Introduction
One company is considered to have merged with another company when both have combined their assets and liabilities into one bigger company. Both companies are usually similar in size and stature. In mergers the two companies join together to come up with a new name and a combined market share therefore making the new merged company bigger and better. Mergers are often forged for market survival due to competition or regulations to increase asset base by the regulator in the domicile country. Acquisition is the purchase of the target company either partially or fully. The target company can either change its name or operate under the same name but as a subsidiary of the acquirer. The target company is usually smaller in size (Lebedev, Peng, Xie & Stevens, 2015).
Evaluation of Company Under Merger and Acquisition
Kellogg is recognized World Wide for their nutritional cereal products. Apart from cereals Kellogs also manufactures cookies, pastries, waffles among other products. Kellogg’s products are distributed over 180 countries. In 2012 Kellog Company acquired Proctor & Gamble Pringles for an estimated $2.6 billion. Pringles is one of the biggest players in the savory snack products in the world. With the acquisition Kellogg has greatly increased its snacks market share globally. The strategies the led to the Kellogg acquiring P&G Pringles are as below.
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Growth strategies
The acquisition led to Kellog to have a new source of growth in the snack market. Pringles is the second biggest in terms of sales in the savory snack market all over the world. Therefore, the merger has significantly increased Kellogg’s market share in the snack market. Pringles made slaws of $1.5 billion dollars in sales the previous year which essentially means the Kellog has increased its snack savory snack sales by the same amount through Pringles. Pringles revenue is three times more that Kellogg’s in the savory snack market so by acquiring Pringles Kellogg has increased its revenues four fold.
Finance strategy
Acquisitions improve the credit worthiness of the acquirer. After the acquisition Kellogg is perceived as a more stable company with greater potential and vision to see its company grow. This perception also increases the credit worthiness of the company to banks and suppliers. The company is perceived as a globally strong brand. Issuing shares to the public also becomes relatively cheaper. The cost of issuing shares to the public is known as the floating cost which is greatly reduced with the merger. The market also reacts positively towards mergers with increased demand which in turn pushes up the share price. The directors of Kellogg projected an increase of 8 to 10 cents per share after the announcement of the merger.
Operating strategies
Acquisitions reduce the operations cost of the acquirer. Through group synergy staff cost is greatly reduced because duties and responsibilities are shared. For instance, instead of hiring two CEOs, the two companies will be under one CEO; most operations are done as one and not as two different companies. Pringles comes on board with talented staff in the savory snack business which gives Kelloggs talented resources to choose from. By picking the best out of the two companies operations will be greatly streamlined.
In my opinion the acquisition was a wise choice for Kellogg because Pringles is the second biggest player in the savory market business in terms of revenues. Pringles also gives Kellogg a talent pool of more than 1700 employees experienced in the savory snack business. Also, Pringles is a strong brand internationally in the snack market and this gives Kellogg an opportunity to leverage some of its brands on the strength of Pringles brand. Pringles revenues are three times that of Kellogg in the savory snack business, this success can be emulated by Kellogg with their products.
Analysis of Kellogg’s strategy
Corporate -level strategy
Kellogg has its operations in about 17 countries and market presence in over 180 countries. Kellogg has come up with a few corporate level strategy to help with its operations, competitiveness, knowledge and skills and the ability to handle any wide range corporate level challenges. Kellogg has managed to build a culture of innovation, the power of big data, strategic alliances, executive education and maximization of value . Below are some of the international global strategies employed by Kellogg
Global strategy
Kellogg has endeavored to standardize its products across different markets. Kellogg cornflakes are premium product in many countries. Promoting a strategy of standardized product improves marketing efficiency as decisions on that particular product are made centrally. An advertisement strategy used in one country can be used in another. For instance, one media advert can be used in many other countries without changing anything. This strategy also allows for sharing of resources like staff and raw materials. One experienced staff in the same product can be shared across different countries hence eliminating the need to hire a dedicated staff in each country.
Multi-domestic strategy
Kellogg has different divisions that deal with different products. Each decentralized division has a horizontal communication where decisions are decided without influence from the parent company. Each division is usually divided inot country operations. Each country has its own competition level and preference. A product that might perform well in one country might not do well in another. Each country is therefore allowed to make decisions that will enable maximum performance on a product. For instance, Kelloggs produces Special K Bars Red berries that are not sold in the US but do well in the South African market (Buckley & Ghauri, 2015).
International business-level strategy
Different companies have different business level strategies. Some use market entry strategy; others use the cost strategy while some use the focus strategy. Kellogg’s international business strategy is differentiation. Kellogg provides many high quality nutritious products. With 29 products Kellog cannot use the focus strategy. The cost strategy cannot also be used by Kellogg as their products are costly due to their quality. Kellogg has the only option of producing products that are different from the rest. Products that are of high quality therefore maintaining a strong product brand. This differentiation makes their products appealing to whichever country they set their operations in.
