Impact of mergers and acquisitions on employment and labour relations

The Labour Institute of the Greek General Confederation of Labour has examined the impact of company mergers and acquisitions in the field of employment and labour relations. A significant surge in such activity occurred between 1998 and 2005. In general, both redundancies and recruitment feature in connection with restructuring of this type. Overall, it tends to lead to more flexible employment contracts and to an individualisation of labour relations.

About the study

In 2008, the Labour Institute (Ινστιτούτο Εργασίας, ΙΝΕ) of the Greek General Confederation of Labour (Γενική Συνομοσπονδία Εργατών Ελλάδας, GSEE) carried out research on the impact of company mergers and acquisitions (M&As) on employment and labour relations. The study consists of the following three parts.

• Part I describes the evolution of M&As within Europe and the effects on employment and labour relations. This is combined with an analysis of the operative institutional framework in Europe and in Greece with reference to workers’ rights during the transition to the new ownership.

• Part II outlines and analyses developments in Greece, taking into account all of the M&As recorded by the Hellenic Competition Commission (Επιτροπή Ανταγωνισμού) during the period 1995–2005. These were categorised, after the processing of the primary material, according to the type and legal form of the restructuring, the sector of economic activity and the corporate nationality.

• Part III analyses the results of the research on the developments in employment and in labour relations, which was carried out at local level based on a questionnaire addressed to the trade unions and to the management of the companies. The research aimed particularly to explore the developments with respect to the number of workers, the employment policies pursued by the enterprises involved in a merger or acquisition and the changes in the nature of labour relations due to the particular restructuring activities.

Research findings

The research results focus in general on the following points.

Based on an analysis of the data regarding M&As gathered by the Competition Commission, the results indicate that this trend in Greece assumed significant proportions during the period 1995–2005, with a particular upsurge in 1998, 1999 and 2000. Activity in this regard remained equally intense between 2002 and 2005; however, due to insufficient data, further qualitative analysis is not possible.

A popular means of consolidation is a takeover through the acquisition of part or the entirety of the shares of a corporation with a view to obtaining exclusive control. In terms of the corporate nationality, results indicate that most M&As took place between Greek companies. Cross-border concentrations in the Greek market, where they exist, refer mostly to enterprises that have entered this market through multinational groups of affiliated companies.

Regarding economic sectors, those with the most intense activity in terms of M&As are the services sector – particularly financial intermediation, retail and wholesale trade, and information technology – as well as the construction sector and the drinks industry.

Finally, interesting conclusions are drawn from an analysis of the data on multi-sector groups. It appears that, in the Greek market, the practice of multi-sector mergers occurs to a very limited extent, due to the structure of the Greek economy, which is mainly characterised by small and medium-sized enterprises (SMEs).

Conclusions of study

The general conclusions deriving from the research analysis conducted by INE/GSEE on the impact of M&As on employment and labour relations are outlined under the following subheadings.

Company takeovers most common

During the last decade, company restructuring that is characterised by changes in ownership mostly assumes the form of a company takeover. Such developments refer to the economic control of enterprises by other financial circles and less often assume the form of mergers. However, the number of recorded M&As achieved higher rates after 2000, when economic competition grew stronger. This trend also coincided with the adoption of the euro in 2001, which further boosted the rate of M&As.

Changes in staffing

The M&As are generally accompanied by changes in the overall rate of employment of the enterprises involved (in seven out of 10 cases). The most usual development is a reduction in the total number of employees, followed by a period of stability and then an increase in employment.

Staff cuts mostly occur after a merger or acquisition occurs. Overall, the 12-month period preceding or following the restructuring is usually the decisive period during which the reduction in employment takes place.

The people most affected by the restructuring procedure belong to a wide range of occupational categories and specialisations, with clerical workers being particularly hard hit in this regard. Reducing the number of unskilled workers is not a priority; this category is dealt with in a similar way to that of skilled workers and middle management. The highest rate of job losses is recorded among older workers aged over 45 years, followed by employees aged 30–45 years.

Redundancies and more flexible recruitment

Voluntary redundancy is the most usual form of staff reduction. This practice tends to be followed by the non-replacement of the redundant employees when the staff reduction precedes a merger or acquisition and by dismissals when the staff reduction takes place after the event.

Dismissals are recorded in almost half of the cases involving an overall decrease in employment, while the majority of the relevant cases also involve personnel recruitment, which strengthens the presence of skilled personnel and young employees rather than unskilled labour and older workers. A third of new employment contracts pertain to flexible work.

