Transcript Global carve-outs

MANAGING COMPLEX GLOBAL CARVE-OUTS
A CASE STUDY AND LESSONS LEARNED FROM AN HR AND
ORGANISATIONAL PERSPECTIVE
5° Merger Integration
Management Forum
Amsterdam, Sheraton Schipol
May 14th, 2013
Francesco Picconi
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Introducing Francesco Picconi
Group Head of HR at Falck, Italy
HR Director, South Europe & Africa, Areva T&D, Italy
HR Director, BU Corus Colors, Corus Group, UK
Group OD Director, Indesit Company, Italy
HR Director BU, Transolver/Fraikin, Fiat Iveco, France
OD Manager, Automotive Lighting, Fiat Magneti Marelli, Germany
HR Manager Global Marketing and Sales, GE Oil&Gas, Italy
BUT MOST IMPORTANTLY……
A Multicultural HR passionate for M&A, JV, Post-Mergers Integration
in International/ Global contexts
it.linkedin.com/in/francescopicconi/
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Phone +39 335 5351875
What is a carve-out
A carve-out is the process through which a Company divests
subsidiaries, divisions, B.U.’s, assets to:
- another company
- a combination of companies
- individuals
in exchange for cash, securities or assets as consideration
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What is a carve-out
The buyer can be:
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--
another Company (acquisition)
--
a combination of Companies in view of a joint management
or a subsequent carve-out: the Areva T&D case
--
Its own shareholders (spin-off)
--
the public stock market (IPO)
--
the subsidiary’s management (Management Buy Out)
Carve-out and Acquisition
Company A
w/o subsidiary B
Cash, securities or
assets as consideration
Old Sub B
Company C
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Carve-out and Spin-off
Company A
after spinoff
Shareholders receive
Shares of company B
New
company B
Old shareholders still own shares of company A,
which now only represent ownership of A without B.
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Rationales for carve-outs
Kaplan and Weisbach
Change of focus or corporate strategy (40%)
Unit unprofitable or mistake (22%)
Sale to pay off leveraged finance (29%)
Antitrust (2%)
Need cash (3%)
Defend against takeover (1%)
Good price (3%)
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Global carve-outs: organisation and HR aspects
We will focus on the most frequent case, whereas the carvedout organisation is then integrated into one or more acquiring
organisations.
We will focus on the carve-out planning and execution from an
organisation and HR perspectives.
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The planning phase:
workforce allocation issues
In complex global carve-outs, workforce allocation difficulty
depends on whether employees belong to:
1) A well defined Division/B.U. or a Country entirely carved out
2) A Core Function, dedicated both to the carved-out
organisation and to the original organisation (f.i. Global Sales,
Global Services , Global R&D)
3) A Shared Services Function, providing support to both the
carved-out and the original organisations. These are normally
staff functions (f.i. HR, Finance, Sourcing, EHS)
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The planning phase:
workforce allocation issues
Global CEO
Global
Finance
Global HR
BU 1
BU 2
BU 3
Global
Sales
Global
Services
Difficulty of workforce allocation in organisations to be carved out:
Low (full carve-out of B.U.)
Medium (partial carve-out of core functions)
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High (partial carve-out of support functions)
Global
R&D
The planning phase:
workforce allocation issues
BU 3 CEO
BU HR
PL 1
PL 2
Future of the BU CEO?
BU Finance
PL 3
BU
Sales
BU
Services
BU R&D
Difficulty of workforce allocation in a case of a subsequent carve-out:
Low – Full carve-out of PL to C1 or C2
Medium – Splitted between C1 and C2
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High - Splitted between C1 and C2
The planning phase:
workforce allocation issues
1) A well defined Division/B.U. or a Country entirely carved out
This is normally the case of the majority of the employees of the carved Out
organisation who are usually fully allocated to a clearly defined Division/B.U.
Depending on the sector and on the organisation model, employees in B.U.
or Countries entirely carved out can easily be 80% - 85% of the total
manpower to be allocated.
