This study takes up the issues emanating from the merger of two well known gold and iron mining companies, Oxiana and Zinifex. The main challenges that the merged product, OZ Minerals now faces would be to increase share value and ensure optimum utilisation of scare resources, both internal and extraneous.
Most mergers are carried out with a view to share market opportunities and strengths that underpin each company. The merging of Oxiana with Zinifex would need to achieve increased cultural and work competencies and open up new vistas for global growth and development. The top management needs to see eye-to-eye on many critical issues that may impact upon running of a successful business model in a competitive environment and also positively utilise structural changes that have taken place in business, post merger.
A certain amount of compromises and agreements on common issues need to be made in the greater interests of the newly merged OZ Minerals. However, the main aspects of the merger in terms of hiking share prices, allocating business prospects in different countries, better resource management and better combined mining prospects all form the nucleus of future business
Seen on a larger canvas, the benefits of this merger could signal large scale favourable and beneficial changes for the company, which could be shared with investors in OZ Minerals, workforce of the company and all people who have contributed in small, or large measures to make OZ what it is today – a highly successful and top notch mining company that aspires for the top position in its chosen fields and also to be able to transform itself into a veritable inspiration and role model for smaller companies in the global mining business.
The case is regarding Oxiana Limited, an Australian company which has its major business in copper, gold mining and exploration sector. The case study is dealing with a merger combination of the company Oxiana with the mining company Zinifex. Oxiana was founded by Owen Hegarty who is the managing director of the company. The issue discussed in this case is regarding the leadership of the new merged company. The majority of the employees believed that Hegarty will lead the merged company in future, and the decision came that Andrew Michelmore is the new chief executive, instead of Hegarty and Barry Cusack will remain chairman of the new company. Hegarty will remain on the board as an advisor for the new company. (Freed 2008).
It is seen that the merger of Oxiana and Zinifex on July 1, 2008 has led to the establishment of a new company called OZ Minerals (Freed 2008).
Even though Andrew Michelmore is a top rated miner, Hegarty’s contribution to the company’s growth is phenomenal. At the company’s annual meeting, all the employees spoke for Hegarty and he took the issue in a positive way and told the fellow workers that Michelmore is more qualified than him in many aspects and he would be the best supporter of Michelmore for betterment of the new company. He convinced other employees by clearing their doubts regarding the culture of the company, which was their major strength in achieving success. He explained that the merger is not aimed for a change, but it is all about maintaining the same values and spirit for attaining more heights. “Core values are divided into those that give a “soft” competitive edge (respect, openness) and those that give a “hard” competitive edge (performance, action).” (Commonwealth of Australia, 1969, p.4)
He also convinced the staff members with Oxiana’s experience with the Golden Grove base and precious metals mine where he had made up the staff mentality to get on with the job and giving them a platform to share their view with him, which had an excellent response. There was a high productivity rate and lower turnover rate after this instance. He always believed that his workforce was his strength. Even though government, stakeholders, suppliers and everyone are involved, his employees are the greatest assets. He also says that he is fortunate in assembling a senior level management team from even Rio Tinto. And it’s his ability that all the joined ones showed a high level of commitment too. Hegarty also had some golden rules for hiring new employees which is not on the gender basis, which he explains as “candidates have to be able to do their day job well; they have to buy into the company culture; and they have to be a good bloke.” (Commonwealth of Australia, 1969, p.5). Hegarty also had an idea of making the company a mining power house, for which he made some investment guidelines. One of the major steps towards achieving his goal is the merger with Zinifex. The appointment of Michelmore and, Zinifex floating its smelting assets to make it a pure mining company were two major measures taken into action for the future. Both Hegarty and Michelmore were of same mind and they signed the deal on March 3rd. The employees accepted the deal with a positive attitude because they were aware that they are on the way to achieve their mission. Thus ends the case.
Introduction to organizational change
Organisational change is defined as the alteration of an organization for the successful development and achievement of the pre-determined goal. “It is important to realize that change is a key to surviving and growing in today’s global economy.” (Managing organizational change n.d., p.2).
Organisational change is a continuous process which has to be maintained for the existence of the organization in the changing business environment. It is essential to have a change in the organization to bring success and this change involves planning and rearrangement of business scheme and procedures. Organizations are facing both internal and external crisis and hence change is unavoidable in both cases and the change becomes successful only when it contributes to the development and success of the organization. It is very important that an organization must foresee the future change and risk in the business environment and planning should be in that manner to eliminate the risk and to exist in any circumstance.
