The business world keeps on changing through the years, dictated by technological advancements and evolving market needs. Business principles and strategies may be formulated as a method of adapting to these changes, and the development of these strategies results in more transformation to the business environment; the cycle goes on. The phenomenon of Merger and Acquisition (M&A) is one of the revolutionary driving force standing at the forefront. Merger has been defined as an integration of two companies in which both firms agree on integrating their operation co-equally (Hitt, Ireland & Hoskisson, 2003, p. 215). By co-equally, it is implied that both the individual firm would be disassociated with their current identity and be identified with the resulting union. In Hong Kong, the business practice of merger is noted to be extremely common and continue to signify an essential means by which industries pursue the organizational objective of diversification, economic growth, wealth realisation and expansion.
Primarily, the main goal of this paper is to provide a feasibility study regarding the merging of two industries: Hongkong Electric Holdings Limited (HEH) and China Light and Power Company Limited (CLP).
Background of the Study
When companies try to expand their business portfolio or enter an international market, one of the methods they use is merging with other companies. Merger has been clearly defined in the multitude of business literatures. From simple definitions, the literal meaning can be grasped, but a deeper appreciation of the concept was given by a journal article written by Nathan Drage. He used the metaphor of "family" to illustrate the merger experience (Drage, 2004). In his metaphor, mergers were compared to marriage, acquisitions were likened to adoption, and businesses were associated with artificial life. Although, merging with other companies offers a lot of benefits, companies that attempt to use this strategy must be able to determine first, whether merging with the chosen company is feasible. Hence, feasibility study should be considered by the management.
Aims and Objectives
The stiff competition in the business market environment has been the key factors for different companies to consider alliances. In order to do so, some industries try to merge with other companies. Thus, the main objectives of this paper are to determine the feasibility of merger between two industries: Hongkong Electric Holdings Limited (HEH) and China Light and Power Company Limited (CLP). Specifically, the study aims on achieving the following objectives:
Ø To conduct literature review on the fundamental concepts of merger.
Ø To identify the potentials Hongkong Electric Holdings Limited (HEH) and China Light and Power Company Limited (CLP) for merging.
Ø To examine the advantages and disadvantages of merger between these industries.
For this feasibility study, the main problem is to determine the potentials of merging between Hongkong Electric Holdings Limited (HEH) and China Light and Power Company Limited (CLP). Basically, there are concerns on whether such merging will add value to the industry, will extract earnings greater than the average cost of capital, will fit the portfolio, and will make the property trusts suffer as equities rally. The problem here is basically how to measure the possible benefits of the merging of the two corporations. But such questions would require a long-term study in order to be answered precisely and concisely. Thus, the only way to be able to provide limited but contributing answers to the problem is to conduct a content analysis on the effects of merger to certain industries. The researcher breaks down the problem in to pieces of questions to be able to bring light to it easily. The questions to be answered are the following:
1. What are the possible implications of the merging of Hongkong Electric Holdings Limited (HEH) and China Light and Power Company Limited (CLP)?
2. How can the merging of the two organizations contribute to the progress of the industry?
3. What are the benefits the merging can give to the customers of Hongkong Electric Holdings Limited (HEH) and China Light and Power Company Limited (CLP)?
4. What are the disadvantages of merging Hongkong Electric Holdings Limited (HEH) and China Light and Power Company Limited (CLP)?
Significance of the Study
The study will be a significant factor in the business industry as it would reveal on whether such merging would be beneficial for the industry or not. Although limited only to quantitative research and analysis of previous studies, the results in this study can serve as a reference for future studies. Furthermore, this study might open up certain issues in merging activities in Hong Kong, which can serve as a basis for conducting potential studies.
Scope and Limitation
Analysis of results of previous studies and quantitative research are both time consuming, but long-term qualitative research is more time-consuming. Thus, the researcher will settle with the former two. However, the results will only be limited to the capabilities of the research methods chosen. Quantitative research is not multi-method and thus, limited only to statistical data. But since there is another method, the content analysis, then it can be assumed that a clear and precise interpretation and conclusion can be provided for the study.