Therefore for the majority of employees, workforce allocation difficulty is
relatively low
BUT
In case of acquisition by more than one Company, the intention of the buyers
is frequently to proceed to a further separation of Product Lines within the BU,
often with a second carved-out. Then the degree of difficulty may vary again
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The planning phase:
workforce allocation issues
2) A Group Core Function dedicated to both the carved out
organisation and to the original organisation (f.i. Global Sales,
Global Services, Global R&D)
These global core functions in complex global companies may report at
Group level and may comprise employees who are physically located in
the Corporate HQ or sometimes at local level in various Countries
Depending on the sector and on the organisation model, employees in
these core functions can be 10% - 15% of the total manpower to be
allocated
These employees are normally highly critical in the short and long term in
the new context
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The planning phase:
workforce allocation issues
3) A Group Shared Services function providing support to both the
carved out and to the original organisation (f.i. HR, Finance, Sourcing)
Similarly to the core functions, employees in the Shared Services functions
may report at Group level and may be based either at Corporate HQ or locally
Depending on the sector and on the organisation model, employees in these
Shared Services can be 5% - 10% of the total manpower to be allocated
• They are normally critical to the carved out organisation in the short term,
when the organisation has not been fully integrated in the acquiring
Company/ies (f.i. Payroll, Accounts Receivables, all “transactional” functions)
• They become much less critical (redundant?) in the long term, when the
acquiring Company/ies have better understood the carved-out organisation
and integration has moved forward
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The planning phase:
workforce allocation issues
Focus on allocation of employees in the Group Core Services and Group
Shared Services Functions
Employees in the Core Services and Shared Services Functions can be:
• Part of teams fully dedicated to the carved-out organisation. Will be
transferred => low/medium difficulty
• Part of teams who are not fully dedicated, but individual employees may be
full-time working for the carved-out organisation. Will be transferred =>
low/medium difficulty
• Part of teams who are not fully dedicated, and individual employees may be
only part-time working for the carved-out organisation. Can be transferred (f.i.
if they work >50% of time), but difficult allocation decisions => high difficulty
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The planning phase:
workforce allocation issues
The Relocation issue
Employees belonging to a B.U./Country entirely carved out are often
already based in the “right” location.
Employees in the Group Core Services and Group Shared Services
Functions can be based at Corporate HQ locally in different Countries
The allocation exercise in this case sometimes takes two steps:
1. Workforce allocation: these employees are normally allocated to the
carved-out organisation, which follows strictly objective rules
2. Employees allocation: before of after the workforce allocation exercise is
made public, individual issues (willingness to relocate, but also availability of
relocation or redundancy packages, different career options) may be taken
into account and employees and be allocated differently
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The Execution phase:
People Management Processes
Trade Unions: Communication and Consultation processes
The role of T.U. varies substantially from Country to Country depending on
the more or less regulated labour environments.
A Country-specific planning has to take place well before the execution
phase, with timings, milestones and a high level of HR involvement
Most legislations only require a consultation and information process. In few
highly regulated legislations T.U. have a by-law negotiation power
In the EU the Transfers of Undertakings Directive 2001/23 EC provides a
common framework in terms of consultation and information, and a specific
body (European Works Council) may play a key role
Failure to fully comply with the EU T.U. consultation and information process
may block/delay the process
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The Execution phase:
People Management Processes
Trade Unions: Negotiation processes
T.U. agreement (or at least non opposition) is always critical to avoid any
disturbance to normal operations (f.i. strikes, overtime avoidance).
T.U. can play a significant support in sustaining employees morale and
customer focus, particularly if social plans are foreseen.
According to a recent Ernst & Young research among 100 Executives
experienced in global corporate divestments (Human Capital Carve-out
Study strategies of successful sellers, E&Y, 2013), the ideal point to engage
in T.U. discussions on carve-outs is:
• After the employees allocation process
• 15 to 30 days before the announcements
• few days before the legal limit
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The Execution phase:
People Management Processes
Negotiating HR Transitional Services Agreements (TSA’s)
Buyers of a carved-out business expect business operations to continue
seamlessly, so HR TSA’s is needed until internal capabilities are developed
It is critical to have an agreement on HR TSA’s to support the carved-out
organisation as a condition for the deal, in order to avoid lack of support from
the original organisation
The Ernst & Young research shows that the most common HR TSA’s, are:
1.Payroll and Benefits
2.HR Information Systems
3.Pensions
4.General HR support
5.Expats support
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6.Recruiting
The Execution phase:
People Management Processes
Managing Key People: Communication and Retention Issues
Retaining Key People is, also according to the Ernst & Young research, the
N.1 priority, followed by Costs (n.2) and Speed (N.3).
