Rationales behind the acquisition
The companies considered are Wesfarmers
and Coles. Coles is a company that provides super market retailing for the products
in different locations. The company targets retailing for the various product
categories and serves the customers from different age groups. The company
Coles focuses mostly upon the fresh food, merchandise, groceries, and other
product categories. The company has numerous operations all over the world, which
require the expansion of the business all over the locations. The firm goes
well in the recent years but they require the promotion and new space for
mergers and acquisitions. The mergers and acquisitions of the company is
carried out with the firm “Wesfarmers.” The company Wesfarmers had vast
development for the business and they require the products and expansion of the
customers in varied environment (Angwin, D.2007).
Overview about Coles and Wesfarmers
The firm Wesfarmers remains as a conglomerate with the acquisition of various firms and management of the supermarket retailing services. The company adopts the business strategy of mergers and acquisition as a way of attaining the expansion in the business. The firm merges with the Coles, a leading super market chain retailer in Australia having several operations in numerous locations within the country. The company own their unique brands, promotes the products in their supermarket for sales, and targets the customers for the sales. The products include the different segments such as the food, groceries, and merchandise. These products are routinely used and customers like these products much thus leading to the growth. Being Wesfarmers as a conglomerate firm, they like to acquire the company Coles (Cartwright, S., & Schoenberg, R. 2006). The company adopts the merging and acquisition for the objective of the business expansion and no other reasons behind the acquisition. The acquisition of the company is important as they influence the business and their growth too. The main objective of acquisition is to expand the business overnight easily either through mergers, acquisitions, takeovers, and amalgamations. The mergers and acquisition serve as the market entry strategy and business expansion strategy as well. The mergers are characterized by the combination of two or more entities that involves blending. In this merger and acquisition, one company will lose the name and other company will retain their identity. By merger and acquisition, the seller’s owners are attempting to make diversification with the liquidity or portfolios. Buyers buy with offers to the sellers. The mergers and acquisitions can promote the market changes to the firm, which combines with numerous firms (Haleblian, et.al, 2009).
There are various methods involved in the mergers and acquisition techniques. The mergers and acquisition helps to acquire the companies and expand business easily in combination with two or more companies (Coyle, B. 2000). A single company will own the combination of other two or more companies. The company Wesfarmers acquired the Coles group focusing the reposition of the portfolio for targeting high capital weights toward the businesses including the future earnings and growth. The firm Wesfarmers acquired the company Coles group at 22 billion dollars. The company restored the position as leading retailer in the country. There are different processes of mergers and acquisitions, which are given as follows:
- Mergers
- Consolidation
- Tender offer
- Acquisition of assets
- Buyout
In the mergers and acquisitions, following techniques are widely used:
- Scheme of arrangement
- On-market bid
- Off-market bid
There is a wide difference
between merger and acquisition. The merger is the process by which two or more
companies are merged together and a company will retain their name and rights. The
acquisition involves the firm taking over another firm with the establishment
of the single ownership. In mergers, the stocks of the companies are
surrendered to the company that owns the name and rights. In acquisition, the
surrendering of the stocks is not required. The company Wesfarmers involves the
use of the method on-market bid for the acquisition of the company Coles. The
merger and acquisition remains the first overseas acquisition. Due to the merge of the two firms into a
single firm, the firm experiences the surrendering of the stocks to the name
“Wesfarmers” which leads the firm (Hitt, et.al, 2001).
The other methods of the mergers
and acquisitions are not widely used as they rely on the different scopes and
arrangements. The two companies Wesfarmers and Coles are merged by the
technique of on-market bid. There will be difference in the main features, which
depends on bid type. For market bid, cash only considered while for other
techniques, all types of cash, security, and assets are considered. This
acquisition method is used as the method involves the use of the cash with
extended securities, and unconditional. For the company Wesfarmers after the
acquisition of the Coles group through the market bidding results to the
favourable conditions of business expansion. The other methods of off-market
bidding and the scheme of arrangement are not adopted by the firm for the
acquisition (Trautwein, F. 2013).
Market reaction to takeover around the announcement date
When two or more companies merge
to a single company through mergers and acquisitions, the firm will have
certain changes in the market reactions. An event study is a technique adopted
for estimation of the stock prices during the merger and acquisition. The
market reaction exists in the companies when taking over around the
announcement date (Bramson, R. N. 2000).
Various changes in the market
reaction occur during takeover of the companies around the announcement date. The
changes in the market reactions occur usually with the companies during the
announcement of takeover. For the companies Wesfarmers and the Coles, during
the merger and acquisitions, the market reactions occur, which favours the
changes in the stock price reaction (Rossi, et.al, 2004).
The market changes may include
the price changes, security changes, and all other changes. These changes may
occur in any mergers and acquisitions. The event study methodology provides and
identifies the areas of changes. The mergers usually have the favourable effect
on the common stocks of the companies involved in the merging. The firms lead
to earn large positive returns for the mergers and acquisitions. The event
study methods can lead to identify the changing areas in the market, which may
include the change in the price and security. For the firm Coles and
Wesfarmers, around the announcement data for the takeover, the market reaction
exhibits favourable changes to the stocks and prices, which clearly indicate
the development for the company and expansion (Walsh, J. P. 1988).
Changes in the price, security,
and market for the firms after the announcement date results to expand the
company in wider manner. Few market experts depict that the price reaction
influenced by the announcement of the merger that relies on information content
or relation between expectations. For the firm Coles and Wesfarmers, it is
clear that the announcement had led to expand because of positive market
changes. The reason behind the positive market changes is that the company Coles
already have positive relationship with the customers and have familiar in
their supermarket retailing. The company Wesfarmers on merging and acquiring
the firm Coles have expanded their business by entering the new market without
any commitments with the customers. Though the company Coles group is merged
with Wesfarmers, customers believe that the products are good and same as
before mergers and acquisitions. The firm is providing the positive changes to
the market and resulted the company Wesfarmers to gain profits and revenue with
the mergers and acquisition techniques (Barney, J. B., 1988).
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