Some employment relations consequences of the merger and acquisition movement in the Australian black coal mining industry 1997-2003.

Abstract

This article reports on research into the industrial relations and human resource management consequences of merger and acquisition activity in the Australian black coal mining industry between 1997 and 2003. Over 50 per cent of mining enterprises have been subject to at least one change in ownership during the period 1997-2003 setting in train change of a scale that the industry has not previously witnessed. From an employment relations perspective, this change has had significant consequences for union structure and strategy, bargaining structures and human resource management at the coal face. The article contends that the merger and acquisition movement has crafted a completely new set of employment relations dynamics for the coal industry.

Introduction

Mergers and acquisitions remain a popular strategy for companies seeking to improve profitability and growth prospects. According to Bramson (2000, p. 60), global transactions relating to merger and acquisition activity totaled more than US$2.4 trillion in nearly 23,000 deals in 1998. This trend continues in spite of international evidence that mergers and acquisitions may not, on average, result in positive financial benefits for acquiring firms (Hitt et al, 1998; Dickerson et al, 1997; Haward and Hambrick, 1997). The worldwide phenomenon of growing merger and acquisition activity has recently emerged most spectacularly in the Australian black coal mining industry. In the space of just a few years, the producer profile in the industry has been transformed radically.

Despite the potentially far-reaching implications of recent merger and acquisition activity in Australia's premier export industry, there has so far been little analysis of this activity. There has been some research on changing forms of employment relations in the industry (Waring, 2000 and 2003; Bowden, 2000 and 2003; Waring and Barry, 1999; and Barry, 1998) but none of this research has examined the employment relations implications of acquisitions and pit-level mergers.

Insights from previous research must be drawn from mergers and acquisitions literature on other industries. Much of this concentrates on the legal and financial causes and consequences of such activity and on identifying reasons for the historically poor success rate of mergers and acquisitions. There is, however, a small but growing body of research that examines the human resource management aspect of mergers and acquisitions. Much of this literature, which is international in origin, specifically focuses on human resource management problems that occur as a consequence of mergers and acquisitions. For instance, Burrows (2000) and Walsh and Ellwood (1991) discuss the potential for high labour turnover after mergers or acquisitions take place, whilst Bramson (2000) discusses downsizing issues and the importance of carefully merging human resource practices and systems. Feros and Lewis (1979) have argued that mergers can lead to lower workforce morale, higher workplace stress and under-utilization of employees' skills. Pritchett (1985) goes further, arguing that mergers and acquisitions can cause significant human trauma and can create 'psychological shockwaves' which have a deleterious effect on the merged entity. Similarly, Hubbard and Purcell (2001) have claimed that mergers and acquisitions can result in a violation of employees' psychological contracts if expectations are not met. A key theme which runs throughout the literature is the need for human resource professionals to ensure 'cultural fit' between the merging entities (Cartwright and Cooper, 1996). Although cultural fit is not well explained, it seems to refer to the compatibility of the merging entities.

The literature highlights the fact that mergers and acquisitions often fail completely or fail to meet expectations because 'people-related' issues are not addressed. This conclusion is confirmed by a Forbes (1999) survey of 500 Chief Executive Officers (CEOs) which found that these CEOs believed that mergers and acquisitions often failed not because of financial reasons but because of people-related issues (cited in Walker and Price, 2000). Daniel (1999) also contends that the most significant causes of merger and acquisition failure are people-related, whilst Solomon (1998) argues that senior executives tend to neglect human resource management considerations when merging entities.

Whilst human resource management issues are considered in this literature, the industrial relations implications are often overlooked. For instance, there is little to no analysis on how mergers and acquisitions impact upon bargaining structures, unions, work organization, institutional arrangements and the industrial relations climate generally.

This article goes some way to remedying this weakness in the literature by exploring the merger and acquisition movement's consequences for employment relations. The term 'employment relations' is used to describe both human resource management and industrial relations variables. The article begins by describing the extent of change that has resulted from the acquisitions that have taken place in the industry, the reasons for this market rationalization and its probable consequences for the product market. This section relies on industry data from annual coal industry reviews published by the NSW Department of Mineral Resources and its equivalent in Queensland, the Queensland Department of Natural Resources and Mines, as well as Company reports and media releases. The second section draws on interview data with key industry informants to discuss how the consolidation of ownership has impacted upon employment relations in the industry. The conclusion considers the broader implications of this activity as a whole and the lessons learnt about the effects on mergers and acquisitions on employment relations generally.

