IB831 Mergers and Acquisitions : Global Multinational Enterprises

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1. A full description of the terms of Sainsbury’s bid for Argos.

Answer:

Introduction:

Commercially and economically, the both types of transactions usually result in joining of assets and liabilities under single unit. The difference the between a merger and an acquisition is more or less certain.  An operation lawfully designed as an acquisition may have the result of engaging one party's corporate under the indirect possession of the other party's stakeholders. A transaction legitimately regulated as a merger may ensure each party's shareholders limited ownership and regulation of the joint enterprise. Definite acquisition objectives can be recognized through a numerous decisions that include market research, sent up from internal business units and operational trends. The business community has witnessed mergers and acquisitions of renowned firms due factors such as combating competition, change the nature of the business and anticipated growth. The paper seeks to present a report concerning the Sainsbury’s bid for Argos. This report will try to highlight the main factors with respect to the factors that encourages Sainsbury to acquire Argos. The paper will even highlight and evaluate the risk that are associated with the completion of the acquisition of Argos.  The terms of the bid, analysis and investigation of motives and risks after the bid is successful.

The Report Critique

Sainsbury's is the second biggest chain stores in the United Kingdom with a significant share of the supermarket segment in the United Kingdom. It was founded in 1869 and the company turned to be the biggest store retailer in 1922. It was among the initial adopters of self-service retailing in the United Kingdom. In 1995, emergence of companies surpassed Sainsbury's and developed to be the market front-runner with some of the companies challenging the Sainsbury’s to the second largest in 2003, relegating Sainsbury's to third place. Subsequently, until January 2014, Sainsbury's regained second place. The increased competition in the market has led to anticipated strategies of takeover of the Argos by the Sainsbury’s. Consequently, the holding company, J Sainsbury plc, is divided into three divisions. Sainsbury’s target acquisition of Home Retail Group, owner of Argos and Locale if accomplished, the Sainsbury’s will generate one of the UK’s leading food and non-food dealers. The acquisition plans offers more product optimal and faster distribution times, making the customers’ lives better.

Description of the terms of Sainsbury’s bid for Argos.

The Guernsey Financial Service Commission stipulates certain terms to be met before acquisition. The financial stability of companies and business organizations is crucial in acquisition procedures. If a company is below the set range of finance and assets, then the procedure of acquisition may end up failing. The companies and business firms should adhere to the Guernsey Financial Service Commission. In relation to the case study, the Sainsbury’s should be in a better financial position to acquire the Argos. Otherwise, the failure to meet the expected financial standard by the Guernsey Financial Commission will result to no acquisition between the Sainsbury’s and the Argos.

The terms of the acquisition is further confined to the shareholders in relation shares and dividends. The shareholders of the Argo need the compensation of the shares invested in the firm. The shares may be limiting factor because the Sainsbury’s probably may be in a financial status that cannot afford the shareholders. Again, the shareholders of the Home Retail are to be paid the dividends earned. Home Retail shareholders are expected to get 25p a share regarding the £200m sale of its Home base chain and 2.8p a share in lieu of a last dividend for the financial year that ended. Based on the Sainsbury’s closing share price, the Home Base shareholders are expected to be paid 55p in cash and 0.321 of its own shares share, valuing Home Retail at £1.2bn, or 143.7p a share. According to some analysts, there is the thought that the Home Retail may probably seek to quote greater price from Sainsbury’s before endorsing the offer to shareholders. However, there absence other suitor in prospect, the offer has remained unaffected regardless of Home Retail over the bidding process.

Investigation and Analysis of the motives and risks

The acquisition will ensure that there are fewer Argo stores in the streets. The motive is that Sainsbury’s will reduce the rent expenses. The takeover will ensure the end of lease and thus, no rent costs for the Sainsbury’s. Although Sainsbury’s  claim that the takeover will upshot in an general increase in the total of Argos locations by establishing enterprises within its greater supermarkets and presenting click and collect points through its suitable store estate. The takeover is basically a promotion to the Sainsbury’s stores and improved competitive advantage. The risks associated include that there be mass unemployment. The takeover will result to dismiss of employees especially from the Argos stores. The unemployment gap created is a risk that requires immediate solution. The acquisition should consider the employees from the both firms.

