1. 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 focus mostly upon the fresh food, merchandise, groceries,
and other product categories. The company has numerous operations all
over the world, which required the expansion of the business all over
the locations. The firm goes well in the recent years but they required
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).
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)
2. Method of acquisition
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 own 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).
3. 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).
References
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Bramson, R. N. (2000). Mergers and Acquisitions. Training & Development, 59.
Cartwright, S., & Schoenberg, R.
(2006). Thirty years of mergers and acquisitions research: Recent
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