The Extent and Reasons for the Merger and Acquisition Movement in the Coal Industry

In 1999, when the Productivity Commission published findings of its inquiry into the industry, it listed the major coal producers in the Australian industry as follows:

However, by January 2001 three of the seven largest producers listed in Table 1 had sold all of their Australian coal mining operations to new or existing producers in the industry. Specifically, Shell, Oakbridge and Peabody Resources had divested all their Australian coal assets and exited the industry. Much of the acquisition activity has come from the two largest producers, BHP (now BHP Billiton) and Rio Tinto PLC. For instance, in November 2000 Rio Tinto, through its coal subsidiary Coal and Allied Pty Ltd, purchased the Lemington Coal mine (in NSW) from Exxon-Mobil for $242 million. In December 2000, Rio Tinto acquired the coal assets of Peabody Resources (Australia) for $1.014 billion, making it the largest producer of thermal coal in Australia and Australia's biggest coal exporter with BHP (Phaceas, 2000). Rio Tinto through its subsidiary coal companies now produces and manages approximately 58 million tonnes of mainly thermal coal, almost doubling its 1999 productive capacity. Meanwhile, BHP, with Japanese partner Mitsubishi, acquired the coal assets of QCT Resources in November 2000, increasing its coking coal reserves. This merger and acquisition came just a few months before the larger and more significant corporate marriage of BHP with London-based resources company, Billiton. Two new and significant mining companies were also active in the Australian market. Anglo American purchased for $1.6 billion the coal assets of Shell in 2000 and a subsequent joint venture arrangement with Mitsui, saw Anglo American take a 55% interest in the Moura coal mine in Queensland. These acquisitions have in just two years made Anglo the third largest coal producer in Australia. The other new entrant into the Australian coal industry is the Swiss mining group, Xstrata, which purchased the coal assets of Glencore International AG in 2002.

In the space of three and a half years, the ownership profile of the coal industry has been radically transformed. Table 2 illustrates the extent of market rationalization that has taken place in a very short period of time, resulting in the concentration of production amongst a few large producers and the concomitant contraction of the percentage of saleable coal mined by smaller producers. The most notable changes are the entry of Anglo Coal and Xstrata into the top four producers and the growth of Rio Tinto's output--all the more interesting when the growth in total output from 216.19 mt in 1999 to 257.9mt by June 2003 is considered. Centennial Coal also emerged among the top six producers in the country through its acquisition of the NSW government-owned, PowerCoal group (which owned mainly underground operations around Lake Macquarie in NSW), doubling Centennial's production from the previous year.

Calculations of data drawn from various coal industry publications of equity holdings (NSW Coal industry Profile and QLD Coal Industry Review 1998-2003) have also revealed that a number of enterprises have either had multiple changes in the composition of their ownership or, alternatively, changed ownership a number of times in the five-and-a-half year period to June 2003. Between 1997 to June 2003, there were approximately 100 to 104 mining operations operating and 81 instances of a change in ownership. These 81 instances affected 67 of the 104 mining operations, giving a strong indication of the extent of acquisition activity. Of these 67 sites, 12 were affected by simply a change of owner's name, or a shift of assets from one subsidiary to another of the same company. Thus there were 55 sites which had an equity change, 19 of which had had more than one change of significant ownership during the period 1997-2003. There were seven coal mining operations where BHP was the majority equity holder before the BHP--Billiton merger. With the merger, BHP Billiton became the majority equity holder. The seven were Appin, Cordeaus, Elouera, Tower, West Cliff, Riverside and South Walker Creek. These BHP-Billiton sites aside, the calculations of the equity data reveal that a total of 42 sites were affected by a change of ownership.