The M&As characterised by stability in employment present the lowest recruitment and dismissal rates; they also appear to strengthen the number of skilled personnel. However, there is a high rate of unskilled labour among new recruits, and half of the newly hired employees work on the basis of flexible forms of employment. At the same time, young people of up to 30 years of age record the highest rates of new employment contracts, representing three quarters of recruitment.

As a development, the total increase in employment recorded the lowest rates, along with the greater use of recruitment and lower use of dismissals. However, this result is based mainly on the unskilled labour of young people, as well as on the relatively lower rates of recruitment of employees on a flexible form of employment contract.

Dismissals due to M&As have become more frequent than recruitment since 2000. This trend is connected mainly with an overall staff reduction, which concerns half of the related M&As and two thirds of the cases of dismissals. Nevertheless, it also occurs in instances of an increase in overall employment (20% of the M&As) and in cases in which the number of employees remains stable (nearly 10% of the M&As).

Personnel recruitment is usually connected with M&As that increase total employment, and is more frequent in the cases of staff reduction than in those in which the number of employees remains stable. M&As where recruitment is accompanied by dismissals record the highest rates of recruitment of young workers on flexible forms of employment, while at the same time older workers are dismissed.

M&As are usually characterised by stability or an increase in the number of middle and senior management, but this does not mean that the reduction of these personnel is not noticeable.

Information and consultation

Moreover, M&As are usually connected with information and consultation proceedings between the worker and employer representatives; however, these proceedings do not usually conclude with agreements regarding the terms of transition to the new ownership. The resulting agreements, in most cases of an indefinite duration, mainly concern maintaining employment levels; however, dismissals and staff cuts are not averted as a result, despite the content of the agreements, which are not legally binding.

Changes in corporate policies are extensive in at least 90% of the M&As, with emphasis being put on the manner of organisation, operation and management, on the nature of industrial relations and on the support of vocational training programmes.

Less emphasis on collective bargaining

Particular choices regarding the personnel refer mainly to the strengthening of managerial control and individual cooperation. This implies a shift towards the individualisation of labour relations, at the expense of collective bargaining.

In at least half of the M&As, the various levels of working rights that apply to the personnel of the companies involved under the previous ownership are maintained, without being equalised among the entire workforce.

The changes in the occupational regime, which relate to 80% of the M&As, refer mainly to the manner of wage formation, with the introduction of merit-based remuneration systems, alongside changes in staff regulations. Changes in the field of industrial relations are more extensive in relation to M&As leading to an overall reduction of the personnel employed.

A reduction in labour costs, which applies to 80% of the related M&As, is achieved mainly through work intensification and an increase in flexible forms of employment, particularly the use of temporary fixed-term employment contracts and subcontracting by means of outsourcing.

In 75% of cases, middle and senior management have more duties to perform.

Trading conditions and innovation

M&As are usually accompanied by an increase in the exports share, for companies that engage in exporting activity, and a significant increase in sales and investments during the first three years after the restructuring is announced.

At least half of the enterprises involved in the related restructuring procedure are listed on the stock exchange. The price of their stock usually records a downward trend before the announcement of the restructuring and an upward trend afterwards.

Innovation in corporate policies and strategies accompanying a merger or acquisition usually assumes the form of organisational change and investment in new products. It less often takes the form of new cooperation, the introduction of new technologies and the creation of new specialisations.

The category of M&As entailing an overall decrease in employment presents the highest rate of exports, investments, listings on the stock exchange and an increase in the stock price after the merger or acquisition is announced. However, this category reports low levels of innovation regarding the introduction of new technologies and the creation of new specialisations – unlike M&As entailing an overall increase in employment.

Commentary

During the last decade, Greece has experienced a surge of M&As, with a significant effect on employment and labour relations. Business restructuring poses a serious social deficit, especially due to the lack of a powerful institutional framework. As a consequence, any developments in this field are associated directly with trade unions’ ability to intervene regarding the new conditions of employment.

Reference

Kouzis, G., Stamati, A., Karakioulafi, C., Boukouvalas, K. and Matzouranis, A., Mergers and acquisitions of enterprises in Greece: Impact on employment and labour relations, INE/GSEE-ADEDY No. 30, Athens, 2008.

Anda Stamati, Labour Institute of Greek General Confederation of Labour (INE/GSEE)