Whole Foods Market
Whole Foods Market is a U.S based company that produces and retails public food consumer products with its headquarters based in Texas. Whole Foods Market is the leading supermarket with natural and organic foods and also boasts of being the first to be a “Certified organic” grocer in America. Since its infancy stages to today, the company has never formed any merger or acquired any company. The company which was incorporated in 1978 became a corporation that is publicly traded in 1992. Also common by the symbol WFM, the company traded its common stock on the NASDAQ and was featured by Forbes in the fortune 500 lists in 2014. In the same 2014, WFM was ranked by the Progressive Grocer as the 5th largest food retailer in the U.S.
The company’s mission is to have an increased efficiency in the food retailing business and as such has developed several trademarks from both its products and its subsidiaries. WFM boasted to having many stores located in the U.S. WFM has continued to have a larger market share without having to engage in any merger and acquisition and despite the fact that the current trend of growth supports the merger and acquisition strategy. Experts assert that companies merge or acquire other companies with the aim of strengthening and maintaining the favorable positions in the market (Schmidt, 2015).
Ideal Candidate for Whole Foods Market Corporation
It is a common notion that mergers and acquisition occur among companies with vast technological requirements and developments. For many reasons including risk reduction that is achieved through products as well as service diversification, increasing the asset base, increasing the market share and promoting growth (Schmidt, 2015). From the analysis above, a merger between WFM and Bright Harvest Sweet Potato Company seems like the best idea.
Bright Harvest Sweet Potato Company is one of the largest processing company of frozen sweet potato products. The company produces good quality products that meet the customer’s nutrition needs. Currently, Bright Harvest has been undergoing a plant wide sustainability process which seeks to minimize risks faced by the company. The strategy promises to diminish environmental harm through the consumption of less energy. Thus the merger between the two companies promises great benefit for diversification and growth within the food industry.
By diversifying their product base, the two companies will be able to reduce any available risk. A merger between the two companies can also create a wider customer base. For instance, Bright Harvest Sweet Potato Company will be able to introduce the WFM organic products to its customers and vice versa. Moreover, merging their product base will promote innovative strategies which may attract new customers. WFM will provide a wider market space for Bright Harvest Sweet Potato Company. The two will realize great profits from the various benefits that each has to offer. Mergers and acquisition more often than not result in cost reduction (Lebedev, Peng, Xie & Stevens, 2015). This can be realized through reduced internal expenses which are achieved from reduced operational as well as administrative costs. This means that the profit margin will ultimately increase.
Proposal for Business-Level Strategy
Business-level strategies are plans as well as methods that companies use to conduct business operations (Buckley, & Ghauri, 2015). Smaller businesses tend to use these strategies in their by assigning them to different employees. The business-level strategies provide guidelines needed in conducting businesses. For a company that has been engaged in any merger and acquisition, there is the need for an appropriate business strategy level that can provide a competitive advantage over its competitors. For instance, increasing their product base and reducing their operational costs can motivate price reduction on their products. This is referred to as a Cost leadership strategy (Buckley, & Ghauri, 2015). This strategy helps in maximizing profits as well as gives them a competitive advantage within the market in which they operate. This strategy also ensures the reduction of other costs such as the costs incurred in sales and research activities. These activities will no longer be necessary as the price led strategy will automatically attract the customers.
Strategies to Monitoring Products
It is imperative that businesses find different ways to review the existing business-level strategies. These include reviewing the economic resources, production equipment as well as administrative costs. In the long run, the capital spent will ultimately earn a huge return on the investment made. This also ensures that the business will have the added advantage of remaining flexible to make changes that will meet the consumers’ changing needs.
Proposed Corporate-level strategy
These are strategies that affect the entire organization. Value creating strategy promises huge profits for WFM. By adding value to its products, WFM will be able to exploit a larger scope of the available market compared to its competitors. Value creation works as a means of diversification (Buckley, & Ghauri, 2015).This strategy ensures that the existing consumers will be retained through improved satisfaction and new consumers will be attracted. The ultimate result will be increased profits, improved customer and stakeholder satisfaction as well as increased market share.
Value-Neutral Strategy
This is another strategy that can be used by WFM. It serves as a good strategy for WFM to secure its place within the market. The strategy requires that the business shores up its operation plans through initiating a regulatory oversight, employing risk reduction tactics, creating the synergy between various departments as well as ensuring a secure cash flow (Buckley, & Ghauri, 2015). It is without a doubt that mergers and acquisitions promote business growth. Nonetheless, some businesses have managed to realize huge profits and grow without engaging in any merger or acquisition processes.
References
Buckley, P. J., & Ghauri, P. N. (Eds.). (2015). International business strategy: theory and practice. Routledge.
Lebedev, S., Peng, M. W., Xie, E., & Stevens, C. E. (2015). Mergers and acquisitions in and out of emerging economies. Journal of World Business, 50(4), 651-662.
Schmidt, B. (2015). Costs and benefits of friendly boards during mergers and acquisitions. Journal of Financial Economics, 117(2), 424-425.
Whole Foods Market, Inc. (2015) Form 10-K Annual report for the fiscal year ended September
27, 2015. Retrieved from https://assets.wholefoodsmarket.com/www/company- info/investor-relations/annual-reports/2015-WFM-10K.pdf
