US Airways/American Merger Could Bring Job Cuts

Tempe, AZ-based US Airways Group may announce a merger with bankrupt carrier American Airlines this week.  The combined airlines would surpass United Continental as the world’s largest airline. US Airways’ CEO Doug Parker, who has been in talks with AMR since last January, is expected to lead the combined companies, while American’s CEO Tom Horton would become non-executive chairman, according to sources who spoke with Bloomberg News. The attempted merger comes after an unsuccessful bid to combine with Delta Air Lines in 2007. If successful, this merger will further consolidate an industry hit hard by the global economy and government regulations and could pave the way for the possibility of higher fares and more routes. The industry has seen five large mergers since 2001, including the May 2010 merger of United and Continental, costing 1,500 jobs in 2011. This, like other mergers, could also cost jobs: American Airlines announced 13,000 job cuts last February after seeking court protection. Airlines and airport/airline services companies announced 29,273 job cuts in 2012, according to tracking by global outplacement Challenger, Gray & Christmas, Inc. So far this year, job cuts at airlines total 1,281. How might this merger impact airline and air travel employment? How may the consumer be affected? What other industries could see major mergers?

Monday Merger Mania

The week kicks off with acquisition announcements from IBM, Hertz, M&T Bank, and Ask.com, in order to gain traction in other lines of business or eliminate competition. The largest deal came from M&T, which entered into an agreement to purchase Hudson City Bancorp for $3.7 billion, expanding the bank’s reach to the east coast. Meanwhile, after a lower offer was rejected and a competition with Avis Budget Group, Hertz will purchase Dollar Thrifty for $2.3 billion. To avoid antitrust issues, Hertz will sell its Advantage Rent a Car discount unit to a private equity company. IBM will purchase Wayne, PA-based recruiting and talent management technology firm Kenexa for $1.3 billion, or $46 a share, to enhance IBM’s ability to dip into information generated in the social media sphere, and Ask.com will acquire About.com for $300 million. Companies have been sitting on mounds of cash as the economy slowly recovers. As of last August, non-financial companies on the S&P had accumulated $963 billion, with analysts predicting companies were saving for another economic collapse. However, it seems companies are back on the spending kick, hopefully, to create more jobs. “When companies announce acquisitions, unfortunately, it often comes with job losses. In most of these cases, save for Hertz, there may be few redundancies, but it remains to be seen,” offered John Challenger, CEO of Challenger, Gray & Christmas, Inc. So far this year, US companies have announced 8,113 job cuts due to mergers or acquisitions according to Challenger tracking. What factors may lead to job losses with these firms? How can companies keep their employers engaged and focused during management change? Will more companies ramp up M&A activity?

 

Merger/Acquisition Job Cuts
 

Through July

Year End

2012

8,113

N/A

2011

8,670

14,717

2010

28,404

39,669

2009

32,969

47,102

2008

33,945

125,115

Berkshire Merger With Lubrizol For $9 Billion

Warren Buffet announced one of his largest deals Monday with the acquisition of Lubrizol, a specialty chemical maker based in Ohio. It’s too early to tell whether layoffs will follow.  However, mergers and acquisitions often result in some job loss, as seen in recent examples, including AOL and Huffington Post, which resulted in 900 job cuts.  A merger between M&T Bank and Wilmington Trust saw 720 jobs eliminated in the combined entity.  In addition to rank and file positions, more CEO changes have been tracked due to M&A activity this year compared to last.  Through February, seven CEO changes resulted from mergers and acquisitions, compared to three at the same point in 2010, according to Challenger tracking.  Lurbrizol CEO James Hambrick is likely to keep his title, however, as Buffet praised his performance in the post he’s held since 2004.  How many merger-related job cuts were announced so far in 2010?  Are merger-related job cuts and CEO changes expected to increase this year?

Our latest CEO report: February11 CEO Report

Bulletin: Overqualified Workers, Cash-Rich Companies

Companies Could See Exodus of Talent

As the economic recovery slowly gains momentum, employers may find it increasingly difficult to retain their best talent. Turnover may be particularly high among employees who “settled” for their current position during the downturn. The latest data from the Bureau of Labor Statistics show that 50 percent of private-sector separations in September were voluntary departures (i.e., quits). In contrast, quits accounted for 41 percent of separations in September 2009. In a Wall Street Journal article this week, one Illinois-based recruiter stated that one in five job seekers who contact him now are people who have been with their current employer for a year or less and are seeking positions at their pre-recession salary level. What can companies do to hold on to “overqualified” employees? As an “overqualified” employee, is there any benefit to sticking it out with your current employer? Is this type of turnover necessary in order to ignite increased hiring?

Will Corporate Cash Lead to Job Creation or Job Cuts?

Due largely to massive cost-cutting initiatives, including large-scale layoffs, the country’s corporations have amassed large amounts of cash. As of September, the Federal Reserve put the sum of corporate cash at a near-record-level $1.84 trillion. The big questions are when will companies start spending their stockpile and what will they spend it on? The nation’s unemployed are hoping they spend it on expansion and job creation. But, we may have received the real answer earlier this week, when heavy equipment manufacturer Caterpillar announced a record-breaking $7.6 billion acquisition of Wisconsin-based mining equipment manufacturer Bucyrus International. Overall, mergers and acquisitions are up sharply in 2010. Unfortunately, these deals often lead to job cuts; not job creation. So far this year, job cuts related to mergers and acquisitions total 36,865. That is actually down from 2009 (62,863 through October), but many of the deals announced this year have not been finalized. It could take months for the Caterpillar-Bucyrus deal to close and several more months to determine if job cuts will be necessary. Could we see a surge in M&A-related job cuts in 2011? Why are layoffs typically part of merger and acquisition transactions? Is there anything employees can do to protect their jobs following a merger?

