IB831 Mergers and Acquisitions : Global Multinational Enterprises

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

Legally, offers and acquisitions are bound to certain terms that are binding. Before the acceptance of the offer or the acquisition, the terms plotted have to be fulfilled. Similarly, the Sainsbury’s acquisition of the Argos is limited to specific terms. If the terms are not met, then the acquisition is not valid. The Sainsbury’s is in the move to meet the terms of the acquisition. The terms are such as the offer is conditional on Home Retail Group shareholders. The shareholders have to support the acquisition of the Argos by the Sainsbury’s. Shareholders have limited control in the management of business organizations and therefore, the decision of the shareholders is essential in determinations of the organization. Consequently, the acquisition of the Argos by the Sainsbury’s is confined to the decisions of the stakeholders.

Moreover, the acquisitions are limited to Regulatory approvals. Formalities that guide the mergers and the acquisitions should be dully considered. The Sainsbury’s acquisition is limited to legal formalities, for instance, the Financial Commission Authority. The acquisition of the Argos by the Sainsbury’s is confined to the legal framework of Financial Commission Authority. If the Sainsbury’s does not meet one of stipulated terms of the Financial Commission Authority, then the acquisition of the Argos fails. Regarding the Financial Commission Authority, the Sainsbury’s should be in a financial status that will compensate the shareholders and the total value of the Argos that include the proposed firm’s capital returns.

Furthermore, the terms of the acquisition are limited to the policies of the Competition and Market Authority. The policies of the competition and market Authority regulate the level competition among companies and business organizations. The Sainsbury’s must meet the expected standards set by the Competition and Market Authority to acquire the Argos. The policies are binding a factor of the terms in relation to acquisition. The level of competition of the Sainsbury’s in the market will determine the success of the acquisition of the Argos. Consequently, as a part law and the terms of acquisition the Competition and Market Authority plays a key role in the acquisition of the Argos by the Sainsbury’s.

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.

The terms of the transaction are also limited by the CMA that will not allow an extended period of investigation. 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 is bound to the terms and the terms are obligations to be attained.

Investigation and Analysis of the motives and risks

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. 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. 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.

The Sainsbury’s core motive for Home Retail takeover is to serve clients at any time and from anywhere. The changes in customer behavior are the prime factor that the Sainsbury’s consider in the acquisition. 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. The customers advocate for products delivered to the homes and from connect and collect point, or to collect up in store. Sainsbury’s management portfolio aims to adhere to the changing nature of the clients for business convenience. Sainsbury’s is concerned to Argos’ multi-million venture in the website and distribution platforms that offer quick delivery to gradually demanding customers. The Sainsbury have dismissed the fact that the takeover will distract the core supermarket industry. The primary concern of the Sainsbury’s is the online and delivery platform.The business acquisition and merger portfolio by Sainsbury seems to lean too much on the profit cum expansion programs, which caters for both competitive and business stability. Apparently, the Argos franchise in Sainsbury aims to increase the merger deal propensity to risk averse a deal that increases the business efficiency and risks reduction at large.

The Sainsbury’s are targeting to be the leading producer in non-food stuffs that attract higher revenues. Currently, there is limited growth in food industry in the Britain. The Sainsbury’s are venturing in the foot ware and the textile industry that are profitable. Furthermore, a test of 10 Argos franchises in Sainsbury’s supplies has proven the possibility to sell 20,000 more general products. Singularly, the food chains in Britain have proved its worthiness in respect to capturing the customers' affinity and interest towards Sainsbury. In fact, the Agro franchise units have created the business stability and ease of doing business; where the customer base index has increased the manufacturing power for all mergers and acquisitions units created.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 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

The competition regulators in UK has revealed that that it will examine the HRG acquisition by Sainsbury in order to find out that whether Sainsbury has a plan that will likely led to a substantial reduction in the competition within the UK market for services and goods. A final determination of whether deep inquiry is required will be issued later on if required.  

The agreement has been highlighted to conclude in the third quester of the year estimating that there is no vital engagement from the CMA. Nonetheless, there are certain issues that could be underdeveloped a long wait for the regulatory permission. The finance director of HRG revealed that any feedback will be might take place in a few months and therefore having the impact of endangering the deal finalization by the end of the summer.

Whereas there would a minimum crossover in the main grocery sales of Sainsbury due to the generation of £ 6 billion in the non-food activities, the CMA could disclose that the target markets for the explained goods that are non-food items in nature and the services are considerably exaggerated by the process of acquisition. The CMA has the power to delay the sales it they undertake the decision and finds it to be harmful to the consumers and can gratify Argos and Sainsbury to sell-off stores thereby minimizing the damages that have an impact on the competition.

