On Monday, retailers Ascena Retail and Ann announced a $US2 billion merger.
And employees at both companies should be feeling a little nervous.
In the past, we’ve highlighted how the word “synergies” is corporate speak for combining things like offices, warehouses, and yes, jobs.
And prominently featured in the Ascena-Ann merger announcement is “synergies.”
Other words that should also spook the current employees at companies that are merging include “streamlining” and “integration.”
From the Ascena-Ann merger announcement:
Ascena has identified $US150 million in annualized run rate synergies in the combination that it expects to generate over a three-year period. The transaction aligns seamlessly with ascena’s platform strategy and shared services model, designed to enable an effective, rapid and comprehensive back office integration process. Synergies include sourcing and procurement, distribution, logistics and other efficiencies.
“Synergies include sourcing and procurement, distribution, logistics and other efficiencies.” Not the kind of thing you want to hear on a Monday.
Now, the companies, of course, make no mention of what, exactly, these synergies or integrations might entail. But layoffs are probably coming: they almost always are.
So let’s do some really rough maths.
Ann further clarified that 1,950 of its full-time employees were salaried while 2,300 were full-time hourly. The salaried folks are the back office-type workers that are likely to be most vulnerable during this merger process. So if we assume the same ratio of Ascena’s full-time employees are back office-type salaried workers, we get about 6,300.
So between the 2 companies, we have 8,250 full-time employees potentially on the chopping block.
Assume the cost to the company for each of these employees is $US150,000 on average, and we get about $US1.2 billion in annual compensation costs.
The companies say synergies should save the new combined company $US150 million per year, which potentially puts about 12% of these employees on the chopping block.
We’ll again emphasise that this maths is rough and that 100% of these cost savings won’t come from firing workers.
The point here, however, is that while shareholders may be cheering a merger — shares of Ann were up as much as 19% early Monday, Ascena shares rallied about 7% — this won’t be a win for everyone.