Mergers and Acquisitions: Wal-Mart and Morrisons

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Introduction

This assignment evaluates how Wal-Mart will merge or acquire Morrison’s as an expansion plan of expanding its operations to the UK, Europe, the Far East, and the Gulf States. Morrison being a very prosperous candidate for this merger as it is a well-recognized household name in the whole of England and is one of the most trusted brands in this region.

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Wal-Mart

Wal-Mart was originally founded in the year 1962 by Sam Walton, from the beginning the store was only a retail shop in 1945 which he called Walton’s Five and Dime.” Walton’s dedication and enthusiasm helped achieved higher sales volume, which he attained by marking up than most competitors on very slightly less prices of his merchandise. From this expedition Walton actually managed to open his first Wal-Mart Discount City store which was located at 719 Walnut Ave, this was in the state of Arkansas. Within the duration of five years, these stores had seen an expansion of twenty-four stores across the state of Arkansas and later in the year 1968 the first store beyond this state was established (Berner, 2009).

Today this chain of the discount store is currently known as Wal-Mart Stores, Inc, which is actually branded as Walmart. This store is currently considered the largest public chain department discount store in the world, founded in 1962 and was later incorporated on October 31, 1969. The year 1972 saw the store been listed on New York Stock Exchange (Jana, 2010). It is considered to be the largest private employer in very many regions, its operations in the UK formerly known as Asda, Mexico which falls under the name Walmex, North America operating a variety of clubs (Sam club) and a variety of warehouses in the same region, in Japan under the name Seiyu, also in India as the best price, other countries that have this stores includes Brazil, Argentina, Puerto Rico, and Canada.

Morrison’s

Founded by William Morrison’s in the year 1899, this chain of supermarkets basically started out from an egg and butter retail stores stall which was situated in the Rawson Market, this market demographical location was in England in the city of Bradford. These stores were mostly focused on northern England till 2004 in the wake of the take over of Safeway; this stipulated the stores to have additional 420 stores across the UK.

Wm Morrison Supermarkets Plc is the title that currently the stores are formerly known as; in the whole of United Kingdom, they are rated to be the fourth largest chain of the supermarket. The current name that the supermarkets are branded with is Morrison’s which the locals knows it by as it is a household name in the region of England as it has covered every retail market dimension in this region. The FTSE 100 Index is also part of Morrison formation of group of companies in the FOREX market. Its market share standing in December 2008 was rated as 11.8% and this made to be ranked fourth of the other three giants Tesco ranked at 30.9% assumed first, second was Asda claiming 16.8% and third was Sainsbury’s which was rated at 16% (Ryle and Wachman, 2005).

Currently this organization is basically owned 15.5% by the family of the original founder, these is basically the reason that this supermarket has stayed top as it is run independently without interference from family, there are no family wrangles within the managerial structures, this has been assumed that the founding family has had control from far and not interfering with the smooth running of this organization, from these aspect many family business which have been long in the business collapse after the hierarchy control fail due to family wrangles. The son of the founder who once chaired the chairman seat now is a board member and dos not induce authority that would jeopardize this organization, but only indulge in the creation other than destructive structure.

Most of the stores which were owned by Safeway supermarket which summed up to a total of 479 stores across Scotland and south of England, after the acquisition were now under the direct control of Morrison’s supermarkets in the year 2004. From the report gained it is said that during the acquisition, there were numerous wrangles that aroused, this is in the concern of that the difficulties incurred were the result from the outgoing managers altered and changed the system of accounting, during the grace period of finalizing the transaction, these occurred just six weeks before the merger and acquisition was finalized though their efforts were foreseen and reprimanded. However this was later resolved, this move was the biggest in the history of British retail history, this was mainly focused on the retained stores which were mainly considered Freehold, with large and very spacious parameters and came with a large separate parking lot. Within few weeks after the acquisition Morrison’s took effect in managing all the transactions.

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Merger definition

In most cases and mostly under the discipline of business the term merger is usually defined as the transfer of the properties to one surviving corporation to another by the means of statutory combination of two or more corporations.

