Investor Association: Mergers Between Air France & KLM (Term Paper Sample)

Mergers; Air France and KLM
Name
Institution
Instructor’s Name
Date
MEMO
TO: Chief executive officer KLM
CC: Chief Financial Officer KLM
FROM: Tim Martins
DATE: 4th May 2016
SUBJECT: Against the Merger with Air France
The business world has embraced a competitive and sophisticated being for weak and less stable companies to survive. This being has been a source of opportunities and driver for the transition of small firms into multinational companies through mergers and acquisitions with the stable corporations such as KLM growing into a more stable state. However, the success and failure of the two firms is not guaranteed by these driving opportunities but instead the incorporated strategies and increased concerns to ensure the stability of the newly formed Corporation. This memo evaluates the KLM and Air France merger by outlining the different aspects of the merger in safeguarding the interests of the KLM stakeholders.
On the entrance of the 20th century, KLM had been facing extensive hurdles in meeting its profitability targets following the transitions in the European regulatory transitions. The market transitioned into a being with lower profits and decreased value for the European customers as the majority of the airline companies strived to stand out in the market through adoption of competitive price strategies. Also, the European demand for airline services had multiplied with an increased population that is over 441 million seeking for a transformation of the services to enhance their flexibility. KLM was left with no option but to conform to the demand and concerns of the stakeholders to ensure utmost sustainability of its products and services. These were the major concerns and challenges that motivated the KLM-Air France merger.
Based on the Dutch Investor Association (VEB) the merger was perceived to being an expensive action taken by the KLM airline. Following the high expectations of the European market and KLMs stakeholders as a whole, their listing and stock price was expected to rise profoundly assuring high profitability. This made the pricing of the takeover higher than its intrinsic value a being that could see the stakeholder's interests compromised. This is utterly true and dangerous to the growth perspective of KLM with only Air France reporting increased sales by 1% and increased profits to €12687 with KLM on the other hand reporting €186 million as loss aligned to its sales decrease as at 31st March 2003. This draws back to the high expectations from the stakeholders who believed in the two big airline companies.
Despite the enormous motive from the transitioning market, and the increasing need for the KLM to create value for its consumers, the anticipations remained unattainable for KLM. The merger brought up losses to the company with the struggling KLM being the greater victim of the adverse implications CITATION Sve08 \l 1033 (Hallbaue, 2008). It is of great importance for KLM to get all the merger facts straight with the motives and goals set wholly pegged on the core objectives of the company. Probably, the company that is KLM faces diseconomies of scale on merging with Air France CITATION Raj15 \l 1033 (Rajagopal, 2015). KLM might have also embraced a new culture as a result of merging with Air France causing loss of morale and motivation among the employees causing decreased productivity as realized on the aftermath of the merger.
Through merging the corporation's size increases hence the company may lack full control over its operations and production, an aspect that may reduce to inefficient productivity characterized by charging high prices on its services CITATION Dee11 \l 1033 (Blick, 2011). In this case, it is only the Air France, the bigger company that shall benefit from adverse such occurrences depicted from the slight increase in its sales and profit. In this case, at the circumstance where the market portrays its adversity, the competitively superior firms are left to enjoy the benefits tied to the market operations CITATION Bir03 \l 1033 (Birtwhistle, 2003).
The KLM should instead consider extending the independent standing onto other areas of operation to help attain control over the organizational practices. In this case, KLM shall establish both operational and financial policies governing the practices in the mergers hence allowing control of the costs and the employee affairs CITATION Lui13 \l 1033 (Corchon, 2013). By this, KLM shall be able to meet its set objectives effectively on entering the merger that is cutting the costs in service provision, increase market presence, and consumer preferences. In this case, the KLM should maximize its shareholder'...