The top four companies now produce almost 73 per cent of Australia's total saleable coal, whilst the top seven producers illustrated in Table 2 produce 80.88 per cent of total output. Xstrata Plc's aggressive acquisition program peaked in June 2003 with the takeover of MIM (Xstrata Plc Media Release, 16/06/2003). Yet even this acquisition was partly short-lived as Xstrata, in September 2003, sold 20 per cent of its Queensland coal businesses and 25 per cent of its Queensland coal projects to its Japanese joint venture partners, Itochu and Sumitomo Corporations. This deal was particularly controversial as Xstrata was able to realize a $US85 million surplus on the original value of the acquired MIM coal assets (Xstrata, Pie Media Release 17/09/2003), indicating that MIM may have been undersold.

These frenetic acquisitions underscore a strong belief of the strategic importance of Australian coal in meeting the energy needs of the Asia-Pacific region in the 21st century (Glencore, 1999; Fisher, 2002). The merger and acquisition activity may also indicate that the well documented 1997 to 1999 decline in coal prices and profitability created some fortuitous circumstances for the larger producers who were able to acquire producers seeking to exit a depressed market (Barry and Waring, 2000). In interviews, representatives of the NSW Minerals Council (the leading coal industry employer association) and the Construction, Forestry, Mining and Energy Union (Mining and Energy Division) (CFMEU) expressed divergent views on the underlying explanation for this activity. On the one hand, the NSW Minerals Council simply indicated the activity was indicative of the precarious position of coal producers and the need for them to consolidate in order to survive. Peter Colley, the National Research Officer of the CFMEU, emphasised the important role of market dynamics and Japanese consumers of Australian coal. He argued:

   ... the main Japanese buyers overplayed their hand quite
   substantially because the Japanese economy has been stagnant for
   a decade. They've been seeking to squeeze their suppliers, and
   basically they squeezed their suppliers too hard. They had
   previously set prices at a level which kept a lot of players in
   business; they set prices that kept a lot of businesses just
   ticking over, not making much of a profit but not making much of
   a loss. But in the late nineties they overplayed their hand and
   pushed down prices far too low and a whole of lot of small players
   did pull out, and the big players bought them out.

Undoubtedly, changes to work organisation and a period of significant downsizing in 1998-99 (Barry and Waring, 2000; Bowden, 2000), which led to dramatic growth in labour productivity, also made Australian coal assets more attractive to international resources companies.

These acquisitions have been accompanied by a concentration of ownership which has increased the market power of remaining coal suppliers. Increased market power theoretically provides these coal producers with an enhanced capacity to extract higher prices for supplied coal--another important factor driving consolidation. This explanation was put by an Xstrata company official in the following terms:

   The industry needed consolidation--there were too many players, and
   too many Australian players cutting each others' throats. Their
   thoughts were, we needed to consolidate, and have some bigger
   players, and have some bigger clout, so to speak, with the market.
   (Jones, 2003)

Finally, coal producers are able to reap efficiency gains from acquisition targets through cost-cutting, exploiting production synergies and reaping economies of scale (through global purchasing arrangements, for instance). Cost-cutting usually includes removing duplicated back office and management services as well as downsizing the workforce that typically occurs at the coal mining operation itself. This downsizing may be a result of new management seeking to meet the financial expectations that have been set for the acquisition or where acquisitions involve coal mining operations that are located adjacent to their existing mines. Efficiency gains are maximised by merging operations into a single 'superpit'. These 'superpits' maximise the productive capacity of capital equipment and generally reduce workforce numbers, thereby increasing labour productivity beyond what can be achieved with two independently operated mines.

The creation of superpits has taken place in the Hunter Valley of NSW and in the Bowen Basin of Queensland. For instance, in 2000, Rio Tinto PLC merged its Howick and Hunter Valley mines to form a superpit, reducing the workforce significantly in the process. In early 2001, the company merged the newly acquired Lemington coal mine with the already merged Hunter Valley/Howick operations to form an even larger mine. Absorbing the Lemington mine resulted in the loss of 50 jobs, with just 520 workers operating the superpit (Kirkwood, 22/01/01). The company's acquisitions of Peabody Resources' mines in the Hunter Valley will make the creation of further superpits possible. In Queensland, BHP and Mitsubishi's acquisition of QCT resulted in the merging of the South Blackwater open cut operations with those of the BHP-Mitsubishi Alliance (BMA) CQCA Blackwater mine, to produce an estimated 13.5 million tonnes of coking and thermal coal a year. This resulted in a reduction of 205 employees (BHP Media Release, 15/12/00). In the case of the creation of the Blackwater mine, it seems that access to expensive equipment (including draglines) as well as access to contracts were also significant factors in the acquisition 'value-proposition'. As Maddern (2003), General Manager of BMA Operations, stated: '... the value of the South Blackwater came from access to these contracts and markets, which we were able to hang on to'.