Definition of acquisition

Also in the same discipline this term is coined from the same concept, which it is by the procedure through which one corporation takes over the other corporation.

Definition of mergers and acquisition

When studying business these two terms will often coincide with each other and form a common ground, so it is good to say merges and acquisition can be defined as unit of financing and banking which concerns itself with funding of acquisitions, takeovers, and mergers (Miller, 2008). It is usually a specific section which specializes with stockbrokerage firms, merchant banks, and corporate lawyers.

While contemplating business mergers and acquisitions, mostly majority of managers usually rely on focusing on whether the contract is instantaneously dilutive or anti-dilutive to earnings per share (Sherman and Hart, 2006). These trends usually have its implications and shortcomings. These trends by the mangers are usually considered to be equally silly for the would-be procurer to mainly be focus on current earnings, which is usually irrelevant because the prospective owner has dissimilar prospects, dissimilar quantity of non-operating chattels, or a dissimilar capital configuration.

Advantages of mergers

Some of the advantages that are found in mergers are many and very beneficial to both parties, however if Wal-Mart decides to merger with Morrison then the following are the benefits that both of these organization are going to benefit from, below are some of the most important advantage about mergers:

  • Tax shields account benefits which include unclaimed depreciation or carried forward losses on Wal-Mart mergers with Morrison’s (Harvard Business Press, 2001).
  • Balance sheet strengthening and restructuring for Morrison’s which would mainly benefit Wal-Mart
  • Surplus cash investment for Wal-Mart
  • Market share enhancement for both Morrison’s and Wal-Mart
  • Competition minimization on both organizations

Both the firms’ competitive advantage amalgamation growth for Wal-Mart and Morrison’s:

  • Easy acquaintance with economy of scale for Morrison’s which in turn benefit Wal-Mart
  • The merger is usually tax free on Wal-Mart and Morrison’s
  • The merger helps the shareholder with smaller entities (Morrison’s) to increase their general net worth by owning a smaller piece of a larger pie (Wal-Mart combined efforts or profits)
  • The merger will let Morrison to realize the appreciation of potential merged unit, instead of having to be limited on the proceeds of sales (Vachon, 2008).
  • These mergers will allow Wal-Mart to avoid unnecessary time wastage in the aspect of asset procurement, which include tiring and long some activities like leases assignments and bulk sales announcements. This helps the contract to become dissenting and effective, in this effect then Morrison’s would be happily obliged to continue with the transaction.

Why choose Morrison’s over Sainsbury’s or Marks and Spencer’s

When choosing the right team player to merger with from Sainsbury and Marks and Spencer over Morrison’s, I would definitely take Morrison over the two. These is because although Sainsbury market value is rated high against Morrison’s in assets, it is valued to be high on without consideration of assets on market value and also its growth is drastic, these also applies to Marks and Spencer’s whose market share is very little compared with Morrison’s.

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Morrison’s having a bigger market share

The bigger market share advantage that Wal-Mart would gain from the merger with Morrison’s actually will pin point upon the market share value for this organization. This is because on the same market segment that these two organization originates, are both very profitable and Morrison’s is already an established organization with a huge market share value, this advantage will mainly stem from the fact which Morrison’s can gain control of resources that other competitors like Sainsbury or Asda may not be able to match on the same market segment.

However because Morrison cannot be able to capitalize on its own advantage of market share value then Wal-Mart will be the logical heir to gain these market share advantage. Wal-Mart will definitely gain from these mergers as they are in control of a firm that was already in another merger with Safeway supermarket in the year 2004, this makes them have a larger market share with having this merger with an organization which has had a significant advantage of being for along time in the market with a huge market share value.

Morrison’s is more profitable

Because Morrison’s has been in the market for along time than Sainsbury and Marks and Spencer’s this means that it is more profitable than both of these entities. From the profit margin labeled according to the merger of Morrison’s and Safeway supermarket, they are rated to be 3.2% above Sainsbury and 6.9% above those of Marks and Spencer’s. From these records it would be best for these mergers as this organization has a good market outreach over both other organization in comparison (Morrisons, 2010).