Freezing transfers is the most common practice used by 88% of
Executives, of which 72% before the closing)
If the confidentiality of the deal allows, it is considered a best practice to
manage early communications with:
• Executive Leadership and Management Teams
• Key employees (f.i. critical R&D or Key Account Managers)
Need to gain early acceptance and engagement of these two groups
through a targeted communication before public announcement is made
and transfers are frozen, to better retaining Key people in the long term
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The Execution phase:
People Management Processes
Managing Key People: Communication and Retention Issues
Typical options to retain Key People in a carved-out organisation are:
• Retention bonuses (typically in a 2-3 years horizon)
• Exceptional Salary increases
• Stock-based grants in the acquiring Company/ies
• New benefits from the acquiring organisations
• Career perspectives (in the carved-out or in the acquiring organisations)
Compensation-based incentives (f.i. Retention Bonuses) are a temporary
solution and have little effect on individual engagement and motivation
Career perspectives have a stronger long-term effect on engagement and
motivation (at least after the Retention Bonus has been cashed !)
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The Execution phase:
People Management Processes
Managing all Employees: Communication and Retention Issues
Plan in advance the all-employees Communication strategy at global level,
and a related Communication timeframe, conveying few key general
messages which can be adapted at local level
Top-down communication from the carved-out or the acquiring organisation
(all-employees meetings, formal presentations, welcome days, house
organs) is essential to convey the idea of a positive future
However, according to the Ernst & Young research, all-employees retention
initiatives rank as follows, in order of successful results:
1. Leverage the Management of the carved out organisation
2. Provide employment or severance protection for the post-close period
3. Top-down communication to articulate the value proposition
4. Retention bonuses for all employees
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Case History
The Areva T&D Carve-Out
This Project represents approx. 4bn€ in
Enterprise Value
Finance
impact
~ 4 000M €
3,3
3,3Bn
€
• EBITDA 2008: 587M€ - 50M€ Minor.
~ 400M €
~ 200M €
• Part Alstom ~2/3
2 290M €
• Part Schneider Electric ~1/3
• Adjustment of each part based
on EBITDA of T and D activities
1 053M €
• Multiple de ~8 x EBITDA* 2009
*Estimated by Alstom and Schneider Electric
Enterprise Value Financial
,
Agreement
with Net Debt at
Areva
30.6.09
Pensions
Minorities
Enterprise Value
Case Description: key points
In late 2009 the French Multinational Areva, N.1. worldwide in the Nuclear
industry and N.3 worldwide in the Energy Transmission & Distribution (T&D)
business, decided to dismiss T&D in order to better focus on Nuclear and in
order to finance the exit of Siemens from its NP business
In 2010 T&D had a turnover of around 5.6 bn€ and around 33.000
employees worldwide. The T&D business was actually sold in January 2011
The French state, majority owner of Areva, posed 3 conditions to win the
bid: Price, Market perspectives and Social perspectives. Final bidders were
GE, Toshiba and a consortium Alstom/ Schneider Electric, who won the bid
The consortium would then allocate the Distribution activities (Medium
Voltage, about 11.000 employees) to Schneider Electric, while Alstom would
keep the Transmission activities (High Voltage, about 22.000 employees)
An innovative Labour Agreement between Alstom, Schneider Electric and
the European Federation of Metalworkers (EFM) defined a stringent job
security framework (a role for all employees, no plant closures for 2 years)
A booming energy market with two different
drivers
Generation & Transmission
Conventional generation
Distribution & User points
Network control
Automation and
Substations
Industry & Infrastructure
UHV
HV
MV
MV
Renewables
UHV/HV
LV
LV
Ultra high voltage (UHV) and High voltage (HV) –
from 52kV to 1200kV
Medium voltage - from 3kV to 52kV
Low voltage - < 3kV
Decentralized management
Residential
Other industries
& services
Two poles of specialization, with two different
sets of dynamics
Renew- On-site Backup
able Storage Power
Centralized
Generation
Residential
Commercial
Industrial
Transportation
Production
Transmission
Distribution
Consumption
• Major global players
• Global and regional players
• Large projects
• Equipment and product sale
• Focused on utilities
• Multi-clients
The Alstom – Schneider Electric offer: an