Alliances have already been around for thousands of years: during the ancient times, countries have formed alliances with their neighbours just so to protect themselves or to conquer another country, and for as early as the fifteenth century, international trading was made possible because of alliances. (Freidheim, 1998)
However, in the late nineteenth and the twentieth centuries (during the Industrial Revolution), merger and acquisition became the dominant methods of consolidation since at the time, the primary objective was to control assets (assets during those days were the newly invented machinery and equipment, and plants and productive capacity since the economic driver was scale and efficiency of production), and the best way to control assets was to own them. (Freidheim, 1998) Even until today, mergers or acquisition enables the surviving entity to combine assets and activities, substantially lower costs, and become a strong competitor-banks merge and close branches, credit companies merge and move down the scale-economies curve; hospital merge and use beds and equipment more efficiently; manufacturing companies merge to combine facilities, increase scale economies, and spread the cost of R&D over volume; agribusiness companies merge to improve the economics of the supply chain-and in all cases, integration of physical assets is vital in achieving the economic objectives of the combination. (Freidheim, 1998, p. 29)
Hongkong Electric Holdings Limited
Founded in 1989, Hongkong Electric Holdings Limited is a company that engages in production, transmission as well as distribution of power to HK Island and Lamma Island. The company is interested in different power-related enterprises in different parts of the world including Thailand, Australia, and United Kingdom. The company is providing services in more than 600, 000 customers. Furthermore, the industry also provides consultation services and engineering service through the entire electricity supply company industry. HEH principally provides their products and services in Australia and HK.
China Light and Power Company Limited (CLP)
China Light and Power Company Limited is noted to be the only industry that provides electricity to Kowloon as well as the NEW Territories excluding Lamma in HK. The company is former called China Light and Power and have been regarded as one of the most competitive investor-operator in line with the electric power corporations in Asia-Pacific Region. The business core of the corporation falls into two major areas. First is the electric utility entrepreneurial operated under CLP Power HK, and synchronized by the (SoC) Agreement with the government of Hong Kong. The second is the CLP's power-related businesses and other investments and services, both in HK and other parts of the world which are not included in SoC Agreement, or, Non-Scheme of Control (non-SoC) businesses.
Overview of Methodology
This study will be conducted in order to determine whether the merging of Hongkong Electric Holdings Limited (HEH) and China Light and Power Company Limited (CLP) is feasible. In this proposed research, the researcher opted to use the descriptive method will be utilized, using a sample of 30 managers and employees from the said industries. The goal of employing the descriptive method is to describe the nature of a condition, as it takes place during the time of the study and to explore the cause or causes of a particular condition. The researcher opted to use this kind of research considering the desire to acquire first hand data from the respondents so as to formulate rational and sound conclusions and recommendations for the study. According to Creswell (1994), the descriptive method of research is to gather information about the present existing condition. Since this study is focused on identifying the feasibility of merging among the mentioned companies, the descriptive method is the most appropriate method to use.
Two types of data will be used: the primary and the secondary data. The primary data will be derived from the answers respondents will give in the structured questionnaire prepared by the researcher. In addition, the information obtained from the interview will also provide primary research data that will support the study. The secondary data on the other hand, will be derived from the findings stated in published documents and literatures related to the research problem. These will be based from the recent literatures related to merger in Hong Kong, the business strategies to be considered and the advantages and disadvantages of merging for these companies.
In terms of approach, the study will employ both qualitative and quantitative approaches. The quantitative approach will focus on the numerical findings obtained from the survey used in the research process. The interview on the other hand will make up the qualitative approach of the study as this will focus on personal accounts, behavioral and learning observations as well as on opinions and individual insights. This study will employ qualitative research method as it will attempt to find and build concepts that will explain the relationship of one variable with another variable through qualitative elements in research. Through this method, qualitative elements that do not have standard measures such as behavior, attitudes, opinions, and beliefs within the business domain will be analyzed. Employing both qualitative and quantitative methods will help in ensuring reliable results. Furthermore, this strategy will help in overcoming the limitations of either approach.
A total of 30 managers and employees will be used for this proposed study. The respondents will be those who are working in the companies to be studies. As this study will focus assessing the feasibility of the mergence of the two industries, using managers and employees as the respondents will provide the most significant data for analysis. The respondents will be randomly selected from the two companies. For each company, 15 participants will be selected. A total of 30 participants will be selected to answer the survey.