Morrison has better management structures

In business sense especially when mergers and acquisition are concerned the term organizational structure usually refers to the approach by which an organization arranges employees and deliverables (jobs) so that its exertion can be executed and the main objective are met. The efficiency in Morrison in executing management structure has been analyzed and appreciated all over the world, this organization ahs the best effective structure of management from its establishment to date.

Now comparing Sainsbury and Marks and Spencer’s management structure with Morrison would be like doing a very huge mistake because they do not match up to Morrison’s, actually Wal-Mart merger with this first class organization, which has a very nice management structures system would also improve on their own management structure after adapting this same system, that has been the tradition of this organization and its success has puzzled most financial analyst (Morrisons, 2010). Because Wal-Mart has had problem in the past with managerial responsibility because of the size of these organizations, after the merger then they can borrow leaf from this organization and take advantage of the merger. The structure of Morrison’s according to many analyst are detailed according to geographical or product markets, product, and function (Jana, 2006).

Cost of capital for valuing Morrison’s

I would use financial records of Morrison to determine its viability in the market. This is aimed at proving that from time memorial this organization has been doing tremendously, from these expeditions they have been receiving awards for their effort and discipline. This is the oldest supermarket in the United Kingdom and the most efficient.

This organization has acquisitioned, merged and acquired Safeway supermarket in the year 2004, later purchased the Somerfield supermarket stores which were sold o them from the merger of Co-operative group and bought 35 stores to add to their already existing ones. These the managers of Morrison’s claimed was the ongoing effort that the supermarket is making in fulfilling its mandate of having in all of UK a supermarket within every minute from every home in this region.

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The profit margin of this organization is very lucrative and has been recorded although it did decrease its market value on the year 2006, it has gradually recovered. Records show that from the year 2000 Morrison’s profit margin was at 15% with a turn over of £ 2,969 million with a profit of £ 103.1 million after tax, from these there has been gradual elevation on this supermarket that has not been experienced anywhere else, this has been recorded to be an increment of 63%, these has been from the fact that on the year 2009 the profit margin of this organization was with a turn over of £ 14,579 millions with a profit of £ 460.0 million after tax.

From this aspect this outline the most important aspect that secludes the other organization from merging with al-Mart and leaves Morrison’s as the best hopeful for this kind of acquisition. This is because Morrison has been experiencing tremendous financial improvement over the years hence it’s a good investment to purchase.

Summary financial statement of Morrison

Normal Dividend

Share 2004 2005 2008 2009
Interim dividend 0.735 0.725 0.725 0.725
Final dividend 4.085 4.085 4.425 5.725
Total dividend 4.810 4.810 5.150 6.450

An accumulative dividend of 4.725% is on proposal, making the overall for the year 2009 to peg at 5.450%. This is a representation of an upswing in the total dividend by 21% (2008: 8.2%). Upon receiving approval from the Annual General Meeting, by 6th June,2009 the final dividend shall get its payroll to shareholders mostly seen members’ register on May 2, 2009.

Individual Share Earnings

The summary of consolidated income statement shows individual earnings per share though not adjusted.

The Directors have put in to consideration the fact that earnings for each share that are underlying and adjusted measures whose references are made in the statement of Chairman and CEO review give more information of utility to be used by shareholders with regards to performance and trends which are underlying.

2008
pence
2009
pence
Underlying Normalized Earnings/Share
Basic 9.6 15.6
Diluted 9.6 15.6
Adjusted Earnings/Share
Basic 9.2 20.8
Diluted 9.2 20.7

Underlying and Adjusted Normalized Earnings

These adjustments get executed to profit which are reported for the sole aim of removing the profits that have resulted from transactions of property because the profits are not able to form part of the main activities of the group; do away with the volatility of income statement with regards to net interests of his/her pension resulting from the conditions of the market; and to help in applying an effective tax rate of 33%, which remains an approximate tax rate that is undergoing normalization from the 2009’s tax rate which is effective is significantly lower because of reasons that have been set out in the figures shown.