answer to energy strategic challenges…
Generation & Transmission
Alstom
with Areva T
● Two complementary actors for
a unified answers which
integrates and connects
generation with the
transmission network
● Takes into account the new
generation sources thanks to
optimized network
management
● Innovative answers in order to
propose integrated solutions
Distribution and user points
Schneider Electric Medium
Voltage with Areva D
● Consolidation of 2 actors
in:
- Primary and secondary
Distribution
- Automation and
substations
● An answer to the challenge
posed by Smart grids with
a flexible interface between
user points and the
distribution network
… To create two global leaders
Generalists
Production
ABB
Siemens
Areva T&D
Specialists
Alstom
Schneider
Electric
GE
Cooper
Emerging
3rd
Crompton
Greaves
XD Group
High
Voltage
Medium
Voltage
Low
Voltage
1st
1st
2nd
2nd
2nd
3nd
3rd
4th
New n°1 in Medium and Low
Voltage
2nd
Integrated player in Production
and Transmission
1st
4th
3rd
1st
4th
General Scheme: a multi-stage Project
Areva Activities
Power
T&D
T&D Separation
1
2
DistribuTrans tion
mission
Areva T&D Separation
Separation of
Activities with
High Voltage
2
3
4
Business
Energy
Separation of
Activities with
Medium Voltage
Activity Separation Principles, in line with Alstom
and Schneider Electric Strategic Interests
General Principles
Transmission UltraHigh Voltage &
High Voltage
DistribuTranstion
mission
Primary and
Secondary
Distribution
Integration of Areva Transmission within
Alstom
A new Sector, represented by the President of the Sector at the
Executive Committee
Located in Paris region
Preservation of the industrial base
Preservation of the ISO commercial network
Organisation by Sector of the future combined Group
Alstom
Power
Transmission
Transport
A new Energy business focused on utilities
and electro-intensive industries
5 Businesses
4 Businesses
Power
(MV
+LV )
Power
Areva D
€ 1.7 bn
Energy
Key market
segments
• Residential
• Marine
• Utilities
• Oil and gas
€ 4.6 bn
IT
IT
Industry
Industry
Buildings
Buildings
• Data centers
• Bank / Insurance
• OEMs
• Water
• Mining
• Retail
• Hotels
• Hospitals
• Offices
Key product
lines
LV Power
IS&C
MV
distribution
Grid
Automation
critical
power &
cooling
Industrial
automation
CST
Building
automation
& security
Objective
Prior to the final offer, Alstom and Schneider Electric have entered into
a Consortium Agreement setting out the key principles of:
The joint acquisition of Areva T&D
The allocation and separation of T and D activities
The management of each activity during the transition period
Joint Acquisition
At Closing, acquisition of Areva T&D by a joint acquisition vehicle
(“AS5”)
AS5 financed by Alstom and Schneider Electric pro-rata to the
respective contribution of T and D activities to the EBITDA (i.e.
approximately 2/3 for T and 1/3 for D)
Then, progressive transfer of D activities to Schneider Electric
Allocation
All Areva T&D’s activities allocated to either Alstom or Schneider
Electric and no “orphan” employees
Provisional allocation agreed upon between Alstom and
Schneider Electric, and to be confirmed/adjusted based on further
exchanges with Areva T&D
Such provisional allocation to be discussed separately
through a tri-partite working group
Separation
Transfer of D activities to Schneider Electric as soon as
feasible/practicable, taking into account the need to:
Ensure business continuity
Preserve the value of each of T and D activities
Respect the rights of employee representatives
Make this transfer compliant with social legal requirements
Management during Transition Period
From Closing:
T activities exclusively managed by Alstom
D activities exclusively managed by Schneider Electric
Management Committee to manage/coordinate joint decisions
regarding both T and D activities during the transition period until
their transfer to either Alstom or Schneider Electric
Industrial base
High Voltage product lines remain with Alstom
Alstom
Medium voltage product lines are transferred to Schneider
Electric
Schneider
Electric
- Either through the transfer of a legal entities or sites
- Or through the transfer of carved-out elements
Employment contracts will be transferred accordingly
When sites will be shared, common services could be maintained
Commercial network
The majority of employees in local teams are in effect specialized in T
or D – their allocation is natural
For the employees which are not specialized in T or D, in particular within
commercial functions :
Power generation, Transmission, rail transportation and aluminum
Alstom
Schneider
Electric
activities remain with Alstom
Distribution, oil & gas, mining and heavy industries will be transferred to
