Mergers and Acquisitions Essay
Mergers and Acquisitions (M&A) are terms used to describe aspects in the business world whereby to two or more companies join together form one firm. A merger refers to a situation where two firms of almost equal sizes and stability come together to form a single entity. The stocks of both companies are usually merged together to belong to one. An acquisition usually occurs when a larger business entity purchases a firm which is small. This form of ownership is known as a takeover or a buyout. It is often perceived in different ways depending on the ownership is communicated (Harwood).
The form can either be occurring as a result of a friendly union or cases where the acquisition is described as being due to a hostile bid where the firm that is acquired has very influence in the acquisition. The operations of the targeted company usually end as the acquiring company takes over the management and control of operations and continues to trade the stock. In some instances the acquiring company shuts down all the operations of the acquired company. A good example is the Terry; a chocolate manufacturing company that was acquired by Kraft in 1993 and stops its
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There are exceptions where both companies agree to carry out their operations as a merger rather than operating as an acquisition without factoring in their relative strengths, stabilities and sizes. Examples of a real merger can be seen from the partnership between SmithKline Beecham and Glaxo Wellcome in 1999 when the two firms joined together to form GlaxoSmithKline. Mergers and Acquisitions cannot be categorized easily and therefore the analysis and explanations of variables determining the failure or success Mergers and Acquisitions becomes a difficult matter.
This research proposal seeks to investigate the causes and consequences of the merger and/or acquisition of Cadbury Plc by Kraft foods Inc. It employs the use of different data collection methods with a lot of emphasis placed on secondary sources of data. The data is specifically from the reactions of different stakeholders from the British community, the stakeholders of Cadbury and the management from the time Kraft showed interests in Cadbury to the time the Acquisition was sealed. 1. 0 Introduction
The recent takeover of Cadbury Plc by the US food manufacturer Kraft marked the end of the independence of Cadbury as the leading chocolate manufacturing company in the United Kingdom. Cadbury is very famous for the manufacture of established brands such as the Wispa and the Cadbury dairy milk. The takeover was sealed on January 18, 2010 at an estimated 11. 7 Billion pounds after long battles of opposition resentments from the British community in an attempt to block the deal. The opposers included the shareholders, Cadbury partners, the British trade union, employees and customers.
The Cadbury takeover has increased the number of British companies (Bloomberg Business week, 2010) Cadbury was started in 1824 by John Cadbury at the time he was operating a shop that was selling tea, coffee and chocolate in Birmingham, UK. He later diversified into the production of a variety of drinking chocolates and cocoas. As the business expanded, he partnered with his brother, Benjamin to form a company called Cadbury Brothers of Birmingham. In 1897, the company manufactured the first milk chocolate which became the company’s best selling product of all time.
More brands were introduced in the years to come (Guyder. and Goldenberg, 2010. The brands include milk tray, Cadbury flakes and forerunner of creme eggs. It later merged with Schweppes to form Cadbury Schweppes in 1969 and the merger lasted until 2008 (Fabricant and Geraldine, 1987) The company is the second largest manufacturer of confectionaries after Mars-Wrigley’s. The company employs over 5,600 people across Britain and Ireland and another 46,000 employees in different supply chains globally. It also operates in more than 66 countries.
The 2008 turnover profits were reported to be ? 638 million (The Times Online). Kraft Foods Inc. , a US Company that manufactures confectioneries, food and beverages and operates in more than 155 countries worldwide. It showed interests of acquiring Cadbury in September 2009 after it made an offer of ? 10. 2 billion. The bid was unsuccessful but it followed the pursuit by making improvements on its earlier bids. The takeover faced opposition across various parties in the United Kingdom who were not happy with the takeover.
The opposition of the takeover was part of an attempt to prevent foreign ownership of locally owned companies. This is a form of a Protectionalism policy aimed at preventing foreign domination of the local market (The guardian). 2. 0 Literature review The success of any research is largely dependent in the nature and manner of the availability of Literature on the topic under research. Despite the designing of a research topic in an appropriate manner that makes it easily researchable, it can fail to yield the required information that might help in making appropriate research conclusions based on the findings.
From another perspective, a controversial topic under research might be easy to research because of the literature written about it. Mergers and Acquisitions are usually accepted with mixed reactions by the different authorities. The literature on mergers and acquisitions shows that managers and owners have different motives (Trautwein, 1990). The motives can be grouped into four categories; economic motives, strategic motives, motives aimed at synergy and management motives. This proposal aims to explore the activities that have resulted due to mergers and acquisitions.
They are based on cost reduction, increasing revenue capabilities and increasing market share. The amount and volume of mergers and acquisitions have increased on international levels (Teece et al 1997). According to Seth 1990a, pp 99-115, many businesses are faced with uncontrollable desires to venture into overseas markets in attempts to increase their revenues and profitability levels as well as controlling the market share. He explains the managerial strategies using two theories: value-maximizing and managerial (Seth 1990b pp 431-446).
Prahalad and Hamel, 1990, pp 79-81 also argue that there exists a theory on cost efficiency that is aimed at increasing the economies of scale and making use of the available resources. My proposal will also follow the suggestions of Newbert, 2007 pp121-146 and those of Shimunzu and Armstrong, 2007, pp 959-961, who claimed that not all resources are contributing to the competitive advantage of a firm as well as bringing an increased performance. They went farther and suggested that there maybe other resources that can bring negative effects to competitiveness and performance of an organization.