Managing organisational change
Organisational development or OD is a key term for managing the organisational change and improving the overall performance of the organization. “Change is the only constant.” (McLagan 2002). Contextually, Organisational development (OD), which focuses on organisational change has emerged as a major change agent in recent times.
In today’s world, changes in the business environment are very rapid and frequent. So, in order to handle this situation one of the basic requirements is an efficient manager who is able to lead the business smoothly. The manager should take active role in the organisational change process so as to attain the business goals. Managing change involves the dealing of attitude transformation in the organization. The management of change is for the continued existence of both individual and organization. For the change and development in the organization it needs the cooperation of the employees, and the manager must make them aware about the need of change in the organization. A good, efficient manager must always think about the change from the employees’ shoes and should get the responses. The reactions to a change may be either positive or negative. So, the employees must know precisely how this change will affect them. The manager is not only responsible for giving orders to the employees but he has also to give guidance and instructions in the functional activities of the business and should support the employees and take their suggestions and contributions in the business process. When the manager plans for change, he should be confident that the change will lead to success and should not presume that the effect of the change will be negative.
Need for change in Oxiana
In this situation, a need for merger is essential for Oxiana’s further establishment. A merger always helps a company to grow rapidly. In this case, a horizontal merger takes place between two companies which are in direct competition and share similar markets and products. The merged company has strategically been positioned in order to attain continued strong demand growth. The other major objectives for this merger and the need for merger are:
- To enhance the market position
- To get high quality assets
- To get a strong cash flow and balance sheet
- To have a strategic focus of becoming a major mining company
- To have an experienced management team
- To maintain a high standard for health and safety environment
Steps for managing the change at Oxiana
First of all, while managing the change, Michelmore and Hegarty should be careful in making their employees build a commitment towards the change. Some of the simple ways to manage the change at Oxiana are
- Ensure that the change works for everyone
- Make all the employees participate in the work
- Make the employees aware of the mission to become a mining power house through the merger
- Explain the dynamics of the change to the employees, so that they will be motivated for doing it
- Create a proactive attitude in every employee to overcome the change obstacles.
There are various steps to be taken care of while undergoing a merger combination. Some of them are: define the mission of the new merged company, establish a timescale for achieving it, address the barriers in overcoming the change and address the cultural barrier. Once these steps are taken care of, the major obstacle in the case of the Oxiana is regarding its culture. The staffs are very much concerned whether the merger will have an effect on their cultural strength. One of the “significant reasons why mergers fail is the inability of the two organizations to integrate at a cultural level.” (Four steps to a successful merger n.d.). The merged companies will have different beliefs and cultural norms. The problem occurs when they expect the other company to share their values and norms. For turning Oxiana’s merger to be a successful one, the chief executive and the board have to be careful of these aspects and should avoid the occurring of the cultural barriers. As Hegarty says, the core values of Oxiana are respect and openness which gives a soft competitive edge and performance and actions, which gives a hard competitive edge. (Commonwealth of Australia 1969).
He promised his staffs that the merger won’t change their cultural values; instead merger will help to maintain these values. Actually, it’s the management’s duty to take care of the maintenance of these core values. The merging of the company with Zinifex will surely result in a cultural change in the company, which should be managed properly.
A model for change management at Oxiana
An appropriate change management model to be implemented at Oxiana is John Kotter’s eight step strategy for change management. These steps are:
- Establish a sense of urgency.
- Create the guiding coalition.
- Develop a vision and strategy.
- Communicate the change vision.
- Empower employees for broad-based action.
- Generate short-term wins.
- Consolidate gains and produce more change.
- Anchor new approaches in the culture. (Managing change in organizational development 2008).