Research representatives will be sent to these areas to facilitate the survey and interview processes. This process was selected as it will ensure both the safety and convenience of the respondents. Inclusion criteria will be used in selecting the participants. This is for the purpose of obtaining the respondents that can provide relevant information. The participants should be 20 to 60 years old. This is for the researcher to obtain direct and clear data from the respondents. In order for them to answer the survey and interview, the managers and employees should have stayed in the company for at least three years.
Research Instruments and Procedures
For this proposal, two research tools will be used to achieve the main goal of the study. These research tools will include the survey and interviews. A structured questionnaire will be given to the respondents. The questionnaire will contain questions pertaining to their views or personal insights regarding the possible merger of merging Hongkong Electric Holdings Limited (HEH) and China Light and Power Company Limited (CLP). This questionnaire will also ask the respondents' level of agreement to these merging.
In order to use the questionnaire as an evaluation tool, the respondents will rate each statement or question in the survey using a Likert scale with a five-point response scale. A Likert Scale is a rating scale that requires the subject to indicate his or her degree of agreement or disagreement with a statement.
The Likert scale is usually used to measure attitudes towards an object, the degree to which an object contains a particular attribute, (Like or dislike), toward some attribute, or the importance attached to an attribute. In this type of questionnaire, the respondents will be given five response choices. These options will serve as the quantification of the participants' agreement or disagreement on each question item. Below is the equivalent rating for each score:
In addition to the 30 respondents that will answer the structured questionnaire, 10 respondents will also be randomly selected for an interview. The researcher will prepare a semi-structured interview schedule for this purpose. A total of 5 respondents from each company used for the study will be selected for the interview. This procedure will help in gaining information about actual experiences of the merger. Most importantly, the interview statements of the respondents will help in supporting the outcome of the survey questionnaire. The semi-structured interview will basically contain questions pertaining to the visitors' concrete experiences, satisfaction level as well as their suggestion on how these companies will merge effectively.
As the structured questionnaire is only limited to the choices provided in each question, other pertinent information may not be acquired. Thus, an interview is necessary. The response of the participants to the survey will also help in supporting the overall data gathered as well as the study analysis. Below are some sample interview questions that will be used for the study:
In order to test the validity of the interview schedule which will be used for this study, the researcher will initially submit a sample of the interview questionnaire. After obtaining an approval, the researcher will test the questionnaire to five respondents. These respondents as well as their answers are not part of the actual study process and will only be used for testing purposes. After the questions have been answered, the researcher will ask the respondents for any suggestions or any necessary corrections to ensure further improvement and validity of the instrument. The researcher will again examine the content of the interview questions to find out the reliability of the instrument. The researchers will exclude irrelevant questions and will change vague or difficult terminologies into simpler ones, in order to help the parents comprehend the questions.
Data Analysis and Presentation
Data gathered using these instruments will be collated for analysis. Data analysis will primarily be characterized by comparative and statistical approach. Qualitative data derived from interviews will be presented in text and tabular formats. These will then be supported by quantitative data from the survey questionnaire used, which will be presented in graphic forms. In order to facilitate the computation required for this study, the SPSS program will be utilized. Specifically, descriptive statistics and frequencies will be computed so as to evaluate the visitor experience of the selected participants.
The entire study will be divided into five chapters. The first chapter will present the background of the study, the objectives, research problems and its significance. In the second chapter, literatures and published documents pertaining to merger, advantages and disadvantages of merger and others will be discussed. The research methodology that will be used for this study will be discussed in chapter three. Specifically, this chapter will focus on the description of the participants, sampling technique and the research instruments which will be utilized in the process. In chapter 4, the results of the conducted interview and survey will be presented. Finally, the fifth chapter will summarize the findings and provide the conclusion and recommendations appropriate for this research.
For this paper dissertation, the expected outcome should adhere to the main objective of the study, i.e. the determination of the feasibility of merging in the given companies. In addition, the researcher also expects that the study will provide pertinent data about HK mergence.