Schneider Electric
The management of these teams will be associated to the allocation
process of the employees who are not specialized
R&D
The majority of employees in local teams are in effect
specialized in T or D – their allocation is natural
The management of the R&D teams will be associated to the
allocation process of the employees who are not specialized
Support Functions and Shared Services
(at Corporate / Country level)
Support functions will be allocated to Alstom and Schneider
Electric based on their respective weights. The management of
the T&D teams involved will be associated to the allocation
process
For Shared Services, an option will remain to maintain service to
transferred activities, which is made possible as there is no
overlap between Alstom and Schneider Electric
Impact on Employment: 3 Different Situations
A
B
Allocation by
reporting Units
following
Economic
rationales
Allocation
principally
linked to
competences
and Market
Segments
For the majority of activities, « natural separation » basing on activity
predominance = ~ 85% of Areva T&D employees
ISO (Global Sales Force):
• Allocation by Country
• Majority of Sales Force actually specialized in T or D
• Link to Market Segments :
o Within Alstom: Power Generation, Transmission, Rail, Aluminium
o Within Schneider Electric: Distribution, Oil&Gas, Mining and Heavy Industry
Service :
• Allocation linked to technical competences and product knowledge
R&D:
• Natural allocation for the majority of R&D activities
Shared Services :
• As much as possible, keep Shared Services unity, to avoid value destruction
and disorganisation: either within Alstom or within Schneider Electric
C
Support
Functions
Support Functions to Regions & to BU, ISO and R&D :
• Study to identify the main activities served (T or D)
• On a case by case basis, keep integrity and operational consistency
Support Functions based in La Défense HQ:
• Separation based on activities needs of the two Groups, based on a 70% - 30%
ratio
• Proposal for a Pilot Project limited to HQ-based HR and Finance (~100
employees) : use of simple allocation principes, to be validated in view of their
extension on larger scale
A coherent split of the activities
Alstom
Schneider Electric
Ultra High
Voltage
Transmission
High Voltage
Transmission
Primary
Distribution
Secondary
Distribution
GIS & Circuit breakers
MV switchgears
Power transformers
Distribution transformers
HV instrument transformers
Prefabricated substation
Products
Disconnectors
Power electronics
Systems
HV substations
Primary substation
Proximity business
EMS / DMS
Automation
SAS
HV relays MV relays
Services
HV installed base
Under review
MV installed base
Impact on Employment: 3 Different Situations
To be
allocated
3 270
Pure SEI
8 070
+
PACIS
Automation
Products
Total
29 970
3 900
17 580
PACIS
Support
Systems Service ISO Functions
s 1 180 2 090
1 870
3 350
520
220
320
7 330
JV Protection
SEI mix
JV Protection
250
740
1 180 2 090
Alstom mix
2 830
SDSU
10 000
Pure Alstom
14 490
590
1 070
NMS
Total
0%
20 %
40 %
60 %
80 %
100 %
What about me?
At Closing, all employees remain employed by the same legal
entities.
The acquisition vehicle is the new shareholder of legal entities
Employment contracts remain unchanged
Social commitments become effective
Sound social commitments
Alstom and Schneider do not foresee any restructuring linked to
this acquisition
Alstom and Schneider will propose a professional future to each
and every employee. All employees will have a proposal of an
equivalent position (same geographical area, grade, seniority,
remuneration)
Until early 2013, there will be no site closure in Europe (except
plans communicated to the employees before the sale agreement)
and no mass redundancy departures other than voluntary (except
in the case of a significant downturn in the general economic
conditions)
Alstom and Schneider are working closely with the management
of AREVA T&D, in order to lead to a rapid integration
Overall timetable
Dec
Comex meeting
Jan
Feb
Separation / Integration
Disposal
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
15/12
Top 60 meeting
05/01
EWF / Works councils
17/12 (Areva) and 18/12 (T&D)
Antitrust
Preparation of separation with
Areva and PMI*
PMI* workgroups kick off
PMI*
India (Public offer)
Business Continuity
Key milestones
01 December
Signing
Jan. 5
Closing
*PMI: Post Merger Integration
Dec
Majority of legal separations
Letters available for communicating
completed. Effective transfer
legal entity name changes to
stakeholders. See Regional
dates below
Communications and Regional Legal.
2010
2011
Thank you !
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