This model proves to be suitable for the situation at Oxiana. This model mainly pours light on various steps on how to manage a change in an organizational perspective. The first step is to create a sense of urgency. Hegarty has already made his employees aware of the need for the change through the merger. It is the essential need for the company to merge with Zinifex, so that they can attain a mining power house position in the market. The next step is to guide the employees for the change, i.e. by giving them detailed explanation about the merger and by guiding them in the cultural aspects too. This step also can be well managed by Hegarty and Michelmore. The next step is to develop a vision or mission for the merger, which has already been defined by the management. Then, it is essential to communicate this new mission of the merged company to the staffs. It is the duty of the management to empower the employees for broad based actions, so as to overcome the change obstacles. Generating short term goals also can be done by the management so that the staffs can be motivated through this approach. Then, brief the benefits of the merger to the employees, so that they will be encouraged to accept the change with full mind. The benefits can be in terms of market positioning, profitability, productivity, financial benefits etc. Finally, the cultural barriers have to be addressed. The cultural barriers which is a serious issue for Oxiana Zinifex, has to be solved by arranging some lectures or seminars in cultural aspects and giving the employees some tips about Zinifex’s cultural behaviour and some tips to maintain and share norms and values of both the cultures. If the Oxiana people are trained enough to make up their mind to accept the new cultural values and norms, half of the problem is solved. Hence, the management should organize some programs so as to train Oxiana staffs to cooperate with the new culture. Together with these programs, management can also implement some new approaches to manage the cultural differences in the company. In the cultural context, developing personal changes in their attitude towards the change can also be successful (Change management 2009). While discussing about the change management at the individual level, ADKAR model can also be implemented. ADKAR model simplifies Awareness, Desire, Knowledge, Ability and Reinforcement which are needed for managing the change (Managing change in organizational development 2008).
Together with the cultural training, some training or tips must be given to the employees regarding their new investment plans for the newly merged company. The merged company is called as OZ Minerals, which focuses on transparency and maintenance of their core values and behaviours. This shows that the management stresses on the fact of maintaining their core cultural values and norms. The Company’s primary focus is the stable and successful operation of Prominent Hill and the pursuit of its future development and expansion.
Challenges the management may face while initiating changes
The main aspects that impinge upon the new merger between Oxiana and Zinifex would be with regard to the share prices of the merged company. It is seen that one of the main reasons for the need for merger arose because Oxiana share prices were falling, from $ 3.83 to 3.53, thus registering a fall of nearly 8% (Commonwealth of Australia 1969). It needs to be ensured that the share prices of merged company are consistently high and do not dip after some time, and needs to be competitively higher than rivals.
Another major area that needs to be safeguarded is the interests of the workforce and the safety of their jobs. In most cases, the new board of directors, in an attempt to streamline organisational structure, may declare certain positions redundant, and may cut back on the number of workforce. This would have effects on the morale of the present workforce and may also reduce productivity in the short period. As Owen Hegarty had remarked, his workforce were his primary assets and their interests need to be protected at all costs. Curtailing the workforce to cut down operating expenses would have detrimental consequences on work culture and morale of work force.
Another challenge that could crop up would be the need to share cultures and strike a bond of co-operation, frankness and mutual understanding. This is not only applicable for the workforce of Oxiana but also that of its merger partner, Zinifex. The management needs to see eye-to-eye on many critical issues that may impact upon the running of a successful business in a competitive environment and also the structural changes that have taken place in the business.
It is seen that another fundamental factor that drives merger schemes is increase in the combined value of the enterprise, thus leading to business economies. In the present context, the challenges that need to be addressed are whether the new merged company would be successfully able to manage operating profits, financial economies, combined taxation changes and so on. Another challenging aspect would be how stock in the merged company would be allotted to present shareholders and how this change would be managed. It is seen that
Oxiana is “offering 3.1931 shares for each Zinifex share to form a merged company with a new name that will remain headquartered in Melbourne, the current home of both companies.” (Freed 2008). Changes are common occurrences in corporate settings and Oxiana is no exception. Through careful planning, organizing and detailing every aspect of the individual and combined merger plans, it is possible to offer a successful merger, without many problems. However, it is necessary that mindset of management at the top, middle and lower rungs as well as workforce be conditioned to new merger outcomes. It is also necessary that there are representations of both Oxiana and Zinifex at the board levels, and the transparency and willingness to change for better business results, be imbued throughout the organization. A certain amount of compromises and agreements on common issues need to be made in the greater interests of the newly merged OZ Minerals. However, the main aspects of the merger in terms of hiking share prices, allocating business prospects in different countries, better resource management and, in case of Oz Minerals, better combined mining prospects all form the nucleus of business. Further, it is also seen that the weaknesses and deficiencies in one party is compensated by the other, leading to better efficiencies and business prospects. In the case of OZ, although it is believed to be an alliance between parties of equal standing, Oxiana has a better market image and stronger financials. In other words, it would be more in terms of Oxiana absorbing Zinifex, a business acquisition rather than a merger.