The capacity to reap these production synergies combined with the strategic value both in the long term future of the industry and in the rationalisation of the industry are the key explanatory variables in understanding the impetus for the wave of merger and acquisition activity.

Some Consequences for Employment Relations

These coal industry acquisitions and subsequent pit mergers have had significant implications for employment relations in the coal industry. From remodeling union organization to significantly changing the composition of the workforce and recasting bargaining structures, the M and A movement has produced novel human resource management challenges for management and created a new set of employment relations dynamics. This section discusses these implications by drawing on field semi-structured interviews conducted between 2003 and 2004. In 2003, invitations to participate in a study on the implications of industry rationalization were sent to a range of senior officials and representatives of producers, trade unions, employer associations and relevant government agencies. Interviewees were selected and approached on the basis of their assumed knowledge of the issues to be investigated. For this project, interviews with senior management of producers that been involved with mergers and or acquisitions, along with senior officials of the major coal industry unions, government agencies and employer associations, were considered vital to obtaining a broad overview of the implications of industry rationalization. Consent letters were received from senior officials of the major coal unions (the CFMEU [Northern, Queensland and South-Western districts] and the Association of Professional Engineers, Scientists and Managers, Australia [APESMA]--which now represents colliery staff) and from representatives of BHP-Billiton, Xstrata Plc, Centennial Coal, the Queensland Department of Natural Resources and Mines and the NSW Minerals Council. Semi-structured interviews were conducted in accordance with Schein's (1991) 'iterative clinical interview' technique that involves conducting a series of joint explorations between the researcher and the interviewee around key research themes. Schein's basic rationale for using such an approach is that 'only a joint effort between an insider and an outsider can decipher the essential assumptions and their patterns of interrelationships' (Schein, 1991:112). All formal interviews (19 in total), with the exception of an interview conducted with the Human Resource Manager of Xstrata, were conducted at the workplaces of the interviewees and continued for between forty-five minutes to an hour and a half.

The process of analyzing interview data broadly followed the process outlined by Miles and Huberman (1984 cited in Batelaan, 1993, p. 207), who suggest that:

   From the beginning of data collection, the qualitative analyst is
   beginning to decide what things mean, noting regularities, patterns,
   explanations, possible configurations, causal flows and
   propositions. The competent researcher holds these conclusions
   lightly, maintaining openness and skepticism, but the conclusions
   are still there, inchoate and vague at first then increasingly
   explicit and grounded.

Noting potential 'regularities, patterns and explanations' was practically achieved by flagging relevant data and placing them into categories that were conceptually linked to the thematic guides. This approach also follows McCracken (1998, pp. 16-18), who has argued that the purpose of the qualitative interview is not to discover how many people share a characteristic, but to gain access to the 'cultured categories and assumptions' of interviewees.

Some of the most significant consequences resulting from the M and A movement have been to union organization. The M and A movement created at least two problems to which the traditional coal unions have had to respond. First, the significant downsizing due to the decline in the industry in 1997-1999, coupled with that which occurred as a result of M and A activity, forced the CFMEU to respond with its own organizational rationalization. While it is impossible to separate the effects of downsizing due to the declining product market and those which resulted from industry rationalization, it is clear that the latter significantly contributed to changes in union organization. Maitland, the CFMEU National Secretary, stated in a speech in 2003 that focused on industry rationalisation, that between 1996 and 2000, the industry had lost thirty per cent of its workforce, or over 7000 workers. In the union's Northern District, this meant making a union official and occupational health and safety check officer redundant, whilst an assistant secretary's position was abolished. Workforce numbers in the traditional Southern and Western districts of the union fell to such an extent that it precipitated a merger between these organizational units of the union into a combined South-West district which takes in Broken Hill, the coal fields in and around Lithgow and the Blue Mountains in addition to the coal mines of Wollongong and the south coast.