Market Competition

It is seen that Sainsbury has encountered an anticlimactic strong competition as Lidl and Aldi have luredthe consumers with attractive discounts. It has cautioned of the looming tough times after declaring a decline of 14% within the underlying profits. Sainsbury achieved £587 million in the accounting year, which is lower than £681 million that accounted in the previous year and £798 million in the year preceding that. It was indicated that they do not notice an end to the price war as it is seen that the market is ferociously competitive and it will exist for the coming futures. This explains and highlights an interaction risk as it asks for the question if Sainsbury is functioning their operations good enough to integrate the stress of adapting Argos.

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.

The researchers have explained that the shoppers are being paid in order to undertake online shopping for the factor that online delivery is an inflated trade, and therefore Sainsbury could make losses on every delivery. Accordingly, the acquisition by Sainsbury of Argos’ commodities and enlarging their online services of delivery by making use of the existing infrastructure of Argos that could be helpful in resolving the challenges related to profitability and influence more people to make use of the multichannel model of grocery shopping. The sales volume that is surpluscould boost the growth in a massive way.

Profit Uncertainty

HRG recorded a decline of around 28% in their annual revenue, and obtained an underlying profit before tax of £94.7 million for the current year, which came down from £131.1 million in the last year mainly because of the complex and fierce markets and increased level of investment. This conversely, was above the aggregate estimation of the researchers of £93 million. The sales of HRG came down by 1% to £5.67 billion. The shares of the firm that was growing up to by 71% this year, fell down by 0.6% at £169.3 pence and even went down to £166.9 pence that is way below the operative of £172 pence price tag buyout.

HRG cash balance at the yearend is £623 million. The suggestion of Sainsbury’s quotations revealed that the good will of HRG had to be compared to the amount of the offer given by Sainsbury. Therefore, this results to an impairment charge of goodwill that incurs to £852 million thereby causing an overall loss after tax of £808 million for the year ended 2015-16.

The advantages with the deal for Sainsbury looks to be unclear. Specifically, certain analysts have granted the price tag that is over estimated and the Argos’ reluctant sales and outdated principles as components that undermine the takeover basis. Sainsbury presently neglected the apprehensions that Argos will take the down market of Sainsbury that will state that there is the existence of plenty of connections among both the customer entities and that a small percentage of Argos discount in the shops of Sainsbury have functioned appropriately.

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.  

The head office nurtures the strategy that is associated with the group with a firm management of the Strategic Business Units, which are estimated to gain their goals and strategies. The elimination of specific functions head office that may be disadvantageous to any of the critical success of the entities that are combined.

Diversification

It is seen that merger and acquisition has a straight connection with the matrix concept of Ansoff. The planning that is in connection to the formulation of the strategy that is introduced may be related to entity to risks in the development of fresh markets and the requirement to manufacture innovative products. Even though both the elements are from the retail sector, they function specifically in various commodities. It is a precondition that there are essential management employees of either elements that realize the business, and ownthe expertise along with the knowhow.

Dismissal

The dismissal of certain head office employees may even uncover the liabilities of Sainsbury under the unfair and wrongful dismissal if they are not managed with care.

Conclusion:

To sum it up all, Mergers and Acquisitions are transactions that entail the ownership of business organizations, companies and operating units that are transferred or combined. The management may engage the aspect of Merger and Acquisition that has impacts on the company or the business organization. The impacts of the Mergers and Acquisition include changing the nature of the business, expected growth or shrink of the business and expected competitive position. Legally, merger is the coming together of two business entities into one entity. Acquisition happens when one of the business entities assumes the ownership of another entity’s liabilities, assets and equity interests.  Commercially and economically, the both types of transactions usually result in the association of assets and liabilities under single unit. Legally, offers and acquisitions are bound to certain terms that are binding. Before the acceptance of the offer or the acquisition, the terms plotted have to be fulfilled. Similarly, the Sainsbury’s acquisition of the Argos is limited to specific terms. If the terms are not met, then the acquisition is not valid. The Sainsbury’s is in the move to meet the terms of the acquisition.

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.

Reference:

(2017)<"https://www.telegraph.co.uk/finance/newsbysector/retailandconsumer/********/sainsburys-home-retail-group-argos-1.1bn-second-bid.html"> accessed 20 June 2017

(2017)<>https://www.telegraph.co.uk/finance/newsbysector/retailandconsumer/sainsburys-home-retail-group-argos> accessed 20 June 2017

(2017)<https://www.telegraph.co.uk/finance/newsbysector/retailandconsumer/********/sainsburys-home-retail-group-argos-1.1bn-second-bid.html> accessed 20 June 2017

Bauer, Florian, and Kurt Matzler. "Antecedents of M&A success: The role of strategic complementarity, cultural fit, and degree and speed of integration." Strategic management journal 35.2 (2014): 269-291.