But it is seen that CEO of Zinifex, Andrew Michelmore is the new chief executive officer (CEO) of OZ Minerals while the founder managing director of Oxiana, steps down to member of the newly constituted Board of Directors of Oz Minerals. However, it is widely believed that although Hegarty is no longer in an executive position, he would still be able to control destiny of the new company along with his associate and partner, Michelmore.
Yet another issue with mergers would be changes in organisational culture and work process which would now need to consider common and foremost interests of new company. It is seen that in the new scenario, it may become necessary for both Oxiana and Zinifex to abandon individualistic approaches to business and henceforth, adopt a common approach acceptable to both parties of the merger covenant. This could affect a wide range of critical issues like trade union dealings, export growth, setting up business interests abroad, dealing with governmental agencies for licenses, renewals and other aspects that are needed for mining business in Australia. Thus, the Board needs to adopt consensus decisions on how best to address problems and issues arising from time to time in their shared business, and share concerns over competitive strategies, business plans and objectives. It is also necessary to assess the difficult economic market conditions, especially in terms of availability of debt and credit facilities that are intrinsic in mining operations. Moreover, changes brought about by global recession have impacted upon the company’s business prospects and earnings, which is also a major challenge for the new management. “Irrespective of the approach, management can only ensure the successful implementation of change by properly providing for the key management roles, and by carefully addressing the implementation issues.” (Leathem 1989).
The main objectives for mergers are to get the benefit of both worlds, and both businesses. Time only can say whether this objective can be achieved by OZ Minerals. However, given the kind of leadership and directional thrust that the top management including CEO could provide, there is no doubt that it could achieve leadership status in the mining business within a reasonable period of time.
Again, it could also be seen that the combined strengths of both Oxiana and Zinifex are to form the core strategy of OZ Minerals in future. This could help resolve competitive issues, mining rights, pricing and other critical areas of business. Moreover, issues relating to workforce, union and personnel matters need to be mutually sorted out through consensus and dialogue with mediators or arbitrators, for reaching amicable settlements that are acceptable to all parties.
The major aspect would be in terms of creating avenues for better, harmonious and cordial relations between management and workforce, avoiding areas of confrontation and, by and large, working towards achieving the mission and vision of the company through enhanced productivity and better display of all round management skills.
It could be said that mergers have both negative and positive aspects. The negative aspects could be in terms of one party assuming proprietary rights over the business to the detriment or loss of the other, or even reinforcing its own dictates over the affairs of business. These needs to be avoided so that niggles could be ironed out and better business sense could prevail among parties. The second negative aspect could be that difference of opinions among the management teams constituting representatives of both parties could be divided on major issues that could lead to conflict zones. What is to be understood in merger is that both parties have lost their previous identities, and the only identity that remains is that of merged firm with new set of covenants and rules, dissolving the earlier business.
The Memorandum of Association and Articles of Association of the newly merged company set out the ways and means by which future business is to be conducted and it would be judicious that these are accepted in total and this applies to this company also.
The positive aspects of mergers could be that synergistic benefits could emerge, including sharing of business opportunities, outsourcing of raw materials, work sites and business prospects. In this case study, the company could benefit from long term business association of Oxiana with miners and related trade and the positive influence that could be gleaned from business contacts, associations and community schemes.
Considered globally, the merged company could profit from projects taken up by both Oxiana and Zinifex on an international basis, which could also provide the employees first hand experiences in managing and executing large scale projects outside Australia.
Finally, while evaluating the strategy for merger plan; OZ Minerals has succeeded in attaining majority of its goals i.e. the Company has attained a strong position in the market. The company was able to achieve its financial goals to its maximum extent.
The company could produce a strong balance sheet and a highly efficient management team. Moreover, the company could maintain its core values and norms, which is one of its greatest achievements. Hence, the merger plan has been successful for Oxiana.
Seen in a larger canvas, the benefits of this merger could signal large scale favourable and beneficial changes for the company, which could be shared with investors in OZ Minerals, the workforce of the company and all people who have contributed in small or large measures to make OZ what it is today – a highly successful and top notch mining company that aspires for the top position in its chosen field and also to be able to transform itself into a veritable inspiration and role model for smaller companies. “Hence organizational change is always good; more over the change is inevitable. It is more critical that how the change is managed in the organization, which in turn leads to the success.” (Melbourne 2003).
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