In discussing the extent of decline in membership as a result of the downsizing, the President of the South-West district, Fisher (2003) stated:

   Yeah, '96, I would have had in the western area alone; I would have
   had 1,600 members. I have got 900 now, in this area. Down the south
   in 1996, when we started our merger talks in the south, they had
   3,500 members. They have got a little bit over 1,150 now.

At the CFMEU national office in Sydney, there have been further changes in response to a joint initiative of the Maritime Union of Australia (MUA) and CFMEU and the need to reduce operating costs. These include the sharing of office space and some services.

In response to the merger and acquisition movement, the CFMEU has also recreated what the union describes as 'merger groups'. As Maher (2003) explains:

   And that's the other issue about the consolidation, is that we've
   built on an old miners' federation practice of having merger groups,
   which are relatively important. We get all of the Anglo delegates
   in, all of the BHP delegates in, and hear about their problems. It
   is separate to a broad delegates meeting, and it is actually very
   constructive, and apart from some rivalry, they often don't hear
   what is happening until they go to those meetings in the other
   districts, and we're able to give them a company perspective.

The union representing white collar workers in the industry, the Australian Collieries Staff Association (ASCA), was also forced to merge with a larger union, the Association of Professional Engineers, Scientists and Managers, Australia (APESMA) in 2001, and have now closed their Newcastle office, reduced staff associated with servicing the coal industry and now operate out of APESMA's Sydney office.

Second, there was acknowledgment from the CFMEU that the creation of superpits through the acquisition and merger of adjacent pits had created substantial complexity in the management of the union's traditional lodge structure. Maher (2003), for instance, said:

   It's harder work basically. It's harder work. I mean, you take
   Blackwater, or Hunter Valley Operations. You've got five pits within
   the one mine really, and five bath houses, you might have seven
   different shift systems. If you're the lodge president, you've gotta
   work 24 hours a day, you know.

This was confirmed by the union's Northern District President, Peter Murray (2004), who said:

   You take the Rio Tinto operations where there's now three pits.
   Whereas we were able to get easy access to the employees at the
   end of shifts, they are now off-the-job meetings, but by agreement
   they are held once a quarter. But what it requires now is our
   industrial officer has got to spend something like six or seven
   days to get around to do those rounds and meetings to meet all the
   shifts.

The consolidation of the industry has also affected employer associations and their traditional industrial relations role. For instance the membership of the NSW Minerals Council is now smaller and composed of larger producers who typically have their own human resource management and industrial relations professionals or are willing and able to use large law firms for tribunal and court work. Consequently, the NSW Minerals Council's industrial relations role has shifted away from providing direct advice and advocacy to facilitating information sharing amongst the larger producers. This more muted role sharply contrasts with the strategic and proactive function that it fulfilled in the late 1980s and for much of the 1990s in leading efforts to secure workplace reform in the industry (Barry, 1999). Barry (1999, p. 134) notes that coal industry employer associations had enjoyed a string of industrial and political successes since the 1980s, but that these success may also have led to its present reduced influence. Consistent with Sheldon and Thornthwaite's (199, pp. 195-196) observations, industry restructuring--in this case restructuring and rationalization--led to the marginalization of the NSW Minerals Council's traditional industrial relations role.

The creation of superpits has caused considerable coordination difficulties for unions, but has also posed distinct human resource management challenges for employers. When BHP's Blackwater mine was merged with QCT's South Blackwater operations, it established a 13.5 million tonne pa. mine with a strike length of some 65 kilometres. The aptly named Blackwater Mega Mine drew together workforces from both underground operations and open cut operations--each with its own discrete culture. As BMA's Human Resources Manager, Jury (2003), explained, one of the company's biggest challenges was combining the very different underground and open cut workforce cultures:

   Probably one of our biggest cultural issues was that we had a lot of
   underground people coming out, and the underground guys work really
   closely together and there are not a lot of similarities between
   underground production and opencut production. So, a lot of them
   really did struggle because they lost that camaraderie, and the
   physical work that they were used to doing; and it was then sitting
   in a cabin and driving around or whatever. And equally, being
   relatively new in the opencut, they did what we'd regard as the less
   sexy tasks. You know, they weren't driving shovels or dozers or
   graders. And we had quite a few safety incidences too, with all of
   these well new opencut people going out. Although they were
   experienced miners, they were inexperienced in the open cut. So
   there were some cultural issues, we made a conscious effort to mix
   crews. You know, we didn't want South Blackwater crews, we didn't
   want Blackwater crews, we made a conscious effort to mix crews.