Small Business Confidence Falls; Aon Buys Hewitt

The latest reading of small business optimism conducted by the National Federation of Independent Business (NFIB) was not very positive, falling from an index level of 92.2 in May to 89 in June. This does not bode well for the nation’s job seekers, as small businesses represent more than 99 percent of all U.S. employers and account for about 60 percent of gross job creation. The NFIB optimism index found that a net of just 1 percent of small firms are planning to hire in the coming months.

Making matters worse for small business owners is a dramatic decline in the amount of lending to these firms. The New York Times cited federal data showing that lending to such small businesses fell more than $710 billion in the second quarter of 2008 to below $670 billion in the first quarter of this year.

The tough business environment certainly is not attracting new entrepreneurs into the game. A quarterly Challenger survey of jobless managers and executives found that an average of 3.7 percent started their own business in the first half of 2010. That was down from 7.6 percent in the first half of 2009. Challenger will release a more detailed report on start-up activity on Monday, July 19. What will small business owners need to see before their confidence level and hiring begin to increase? What are the biggest obstacles to starting a business?

* * *

Yesterday’s announced acquisition of human resources consultancy Hewitt Associates by the Chicago-based insurance-broker Aon Corp., is undoubtedly creating some anxiety among the employees at both firms. The Chicago Sun-Times reported that the 4,500 people employed by Hewitt in the Chicago area will become part of 6,300-employee Aon Consulting unit. While both companies said it was too early to anticipate the need for or extent of job cutting, such measures are typical in the wake of corporate marriages. Indeed, Aon said it expects the deal to save $355 million annually beginning in 2013, primarily from reducing back-office areas, management overlap and public company costs and utilizing technology platforms. According to Challenger tracking, mergers and acquisitions have resulted in 27,880 planned job cuts through June of this year. That is down 40 percent from the 46,448 merger-related job cuts announced in the first six months of 2009. Will merger activity increase as the economy improves and will it lead to more job cutting? What challenges do companies face when combining varying corporate cultures? What can workers at merging firms do to protect their jobs?

Billion-Dollar Merger-Mania Monday!

This morning, according to an article in the Financial Times, Wilmington, Massachusettes-based pharmaceutical developer Charles River Laboratories agreed to purchase Chinese rival WuXi PharmaTech  for $1.6billion allowing greater presence in the Chinese market.  The pharmaceutical industry has already seen massive job cuts due to mergers with the January announcement of Merck’s takeover by Schering-Plough.  Through March, over 26,000 job cuts have been announced by US-based pharmaceutical companies.  While job cuts may follow the integration of WuXi into Charles River, since the latter is increasing presence in a foreign market, we may see more management changes than layoffs of rank-in-file. Charles River is listed with 8,500 employees, while WuXi is reported to have just over 3,600.

Q1 Pharmaceutical Cuts:
   2010       2009
 26,165    48,665
Source: Challenger, Gray & Christmas, Inc.

Additionally, Hertz Rental based out of New Jersey has agreed to buy their Oklahoma-based rival Dollar Thrifty for $1.7billion in stock and cash, according to an AP article in the USA Today.  So far this year, over 20,000 job cuts have been announced due to mergers and acquisitions according to Challenger tracking.

Q1 Merger/Acquisition Cuts:
       2010      2009
     20,515   44,379
Source: Challenger, Gray & Christmas, Inc.

Workplace Issues Of The Week

HEALTH CARE REFORM COULD CREATE NEW JOBS


The health care sector has been one of the few bright spots in this otherwise depressed job market. Over the past 12 months, health care employment has grown by nearly 300,000 workers, while most other sectors continue to shed jobs. As the debate over health care reform rages on across the country, few have examined what the proposed changes will mean for job creation. Part of the problem with attempting to determine how health care reform will impact employment is that no one knows what the final legislation will contain. However, if the bill that passes accomplishes one of the primary goals of reform, which is to get the millions of uninsured some type of health coverage, then we are most likely going to see a rise in the demand and use of health care services. This, in turn, will increase the need for more health care workers, particularly those specializing in preventive care and long-term care. What are the pros and cons regarding health care reform when it comes to small business? Which health care occupations could see the biggest boom from health care reform?

FANTASY FOOTBALL’S IMPACT ON WORK PRODUCTIVITY


With the NFL season opening games less than two weeks away, Fantasy Football participants across the country are finalizing their draft picks and preparing for 17 weeks of point tracking, roster shuffling and player trades. With many Fantasy Footballers using their workplace Internet to research players and make mid-week team moves, what will the impact be on office productivity? Should employers be worried or should they find a way to embrace the growing popularity of Fantasy Football and use it as a morale- and camaraderie-building activity?

DISNEY BUYS MARVEL COMICS


On the surface today’s announced merger between Disney and Marvel Comics appears to be a win-win for all parties. And it may indeed prove to be one, as Disney is able to benefit from increasingly successful comic book franchises, while Marvel obtains the unparalleled marketing strength of Disney. However, one challenge could be difficult to overcome: the task of combining what are likely to be highly divergent cultures of the two corporations. The clash of corporate cultures has been a contributing factor in many mergers that failed to deliver on expectations, including the ill-fated marriage between Time-Warner and AOL. How do companies decide if they are a good fit for each other? Are job cuts likely to follow the closing of the merger? What should employees of both companies be doing now and after the merger to increase job security?