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MANAGING PEOPLE IN AN ACQUISITION








MANAGEMENT THEORY & PRACTICE
SESSION 1998/99 PROJECT PAPER

PREPARED BY: BHUPINDER SINGH
NG KENG YII
NIKKI LEE SIEW HONG
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MANAGING PEOPLE IN AN ACQUISITION

CONTENTS

1.0 OBJECTIVE OF THIS PAPER

2.0 INTRODUCTION AND BACKGROUND
2.1 External Environment
2.2 Chronology To Events
2.3 Objectives for Acquisition and Opportunity for RHB

3.0 CORPORATION PROFILE
3.1 RHB Bank Organization Profile
3.2 RHB Bank Leadership Profile
3.3 RHB Bank Vision and Mission
3.4 Sime Bank General Organisational Profile

4.0 MANAGING INTEGRATION
4.1 Merger Integration Office – M.I.O.
4.2 Integration issues addressed by M.I.O.
4.3 Integration issues not addressed by M.I.O.

5.0 MANAGING THE SOFT ISSUES
5.1 Culture Differences
5.2 Stress, Uncertainty, Anxiety

6.0 LEADERSHIP
6.1 Why is leadership important in an acquisition?
6.2 How can leadership be effective in this case?

7.0 CHARTERING A BETTER COURSE

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1.0 OBJECTIVE OF THIS PAPER

Management in Malaysia today faces harsh economic realities. In juggling and weighing all strategic and economic options needed to survive, one area where management, we believe, fails to address in a holistic manner is the “people issue.” This dynamic force is by large not handled in a conducive manner as was evident in the Sime-UMBC. Our case study here of the recent RHB Acquisition of Sime Bank is an attempt to investigate how this organic issue is managed. We highlight some of the people issues generated and shall attempt to analyse and address them in an appropriate manner.

2.0 INTRODUCTION AND BACKGROUND

2.1 External Environment

The year 1997/1998 brought to the South- East Region, a cycle of events that led to a downward spiral in the Asian economies. The events that caused the crisis were the breakdown of managed exchange rates, excessive private sector borrowings, the collapse of asset markets, and foreign debt maturity crisis across the region. The financial services sector was one of the hardest hit.

The government intervened in an attempt to restore investors’ confidence, to create money inflows and an environment that would support the return of the economy to a
growth path. The Deputy Prime Minister at the Dewan Rakyat on 24 March 1998 announced a package of macroeconomic measures for the financial sector, directed at strengthening the supervisory and regulatory framework to safeguard the soundness of the banking system and to enhance its ability to adjust to the more challenging business environment.

One of the measures was the call for mergers or acquisitions of the financial institutions. This was to consolidate the financial industry and have a more concentrated industry sector. The acquiring institutions are given the flexibility to implement cost rationalised measures necessary for future viability and for the company to realise maximum benefits from the mergers or acquisition.

2.2 Chronology To Events

In the first quarter of 1998, the deflationery impact of the regional crisis filtered through the economy with adverse impact on growth, inflation and unemployment. Non performing loans (NPL) increased to 21.1% from 11% in Dec 1996. The net outflow of funds to foreign shores, the rise in the NPL and other unfavourable factors created the imminent collapse of a local bank. The Sime Bank group announced in March 1998, that it had suffered a loss of RM 1.8 billion for the half year to December 1997, due mainly to their high provision for non performing loans (NPL). RHB Bank then proposed to buy out the entire share capital of Sime Bank for RM 852.2 million subject to adjustments. On April 10,1998 Sime Bank chairman Tunku Tan Sri Ahmad Tunku announced that the RHB group had taken over the management of Sime Bank.

2.3 Objectives For Acquisition And Opportunity For RHB

The government’s objective is to consolidate the financial industry sector, to ensure a sound banking system to weather the crisis and to prepare for increasing globalisation and trade liberalisation in world economy. To support its plans on expansion and increase in market share, RHB is keen on strategic alliances, partnership and on acquisitions of companies so as to develop the necessary competitive advantages for the future.

Q. What is the real reason for the acquisition?

Are there political issues attached?

“Why did we go after them? There is the obvious business reason to get an increased share of the market. But we could have got that from someone else, maybe for less effort. The defensive reason, to prevent a competitor from getting them? True, but not quite. If I’m honest the real reason is that there is something tremendously satisfying about taking a company from