BMA's pre-merger due diligence report identified these differences and hence management were able to manage cultural compatibility issues through a strong communication campaign and ensuring that members of the underground workforce were spread evenly across various production teams in the open cut operations. For instance, Jury (2003) explained BMA's communications strategy in the following terms:

   We had a daily briefing note that went out through the supervisors.
   And if we had nothing to say, we said 'we have nothing to say'. We
   used the Blackwater Herald, which is the local paper, and we took
   advertising space on page 3 every week, to just let the community
   know what we were doing. And it was quite amusing, because each
   week--I think we did it for seven weeks--and for each week except
   for one week, the theme of our ad was front page news.

The sheer size of the mine continues to produce challenges with respect to work organisation and control. As Jury (2003) explained:

   Well, it's the strike length--it is 65 kilometres long. And that
   presents its own FIR issues. Take for example your electricians on
   back shift who spend 6 out of 12 hours in a car driving around.

Another important consequence of the creation of superpits has been the changed bargaining structures which have both advantaged and disadvantaged employers and unions. On the one hand, merged operations enable employers to establish umbrella industrial arrangements covering multiple workplaces and operations through a single industrial instrument that both reduces the 'complexity' of regulation and assists in creating a more unified culture. On the other hand, larger operations tend also to assist unions in their collective bargaining strategies and increase the importance attached to bargaining processes and outcomes. An example of this can be seen in the BHP Billiton--Coal 2001 certified agreement, which applies not only to the Blackwater Mega Mine but to all of BHP Billiton's Queensland operations. The multiple business agreement streamlines employment arrangements across the company's coal mining operations, but also attaches more significance to bargaining processes, as was obvious from the significant stoppages that occurred in 2000-01, when the agreement was being negotiated (CFMEU, 2001).

By contrast, Xstrata has adopted the reverse bargaining strategy, requiring each of its mine managers to negotiate individual enterprise agreements. Phil Jones (2003), Xstrata's Human Resource Manager, explained:

   We don't want all of our EA's looking the same; we want each EA to
   reflect what's important to that mine, not a one across. We don't
   want them all coming in the one hit, and therefore your company
   stops when they want to put a strike on because its enterprise
   bargaining time. We can say that we've got 14 mines, and one can
   stop, but there is another 13 still going--and it doesn't hurt us
   as much.

More broadly, the rationalisation of the industry and concentration of ownership has encouraged the CFMEU (Mining and Energy Division) to seek pattern bargaining arrangements to 'maximise the bargaining power of each lodge' (Common Cause, 2000/2001, p.11). Resolution 1 of the union's 2000 National Convention called for the union to develop coordinated bargaining by developing common expiry dates in certified agreements, enabling the union to seek pacesetting wages and conditions with the larger producers and to spread these throughout the industry. For instance, the resolution indicates that, inter alia, a standard wage increase of 15 per cent over two years, union recognition clauses and contractors agreements should form the standard provisions of any agreement negotiated in the industry. The 15 per cent wage increase which the union secured within the BHP-Billiton 2001 agreement clearly reflects this resolution. As Maher, the CFMEU's National President, wrote in Common Cause (2000-01 p. 2):

   Our industrial strategy centres on pattern bargaining. We need to
   maximise our industrial muscle to fight for the best deal for our
   members. Pattern bargaining will ensure this.

