MergersConsolidationsJoint VenturesStrategic Alliances: Steps for Success

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Mergers/Consolidations/Joint Ventures/Strategic
Alliances Steps for Success

• Bob Cropp, Interim Director
• 2006

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There are two ways of maintaining or growing a
viable cooperative

• Internally
• Externally through a) build working
  relationships--joint ventures or strategic
  alliances, or
• b) unificationmerger, consolidation,
  acquisition

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Strategic planning is critical for cooperatives
considering mergers, consolidations, joint
ventures or some type of strategic alliance.

• A co-op should not enter into these business
  changes unless it is consistent with the
  strategic plan--vision, mission, philosophy,
  goals. Why are you considering a business change?
• These business changes need to be done correctly
  or it may not succeed.

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If you are considering a merger or consolidation,
who are all impacted?
AMPI
Hardware
Milk
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What about?

• Members
• Employees
• Milk haulers
• Boards of directors
• Management
• Communities

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Growth may not be the only or best alternative.

• A better or more feasible strategy may be to down
  size.
• Liquidate un-profitable or low profit products,
  services, business units.

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A McKinsey study

• only 23 percent of companies involved in a
  merger or acquisition are ever able to recover
  the costs of walking down the corporate aisle.

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Alternative business structures

• Mergers
• Consolidations
• Subsidiaries
• Federations
• Marketing agencies-in-common
• Joint ventureswith co-ops, with IOFs
• Strategic allianceswith co-ops, with IOFs

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Mergers

• A merger occurs when the net assets of two or
  more cooperatives merge into one surviving
  cooperative
• Co-op X merges with Co-op Y and results in a
  larger co-op Y
• Mergers usually involve horizontal growth

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Consolidations

• Consolidation involves combining the net assets
  of two or more cooperatives to form a new
  cooperative organization.
• - Co-op X consolidates with co-op Y and the
  result is new co-op Z
• - Like mergers, it involves horizontal growth.
• - New articles and bylaws need to be written.

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Joint Ventures (Strategic Alliances)

• An association of two or more participants
  (cooperatives and/or IOFs) to carry on specific
  economic operation, enterprise, or venture, but
  with the identities of participants remaining
  apart from their co-ownership or
  co-participation.
• Very flexible, like a partnership
• Often considered a temporary business
  arrangement.
• Include in agreement provisions for dissolving
  the joint venture

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Joint Ventures or Strategic Alliances may be
organized as a

• Cooperative
• Limited liability company

• C-Corporation

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Step 1 Long-range plan for the co-op.

• Before reorganizing starts, directors with the
  assistance of management, need to develop a
  strategic plan.
• What is the mission/vision statement
• Internal versus external growth
• Does restructuring meet the strategic plan?
• Will restructuring add share holder value?

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Question Have we gone too far before informing
members and others?

• When should we inform
• Members?
• Employees?
• General Public?
• Turn to case study.

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Factors contributing to successful merger Ranked
from 1 to 10 USDA Rural Research Report 202

• Communication
• Trust
• Achieving overall synergies
• Managers working together
• More efficient use of employees
• Keeping egos in check
• Decreased costs
• Having common goals
• Financial stability of firms
• Increased sales

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Factors contributing to success of joint
ventures Ranked 1 to 12 USDA Rural
Development Research Report 202

• Commitment of the project
• Trust
• Communication
• Managers working well together
• Having common goals
• Benefits visible to all
• Financial stability of firms
• Keeping egos in check
• Each partner contributing a significant component
• Written contract
• Respecting the territory of the other
• Penalty for reneging on the agreemnt.

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Five Merger and Acquisition Faux Pas That Lead To
Failure (Clifton Gunderson LLP, 2003)

• 1. Cultural disagreement
• As in a marriage compatibility is key
• Cultures of both companies must blend
• 2. Lack of communication
• Communication is essential to relay the vision
  and direction of the new company
• Communication to members and employees
• 3. Power struggles
• Managers of both companies must be willing to
  compromise

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Continued

• 4. Bad Business Decision
• Need solid strategic goals and true values of the
  merger or acquisition
• Will the synergies strengthen the business?
• 5. Financial Issues
• A Thorough capital plan is critical
• If a merger process is too slow it can be
  time-consuming and costly
• Acquisitions may over leverage the company

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The morning after-making corporate mergers work
after the deal is sealed S. Wall S. Wall, six
warning signs and phrases to watch when
implementing a merger

• Its a merger of equals.
• An overly naïve assessment
• The newly formed company should integrate the
  best from both companies and form its own
  identity
• We bought them.
• Arrogant acquirer syndrome
• Uncalled-for sense of domination and superiority
  will destroy even the most promising merger

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Continued

• 3. Nothing will change.
• A phrase often used to reduce the anxiety of the
  newly acquired employees.
• But, the new company will always be different
  from the prior two companies
• 4. Its a natural fit.
• Sends the wrong message that the merger will be
  easy, which could, in turn lead to complacency.
• 5. The integration plan has been finalized.
• A good news/bad news scenario
• The good news, there is a plan
• The bad news is that a finalized plan will
  likely be incomplete and inflexible

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Continued

• 6. Were buying them for their markets and their
  assets.
• This is a code for Were taking their customer
  base and firing all their people.
• A phrase like this alienates the merger or
  acquisition partner.
• While layoffs are often the case, the new company
  will keep those employees who provide special
  skills, knowledge and customer relationships.

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Existing Law Chapter 185
New law Chapter 193
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Major differences with Wisconsin Chapter 193

• Members have 51 controlbloc vote
• No existing co-op can convert
• Board training required

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