The industrial relations implications of the British Steel/Hoogovens merger
In June 1999, British Steel and the Dutch steel producer Hoogovens announced their intention to merge. The deal is the latest in a wave of cross-border mergers and acquisitions, which have reached record levels in recent years. This feature examines the industrial relations implications of the proposed merger, considering the possible restructuring that will follow, the impact on the relationships between employee representatives and management, and the nature of management style in the newly merged company.
In early June 1999, British Steel and the Dutch steel producer Hoogovens announced their intention to merge in a deal valued at GBP 3.9 billion. The merged entity will be the largest steel firm in Europe and the third biggest in the world, producing 22.5 million tonnes of steel per year. As the larger of the two parties, British Steel's shareholders will hold a 61.7% stake in the new group, while those of Hoogovens, including the Dutch government, will hold the remainder. The merger follows other cross-border tie-ups in the European steel industry: Usinor of France has joined forces with Cockerill-Sambre of Belgium (BE9812158N), while Arbed of Luxembourg and Aceralia of Spain have also merged.
The British Steel/Hoogovens merger is one of a growing number between firms from different countries. Cross-border mergers increased in value fourfold between 1991 and 1997. The 1998 figure was another new record, with the value of transactions reaching USD 544 billion, while 1999 looks set to establish yet another record - in the first six months alone international mergers were valued at USD 409 billion. What impact does this international corporate restructuring have on industrial relations? In what ways are the workforces of such companies affected? This feature investigates these questions by looking at the British Steel/Hoogovens merger.
The three effects of cross-border mergers
Three separate effects of cross-border mergers can be identified, as follows.
- Most mergers, whether they are international or domestic, involve some restructuring or organisational change. This might stem from new investment to upgrade existing assets and acquire new ones, the redeployment or intensification of existing assets, or a drive to cut costs through slimming down or disposing altogether of some part of the operations. Such organisational change is termed a "general merger effect" because it is common to all types of mergers, not just those that are cross-border in nature (BE9903169N). In the case of British Steel/Hoogovens, cost reduction was a key part of the stated rationale for the merger: annual operating cost savings of GBP 194 million are promised. Coupled with the flood of cheap imports from Russia and Asia n countries affected by the financial crises in that region, these costs savings have raised fears about job losses. John Bryant, British Steel's chief executive, could give no guarantees concerning job security to any of the employees of the merged firm while Ken Jackson, general secretary of the AEEU engineering trade union, expressed his concern about further job losses in Britain. British Steel has already shed 7,000 jobs in the last two years. Press speculation centred on the future of the Llanwern plant in south Wales which employs 3,500 workers.
- A second significance of international mergers for employees concerns the implications of being part of a multinational. One source of power that management in multinationals enjoy in relation to worker representatives is their ability to "play off" one set of workers against another, breaking down any resistance to change by tying investment decisions to the performance of subsidiaries (TN9907201S). Where two firms which are already multinational merge, the geographical spread of the merged firm is greater than that of each of the two firms prior to merger, increasing the force of this "multinational effect". Both British Steel and Hoogovens were highly concentrated in their respective home-country bases prior to the merger (80% of British Steel's employees worked in the UK), so the scope for comparisons of sites in different countries is now much greater. Therefore, it is likely that workers in different national subsidiaries will find themselves in greater competition with one another for new investment and orders. Such competition may well reduce the influence of unions at national level and possibly create tensions between worker representatives on the new European Works Council (EWC), which will amalgamate the two existing EWCs.
- The third significance of cross-border mergers for workforces arises from the "nationality effect". Despite claims about globalisation having led to convergence in patterns of business activity between countries, substantial differences in the nature of national business systems persist, particularly in terms of corporate governance and control. One distinction that is often made is between the Anglo-Saxon "outsider" system which in which shareholder interests dominate and the continental European "insider" system in which a range of stakeholders have a legitimate interest, such as employees, banks and suppliers as well as shareholders. In the former system, managerial actions are geared towards maintaining the share price and paying out a high proportion of profits in the form of dividends to shareholders. In the latter, by contrast, managers are more able to pursue longer-term goals such as increasing market share and investing in new capital equipment and in the development of skills of the workforce. There is little doubt that the Anglo-Saxon influence will be the greater of the two in the British Steel/Hoogovens merger. This is in part because British Steel's shareholders will be the largest group in the merged firm, but also because the shares will be traded in New York as well as London and Amsterdam. When unveiling the merger, management announced that GBP 700 million would be "returned to shareholders" in the form of a special cash payment of GBP 0.35 per share, despite the possible redundancies.
We have seen that cross-border mergers such as that between British Steel and Hoogovens involve three distinct effects on industrial relations. All of these present challenges to employees, particularly to job security, and to the role of worker representatives. In relation to the nationality effect, there is evidence that the Anglo-Saxon influence is felt in a high proportion of international mergers. This is partly because America n and British firms are the two biggest purchasers of firms in other countries. Indeed, the role of UK firms in international acquisitions is greater than ever, accounting for nearly 50% of the USD 285 billion total in the second quarter of 1999. The Anglo-Saxon influence is also felt when continental European multinationals buy up firms based in Britain and America: the evidence suggests that these acquisitions are often used as models for the rest of the group to copy as management at headquarters level seeks to emulate the flexibility demonstrated by Anglo-Saxon firms.
More generally, corporate governance systems appear to be undergoing change. In France, two bitterly contested hostile takeover battles, once anathema to the French system, are currently being fought in the banking and oil sectors. Similarly, in Germany commentators have noted the creeping "Anglo-Saxonisation" of the system, exemplified by the hostile take-over battle between Krupp-Hoesch and Thyssen, the country's two steel producers (DE9704207F). In the Netherlands, too, proposed reforms of takeover law have raised similar concerns (NL9801154F). More generally, this Anglo-Saxon effect in cross-border mergers is a part of a gradual erosion of some of the distinctive elements of insider systems of corporate governance found in continental Europe. (Tony Edwards, IRRU)