In a small number of cases, acquiring companies have sought to reject preexisting certified agreements or seek to 'reinterpret' their provisions. Bolger, an official with APESMA, complained that the spate of acquisitions 'has meant that we've had to devote more resources into the 'transmission of business' issue, than you would in other industries'. Vickers (2003), the Queensland District President of the CFMEU, stated that whilst there had only been one case where an employer sought to reject a pre-existing certified agreement--resulting in successful court action under s. 149(1) of the Workplace Relations Act 1996 (the transfer of business provisions)--attempts to reinterpret agreement provisions to the companies' advantage were more common. The CFMEU's Northern District President, for instance, said: 'I have got say that the major disputes, confrontations or disagreements, have only been around the interpretation of the agreements themselves because of change of management' (Murray, 2004). Vickers (CFMEU Queensland President) blames poor due diligence processes for HRM issues and a lack of consultation with the union both before and at the point of acquisition. He complained:

   ..almost inevitably, they want to change the work practices--
   complain about the certified agreement, or in fact, apply the
   certified agreement in a different way. One of the things that
   companies don't do is they don't come and talk to us--we who are
   parties to the certified agreement.

The lack of consultation and difficulties in accessing senior management of major producers was also seen to be a serious consequence of the M and A movement. All union representatives complained that consolidation of the industry and the concomitant global size and focus of the major producers meant that it was increasingly difficult to resolve issues with senior management. As Colley (CFMEU National Research Officer), observed:

   In terms of how it affects industrial relations, it made worse
   things which are already a problem. One of the cases, as it gets
   bigger and bigger, it gets harder to get a hold of their top
   people. Most of the top decision makers in these companies are
   overseas. So it makes it impossible to get a hold of them.

According to the union, larger producers had also demonstrated a willingness to invest more resources in litigation. As one of the union's industrial officers (Endicott 2004) explained:

   A big company has big resources, there's no two ways about that.
   We've had cases where the big players, some guys been sacked over a
   crap issue and they've forked out $100 000 to fight the case.

Consistent with the M and A literature, employment relations in the industry have been affected through reductions in the workforces of merged operations. Downsizing due to merger and acquisition activity generally occurs before the acquisition to increase the perceived value of assets or after the acquisition to meet investors' expectations. Where superpits are created, reductions in workforce size typically occur as a matter of course to raise labour productivity. Whilst interviewees observed that these reductions had sometimes been the source of disputation, others such as Fisher (CFMEU) pointed out that downsizing often also leads to increased reliance on contractors. As he observed:

   With the lead up to a merger, they want to become lean, mean, and
   whatever, and they cut the majority of that workforce by half. What
   they don't realise is that they still have to do the work, and they
   supplemented and have their pit contractors coming in to do the work
   that was normally done by the people that they displaced.

This view was confirmed by a Queensland government agency official who did not wish to be named. This person agreed that mines had downsized to 'unsustainable levels' as a result of acquisitions and that this often led to mines using more contractors. Furthermore, he argued that overzealous downsizing had caused a serious skills shortage in the industry, as large numbers of senior and experienced miners and staff members had been retrenched.

Recent analysis of certified agreements by Waring (2003) and of Queensland coal industry employment data by Bowden (2003), indicate that the traditional restrictions on contractors (via union-initiated agreements with producers) have weakened, resulting in increased use of contractors in the industry. While Bowden (2003) has pointed to the desire of producers to reduce labour costs as an explanation for the increasing use of contractors, this should be considered in the wider context of producers' objectives in mergers and acquisitions.

While the incidence of pre- and post-acquisition downsizing was the most common experience cited by interviewees, in one unique case--the acquisition of the Powercoal group by Centennial Coal--the CFMEU was able not only to renegotiate enterprise agreements before the sale, but also to insert into the agreements security of employment and entitlement clauses preventing the purchaser of the NSW government-owned mines from forcibly retrenching employees for a period of three years. Yet even in this case, the NSW government was able to trim down the workforce substantially (1) in the lead-up to the sale by offering voluntary redundancies to improve the financial attractiveness of the mines to prospective buyers. This may suggest that the voluntary redundancies enabled the Government to concede the security of employment provision as a condition of sale.

BMA and Xstrata company interviewees acknowledged that the downsizing commonly accompanying acquisitions produced a great deal of uncertainty and reduced commitment amongst the workforce. These had to be countered by comprehensive human resource management strategies that included provision of outplacement services and effective communication. Yet some union officials such as Maher (2004), the CFMEU's National President, questioned whether employee commitment could be secured by acquiring companies since, in his view, 'the image problem that companies have got is that they come and go. They are like a revolving door.'