2008
£m
2009
£m
Profit (Pre-Tax) 470 712
Profits (Adjustments made) with aim of transaction of properties (50) (26)
(Overall pension) Adjustments in income interest. (9) (19)
Underlying Earnings (Pre-Tax) 431 614
33% of Normalized tax (115) (134)
Earnings from normalized tax charge 312 367

The adjusted earnings for year 2007 were £ 221M and £525M in 2008.

The share performance of the company has also being increasing over the years. The shares return for shareholders was £125M in 2006, £202M in 2007 and £204M in 2008.

Turnover

2007
£m
2008
£m
Sales of goods 11,097 11,539
Energy 3,401 3,543
Total sales from stores 13,488 13,982
Direct sales (Manufacturing) 38 37
Income on commission and concessions 56 70
Turnover (Total ) 13,562 13,989

The turnover which is reported in the table above is inclusive of Value Added Tax (TAX).

Taxation

Taxation records over the financial year are also factors to be considered. In the financial year the tax rate was 9.5% which results to the tax in the year to be £58M; the percentage rate is much below the normal rate because the corporation tax was £142M which was much lower than the charge which was being expected.

Conclusion

The merger of Wal-Mart with Morrison’s would be a good move or both the firm, this is because Wal-Mart is a huge multi-million investment and it is operational in very large dimension. And because its not very common among many Britons who value their home retailers like Tesco, Sainsbury and Asda the name its operates with in this region, these merger will help it to capitalize its market margin and be able to top the group of the giant supermarkets in this region. From this aspect this outline the most important aspect that secludes the other organization from merging with al-Mart and leaves Morrison’s as the best hopeful for this kind of acquisition.

Many factors points out why Morrison would be the best candidate for the merger, on line of the profit margin of this organization it is considered to be very lucrative and has been recorded, that although it did decline in its market value on the year 2006, it has steadily recovered. Data analysis stipulate that from the year 2002 Morrison’s profit margin was at 17% with a turn over of £ 3,169 million with a profit of £ 156.0 million after tax, from these aspects there has been a record of gradual elevation from this supermarket that has not been experienced anywhere else, this has been recorded to be an increment of 75%. With this there is no other supermarket in the UK that has had a leverage of such from a declined angle like Morrison, this is due to the perfect managerial structure system that have been tradition for these organization. From these aspects Morrison’s would best be the organization that Wal-Mart should consider merging with in the UK due to its efficiency and also the brand is very well appreciated.

Recommendation

From the facts and data that has been analyzed in this assignment I would recommend that the merger with Morrison’s take effect, this is because this organization ahs proved to be very disciplined, and effective in underlying facts in managerial structural management. From these Wal-Mart can borrow a leaf as it a big organization and it has been struggling with these aspect for along time. However because Morrison’s supermarket is a house hold name in the UK, and as its specializes in some other market segment in this region it would be the right choice for the merger and acquisition. From these aspects it’s highly recommended that Wal-Mart take Morrison’s as the prime candidate for this merger.

References

Berner, Robert. Can Wal-Mart Wear a White Hat? 2009. Business Week. Web.

Harvard Business Press. (2001) Harvard Business Review on Mergers & Acquisitions. Boston, Harvard Business Press

Jana, Reena. Wal-Mart turns attention to upscale shoppers. 2006. Web.

Miller, Edwin (2008) Mergers and Acquisitions: A Step-by-Step Legal and Practical Guide. New York, Wiley

Morrisons wins. Retailer of the Year for second year running. 2009. Web.

Morrisons. Half-yearly financial report 2009. Web.

Morrisons. Interim management statement. 2009. Web.

Ryle, Sarah and Wachman, Richard. Morrisons faces investor revolt over Safeway. 2005. Guardian. [Online]. Web.

Sherman, Andrew and Hart Milledge (2006) Mergers and Acquisitions from A to Z. Oxford, Butterworth-Heinemann,

Vachon, Dana (2008) Mergers & Acquisitions. New York, Academic Press

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BusinessEssay. "Mergers and Acquisitions: Wal-Mart and Morrisons." November 28, 2022. https://business-essay.com/mergers-and-acquisitions-wal-mart-and-morrisons/.