The most important thing in the investigations of Mergers and acquisitions is to find out the reasons that led to their occurrence, the motives behind it and the players. The works of Neary 2007, p 1229-1257 concerning the mergers across borders shows that efficiency and the strategic motives are the two most considered factors in mergers and acquisitions. Neary, claimed that M&As raise production and managerial costs and therefore changes in the corporate sector must be expected.
He takes into account the works of Salant, Reynolds and Switzer, 1993 who showed that mergers of identical firms usually produce low profits but increases output. In summarizing the reasons for mergers and acquisitions, Allen et al, 2002 based the findings of Trautwein, 1990, to conclude that M&As are driven by a complex of motives that can not be explained singularly. In this proposal, I have categorized the investigations on the causes of M&As to relate to the economic factors, strategic factors, synergetic factors and finally managerial factors.
3. 0 Research Questions A research of the nature being proposed here – one covering a large company and involving more than one area of business – calls for specific research questions to be able to narrow it down for easier but effective handling. It is on this basis that the following questions are proposed for addressing: 1. Do the management officials have a hand in facilitating mergers and acquisitions? 2. Is there any relationship between the quality of confectionery and the company producing it? 3.
What other factors are responsible for causing shareholders to allow their firm to be acquired by another firm? 4. Can the government of the United Kingdom, which has got no protectionist policies, manage to reduce the number of acquisitions of local firms by foreign companies? 5. Comparing the two companies, is there any chance that the same factors that affect economic performance being equal, or are there any other factors contributing to the merger? 4. 0 Hypothesis For this research, the following hypotheses are proposed based on the research questions.
They aim at guiding the research by keeping the findings within a specific area. 1. There is no relationship between Mergers and Acquisitions and the management due to the fact that shareholders are the owners of the company and therefore decisions like merging will be based on the shareholders. 2. There is no specific relation between the quality of confectionery manufactured and the company manufacturing it since it is quality is largely based on the ingredients and consumer’s tastes and preferences. 3.
Apart from the share price, other factors that affect that can facilitate the level of mergers and acquisition do exist. The liquidity of the company and the performance can also play an important role in the M&As (Porter, 1987). 4. The UK government can do nothing to prevent the influx of foreign companies into the country because the country operates on the basis of an open economy unless it reviews its protectionist policies. 5. Apart from the performance of the two companies, the market share and global expansions can be other hidden motives that lead to mergers and acquisitions.
5. 0 Limitations of the Study The research has factored in all possible aspects that relate to the topic under research in an attempt to ensure that it’s reliability and authenticity. Nevertheless, the formulation of this research has faced a number of constraints and limitations. They include the following; • Time was short and therefore only a limited number of individuals could be selected for the purpose of this study. • The topic under study faced a lot of controversies and therefore only the views and reactions of the affected stakeholders will be factored.
• The stakeholders of the acquiring company will not be concentrated on so much because the study is majorly based on the acquired company. The research will also face limitations like travel constraints and delays in meeting the set deadline for completion. These will be overcome by starting early enough and planning ahead of time for the process. 6. 0 RESEACH METHODOLOGY This chapter explains the methodology used in the study. The information in this research is based on those collected from both primary and secondary sources.
The research is studied in detail and a comprehensive analysis of the implications and effects that will face the stakeholders as a result of the takeover of Cadbury Plc by Kraft Foods Incorporated will be presented. To ensure that the required data and information concerning the topic under research is collected, I will collect the data from the residents of Uxbridge, London and also from some the shareholders, workers and the management of representatives of Cadbury. 6. 1 Research Design A selection of a sample relating to the population of Uxbridge is taking on the basis that it will represent the views of the overall population.
Then questionnaires were administered to the sample selected sample. 6. 2 Sample size Using the formula calculation, 150 individuals were taken as a sample. Random sampling would be used to contact the real stakeholders and the targeted individuals would be those who are directly affected by the possible consequences and/or causes of the Cadbury takeover. 6. 3 Sampling frame The sampling frame included all individuals who are directly or indirectly affected in either way as a result of the acquisition of Cadbury. 6. 4 Type of Research instrument used
The data of this research is collected through questionnaires and the questions were closed ended in that the respondents were expected to answer multiple choice questions. 7. 0 Methods of Data collection The data that is collected for the purpose of the study is divided into two categories; • 7. 1 Data from Primary source The information to be collected must come directly from the respondents and this will be made possible by the use of questionnaires. The primary data will comprise of the information on the survey of “investigations into the causes of the merger and/or acquisition of Cadbury Plc by Kraft Foods Inc.
” • 7. 2 Data from secondary sources The data from secondary sources will be collected from literary source from the internet and reference of related materials from the Library. • 7. 3 Data analysis Mathematical techniques will be used to present the data into suitable tables for easy comparison of the performance of each individual company. Hypothesis testing will be used. The analysis of responses will be collected was based on the number of individuals who welcomed the takeover of Cadbury by Kraft and those who were against the takeover and responses will be recorded in the table below..