'Business - BBC News' (BBC News, 2017) <https://www.bbc.co.uk/news/business> accessed 20 June 2017

Caiazza, Rosa, and Tiziana Volpe. "M&A process: a literature review and research agenda." Business Process Management Journal 21.1 (2015): 205-220.

Cartwright, Sue, and Cary L. Cooper. Mergers and acquisitions: The human factor. Butterworth-Heinemann, 2014.

Galpin, Timothy J., and Mark Herndon. The complete guide to mergers and acquisitions: Process tools to support M&A integration at every level. John Wiley & Sons, 2014.

Gamache, Daniel L., et al. "Motivated to acquire? The impact of CEO regulatory focus on firm acquisitions." Academy of Management Journal 58.4 (2015): 1261-1282.

Garzella, Stefano, and RaffaeleFiorentino. "A synergy measurement model to support the pre-deal decision making in mergers and acquisitions." Management Decision 52.6 (2014): 1194-1216.

Geppert, Mike, et al. "Managerial Risk?taking in International Acquisitions in the Brewery Industry: Institutional and Ownership Influences Compared." British Journal of Management 24.3 (2013): 316-332.

Goetz, Martin R., Luc Laeven, and Ross Levine. "Does the geographic expansion of banks reduce risk?." Journal of Financial Economics 120.2 (2016): 346-362.

Harris, Elaine. Strategic project risk appraisal and management. Routledge, 2017.

Holburn, Guy LF, and Richard G. Vanden Bergh. "Integrated market and nonmarket strategies: Political campaign contributions around merger and acquisition events in the energy sector." Strategic Management Journal 35.3 (2014): 450-460.

'HRG Acquisition' (About.sainsburys.co.uk, 2017) <https://www.about.sainsburys.co.uk/investors/shareholder-information/hrg-acquisition> accessed 20 June 2017

'HRG Acquisition' (About.sainsburys.co.uk, 2017) <https://www.about.sainsburys.co.uk/investors/shareholder-information/hrg-acquisition> accessed 20 June 2017

'HRG Acquisition' (About.sainsburys.co.uk, 2017) <https://www.about.sainsburys.co.uk/investors/shareholder-information/hrg-acquisition> accessed 20 June 2017

Jaberidoost, Mona, et al. "Pharmaceutical supply chain risk assessment in Iran using analytic hierarchy process (AHP) and simple additive weighting (SAW) methods." Journal of pharmaceutical policy and practice 8.1 (2015): 9.

Kling, Gerhard, et al. "The Effects of Cross?border and Cross?industry Mergers and Acquisitions on Home?region and Global Multinational Enterprises." British Journal of Management 25.S1 (2014).

Knechel, W. Robert, and Steven E. Salterio. Auditing: assurance and risk. Routledge, 2016.

Lam, James. Enterprise risk management: from incentives to controls. John Wiley & Sons, 2014.

Mescall, Devan, and Kenneth J. Klassen. "How does transfer pricing risk affect premia in cross-border mergers and acquisitions?." (2014).

Moeller, Scott, and Chris Brady. Intelligent M & A: Navigating the mergers and acquisitions minefield. John Wiley & Sons, 2014.

Rothaermel, Frank T. Strategic management. New York, NY: McGraw-Hill, 2015.

Sadgrove, Kit. The complete guide to business risk management. Routledge, 2016.

Stahl, Günter K., et al. "Sociocultural integration in mergers and acquisitions: Unresolved paradoxes and directions for future research." Thunderbird International Business Review 55.4 (2013): 333-356.

Stiglitz, Joseph E., and Jay K. Rosengard. Economics of the Public Sector: Fourth International Student Edition. WW Norton & Company, 2015.

Wanke, Peter, Carlos P. Barros, and João R. Faria. "Financial distress drivers in Brazilian banks: A dynamic slacks approach." European Journal of Operational Research 240.1 (2015): 258-268.

Yeomans, Jon. "Sainsbury's Returns With £1.3Bn Offer For Argos". Telegraph.co.uk. N.p., 2017. Web. 12 June 2017.

Zhang, Jiali, et al. "The effect of leadership style on talent retention during merger and acquisition integration: Evidence from China." The International Journal of Human Resource Management 26.7 (2015): 1021-1050.

Zopounidis, Constantin, et al. "Multiple criteria decision aiding for finance: An updated bibliographic survey." European Journal of Operational Research 247.2 (2015): 339-348.