and was largely free of
bureaucracy . The purchased business was a Johannesburg based
classical FMCG operation with associated management practices,
predominantly English speaking management and a sometimes rather
laborious head office driven decision making process. It is
probably fair to say that neither the fundamental culture of the
purchaser or the purchased business have changed particularly
following the take-over, however there is a substantial degree of
mutual respect and tolerance which have prevented this from
becoming an issue of concern. In addition geographical constraints
have resulted in considerable autonomy for the Gauteng
manufacturing operation which in turn have enabled its decision
making process and flexibility to be enhanced.
Integration of Intellectual Property / Technical Expertise
Intellectual
property sharing became a strong motivating factor in ensuring the
success of the take-over. It soon became apparent that both sides
stood to gain strongly from each other’s expertise and that the
pooling of resources which resulted provided a platform from which
future development within the company would benefit strongly.
The change process.
It is now nearly
18 months since the date of the take-over. The fundamental outcome
is positive with company performance noticeably enhanced by the
acquisition but with work still to be done on improving the
efficiency of the purchased manufacturing operation and practical
issues such as retirement and provident fund transfers and
standardisation of certain aspects of working conditions still to
be finalised. An informal survey of staff members indicated a very
broad spread of opinions with some staff members highly positive
about the opportunities the take-over had presented but others,
particularly more junior staff, continuing to object to the
changes that had taken place. The lesson to be learnt from this is
never to underestimate people’s resistance to change - to ride
rough shod over it is a guaranteed way for the take-over to fail.
If any one message should come through from this presentation,
this is the one.
Email Nigel
Sunley with any feedback and ideas
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