Concluding Thoughts

This article has reported on some initial findings from research into the employment relations implications of the merger and acquisition movement in the coal industry between 1997 and 2002. These implications have been far-reaching and have forced changes to union organisation and, in some cases, crafted entirely new bargaining structures. Beyond common observations made in the mergers and acquisitions literature, it seems that there have been important lessons for all parties as a result of this activity. For employers, poor due diligence on employment relations matters and a lack of consultation with relevant unions typically resulted in industrial problems regarding the interpretation of agreements, whilst for unions the merger and acquisition movement has demonstrated the importance of organisational and strategic agility. For observers of employment relations, these findings demonstrate the importance of the market for corporate control in explaining employment relations phenomena and how this market, is in turn, interconnected and influenced by the dynamics of product and capital markets. Establishing the precise relationships between these markets and further monitoring their effects on industry employment relations is clearly the challenge for future research.

Table 1: Largest Coal Producers in the Australian Black Coal Mining
Industry as at 1999

Company             Saleable    Percentage
                    Production   of total
                      (Mt)

BHP                   54.6         25.2
Rio Tinto             30.3         13.9
Shell                 18.2          8.4
Oakbridge             14.9          6.8
MIM                   10.7          4.9
Peabody Resources     10.1          4.7
Powercoal              8.8          4.0
Other                 69.6         32.1

Total                216.9        100.0

Source: Productivity Commission (1999)

Table 2: Largest Coal Producers in the Australian Black Coal Mining
Industry as at June 2003

   Company       Saleable    Percentage
                 Production   of total
                   (Mt)

Rio Tinto          57.8        22.41
BHP Billiton       52.3        20.27
Xstrata            49.3        19.11
Anglo Coal         28.3        10.97
Centennial          12          4.25
Indemitsu Kosan     8.9         3.45
Other              49.3        19.11

Total              257.9       100.0

Source: Data compiled from NSW Department of Mineral Resources Annual
Coal Industry Profiles, Queensland Coal Industry Reviews 1997-2003
and Xstrata Plc Media Release 16 June, 2003.

Endnotes

(1) Murray (2004) has suggested that 200 CFMEU members, from a workforce of 900 employees, took up these voluntary redundancy packages.

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Interviews

Catherine Bolger--Official--APESMA (22/08/03)

Peter Colley--National Research Officer--CFMEU (24/04/03)

Chris Jury--BMA Manager--Human Resources (29/04/03)

Mick Maddern--BMA General Manager Operations (25/09/03)

Tony Maher--General President--CFMEU (24/04/03)

David Scott--Mine Planning Network Operating Excellence--BHP Billiton (25/09/03)

Howard Fisher--President--South-West District CFMEU (24/04/03)

Andrew Vickers--President--Queensland District CFMEU(26/09/03)

Kieran Turner--Director of Industrial Relations--NSW Minerals Council (15/08/03)

Phil Jones--Human Resource Manager--Xstrata Coal (14/11/03)

Phil Dash--Manager--Exploration and Industry Support, Queensland Department of Natural Resources and Mines (9/02/04)

Estelle Abbott--Statistical Officer--Queensland Department of Natural Resources and Mines (9/02/04)

David Coffey--Senior Geologist--Queensland Department of Natural Resources and Mines (9/02/04)

Ray Smith--Coal Technologist--Queensland Department of Natural Resources and Mines (9/02/04)

David Mackie--Deputy Chief Inspector of Mines--Queensland Department of Natural Resources and Mines (9/02/04)

George Tremlett--Generic Induction Project Manager--QMITAB (Queensland Mining Industry Training Advisory Body) (9/02/04)

Peter Murray--President--Northern District Branch CFMEU (11/03/04)

Keenon Endicott--Industrial Officer--Northern District Branch CFMEU (11/03/04)

John Edwards--Human Resource Manager--Centennial Coal Pty Ltd (15/04/04)

Peter Waring *, Employment Studies Centre, University of Newcastle

* I wish to thank the Australian Research Council for funding this research. My thanks also go to Tim Lee, Leslee Spiess and Nadine White, for their excellent research assistance, and to the anonymous referees for their valuable suggestions.