The future of the Home Retail is endangered because the customers will shop in the Sainsbury’s. Sainsbury’s did not mention the Home Retail Group’s DIY division Home base. The division includes potential buyers from private equity players. There is fuelled assumption that it will be discharged when the acquisition is successful. Therefore the future of the Argos is threatened. There is expected risk of change in the assortments in the retail strategy. The assortment retail strategy plays as a key factor and function in the retailing, linking supply with demand. It provides a selective variety of merchandise for customers to purchase. As a main element of the retail marketing mix, merchandise is among the primary reasons for a consumer to attend a store, browse or purchase. In the retail mix, the mixture operates the retailer’s policy becoming a considered positioning tool to invite and retain core customers. The acquisition bears the risk of changes in the assortments.

Risks faced by Sainsbury’s and Argos if the transaction proceeds

Delay

Market Competition

It has been observed that Amazon currently has founded their pantry to the next day delivery service, which presently handles with the essential items of the household, but with with an estimated entry into the sector of grocery in this year, probably functioning into overall delivery of grocery.  

Sales Reduction

It has been observed that online shopping from the supermarket is completely a different perspective like clothes shopping and IGD confirms that currently, online purchases comprise of just 5% of the grocery sales that leads to lower demand. It is seen that the shoppers does not like to pay for the fee for delivery and it is seen that slots for delivery are regularly tiresome and the food that is delivered is not always fresh.

Profit Uncertainty

On the other hand, the finance chief of Sainsbury commented that certain expectations of the company got trimmed regarding their sale of clothes with the help of the channel of Argos. This tries to specify an identification that the knowledge of selling to the customers of one another was not a liberal as predicted.

Integration Strategy

The management specifically tries to function Sainsbury and Argos but implied during the time of a press conference that the rational management strategy is to construct one head office for both the business in order to restrict the replication of the roles and tasks. It is noticed that by not enduring the prospects that are uncertain for the people with the role of the head office it is forecasted that Sainsbury is looking for increased jobs by undertaking the merger with Argos.  

Diversification

Dismissal

Conclusion:

Apparently, the industry sources have formerly raised the view of an elongated competition review given Sainsbury's and Argos' correspondences in toys and insignificant electrical appliances, for instance, kettles and toasters. One of the primary industry sources declared that as an outcome, the acquisition will be bound for the phase two investigation that is a six-month procedure. The acquisition between the Sainsbury’s and the Argos entails motives and risks. The motives are the primary goal and target of the Sainsbury’s. The motive of Sainsbury’s basis for the deal is concentrated on the quickly varying nature of customer actions and the anticipations to shop faster whichever in store or online. However, there are associated risks for the both business firms as a result of the acquisition. The magnitude of the risk may be cross-sectional, longitudinal, short-term or long-term. Before embarking on the acquisition, it is vital for the both firms to engage on a feasibility study to specifically determine the associated risks. The future of the acquisition is determined by the initial steps taken.

Reflection Statement

My view is that the acquisition of the Argos by the Sainsbury’s will impact to better customer services although there are predetermined risks to the both the organizations. Firstly, the future of the Home Retail is endangered because the customers will shop in the Sainsbury’s. Sainsbury’s did not mention the Home Retail Group’s DIY division Home base. The division includes potential buyers from private equity players. There is fuelled assumption that it will be discharged when the acquisition is successful. Therefore the future of the Argos is threatened. For the Sainsbury’s, there is expected risk of change in the assortments in the retail strategy. The assortment retail strategy plays as a key factor and function in the retailing, linking supply with demand. It provides a selective variety of merchandise for customers to purchase. As a main element of the retail marketing mix, merchandise is among the primary reasons for a consumer to attend a store, browse or purchase. For the marketing strategy, the main part of the retail marketing mix, merchandise is among the primary reasons for a consumer to attend a store, browse or purchase. In the retail mix, the mixture operates the retailer’s policy becoming a considered positioning tool to invite and retain core customersTherefore, the acquisition should put into consideration the future risks expected.In fact, acquisitions and mergers revolve around securing business portfolio from unknown and unplanned risks, a strategy that Sainsbury utilizes to diversify and intensify its competitive strategy.  The opening of several business units boosts the Sainsbury risks diversification and profit portfolio restructuring.

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