ABSTRACT
9.3. THE ROLE OF BUSINESS MERGERS IN INDUSTRIAL MIGRATION
The full effect of large-scale closure is therefore not experienced by the regions, but by localities, where they occur. Though the effect of the closure of this company may not have been felt across the region, the localities of Mooi River, Escourt and Howick felt the impact.
In addition, knock-on effects of major closure such as this one have spread to all areas in the neighbouring localities.
Such closures have destroyed the economic and social fabric of Mooi River to such an extent that the areahas been condemned to a slow and lingering decline. The principal victim, aside from the individual workers and their families has been the community at large. In places such as Durban, the closure of a single large plant may not be felt the same as those in small towns.
The size and the degree to which the local economy is dependent on the single industry determine the extent of the impact. However, the resilience of the retail and financial sector has had to offset the effects of the decline of the manufacturing sector to some extent.
Itis therefore appropriate to conclude that the closure as it happened in Mooi River is not only a temporary setback, which may rectify itself once the market has rectified itself, but is part of a fundamental change with long term consequences. Industrial restructuring, the movement of capital from one sector to the other, is taking place at the expense of communities in small towns. The closure of Mooi River Textiles and the massive loss of jobs in the textile industry were accompanied by major shifts in location preference of that industry. As a result, the Mooi River local authority has failed to attract this industry back in the area
This study also found that closures, as experienced in Mooi River, threatened not only the position of the industry in the area, but also the prospect for new jobs. A low level of demand, as a consequence of high unemployment, has diminished the market for new disposable mcome.
For the purposes of this thesis, amalgamation or mergers are defined as a blending of two or more existing· undertakings into one undertaking, with the share holders of each blending company becoming substantially the shareholders in the new company. This thesis chose to use the concept of 'mergers' instead of 'amalgamations' because the former seems better suited to embrace the wide range of means and ways by which the nation may pursue it.
Business mergers that have taken place in the study areas have tended to be in the form of the transfer of two or more undertakings to a new company or an existing compani9. During this process, some form of business re-engineering impacted on the labour market elasticity of the clothing and textile industry since large numbers of workers in this industry were laid off and the operation was transferred from Mooi River to East London.
This thesis argues that mergers and acquisitions are very similar. In the context of small towns, such a strategy became a quick way of growing from a small to a large-scale operation.
Large business units for mass production were built up more speedily than would have happened ifthe company had relied on natural growth. Explaining the dichotomy that eXists between the two concepts, mergers and acquisitions, Moon (1971) states that:
... the truth of the matter is that one cannot hope for a pragmatic rule in this moment oftime, so long as the two concepts are in a state of flux, particularly with regard to changing the purchasing power value of money.
Data from the Pinetown early warning system's survey conducted over sixty companies suggest that there are three clearly definable patterns that mergers followed, namely, vertical integration, horizontal integration and conglomerate mergers.
Vertical integration was noticeable in mainly manufacturing firms at different stages of production or distribution. Many firms that fell into this category were in the Midlands areas such as Dargle Timber in Howick, and were centred mainly around wood processing and milling. For instance, the chairperson of the Howick Chamber attributes such mergers .to the fact that:
'" in the period of globalization, where competition has intensified, any firm that wants to survive should ensure for itself uninterrupted supplies of the right quality in the required quantities and in right time. (Interview, 12 October 2000)
29The case ofMooi River Textiles and the take-over by Da Gama Textiles attest to that fact.
Also identified in Pinetown was that a number of manufacturing firms were beginning to buy out their suppliers. Jervis (1971) terms this behaviour 'backward integration', which he juxtaposes to 'forward integration' where a firm decides to buy another which is its customer, and decides to sell directly to the consumers. This was particularly the case with medium- sized enterprises, mainly located in industrial complexes in New Germany. In an interview with a shoe manufacturing company based in Pinetown, the general manager justified such a move as:
A move to secure a footholdinthe marketing ofitsproduct and often the right to determine the eventual selling price.
The trend was that firms were linking a series of manufacturing operations from raw material to the finished product. It also needs to be emphasised that mergers did not just happen Innovation and entrepreneurship infusion triggered some business re-engineering and re- orientation, which led to job losses.
Horizontal integration on the other hand indicates that firms doing the very same thing are linked together. This study found that clothing and textile companies inthe CoalRim were experiencing this phenomenon. Horizontal mergers occurred mainly between small manufacturing firms with the same type of product, trade and the same customer base.
Horizontal mergers also tended to require some business reorientation that resulted in job losses, particularly because they were not driven correctly, as bigger businesses took over the smaller ones.
Lastly, conglomerate mergers are the most powerful mergers. Examples are those that were directly governed by the Competition Commission. KZN has not seen much of this type of merger, because they occurred in national circles where major investment companies, increasingly led by the former comrades of the liberation struggle, were taking over a number of key industry positions. They have tended to take over companies in the name of black economic empowerment.
The mam economic advantages that were identified during the study, from the merged companies selected by the survey, wereinthe field of:
• Marketing
• Management
• Risk bearing
• Finance
In addition, evidence from the Pinetown survey suggests that mergers took place as a result of white management shareholders wishing to retire and having no understudies capable of continuing the business profitability. Another reason was the expansion of business to the point where there was a need for substantial additional financing and existing shareholders were not willing to assume added responsibility. Mergers were also precipitated by the prospect of technology and marketing changes adversely affecting the future operation of the company, as well as large companies wooing small ones, with attractive purchase or exchange offers, often with the promise of principals thatwillhave executive positions in the combined enterprise.