TESCO AND SAINSBURY MERGER

Tesco and Sainsbury Merger

Tesco and Sainsbury Merger

Introduction

Mergers and acquisitions enable companies to pool assets for creation of value. In order to gain more control and increase the value for business, mergers and acquisitions require solidifying the activities in a given industry. Success of M&A depends on how well a company consolidates the operations in the market. Tactical fit concern of M&A is to seek profit in the short term, to acquire a company with the objective of increasing its value and then selling it at a higher price. The common factor in both cases is the stimulus that adds value to the acquired company.

The mergers and acquisitions activity in UK and other European countries has followed an evolutionary cyclical behaviour of stock markets during the last decade (David, 2004). Compare to potential synergy escalation, possibilities of failure are also high due to M&A. Main factors in this context contribute to the role of management and decision making based on hubris behaviour. Overconfidence of CEOs in the significance of M&A results in creating financial instability for the company due to short-sighted strategic planning (David, 2004).

In this paper, I will compare the performance of Tesco plc with J Sainsbury plc to see if their merger would make both companies better off. They are both listed in the London stock exchange. J Sainsbury plc is the third largest retailer in the UK with a market share of 16.1% and ASDA is the closest competitor with a market share of 16.8% according to the latest report by TNS World panel.

Tesco Profile

Tesco plc is the largest retailer in the UK and third largest in the world behind Wal-Mart and Carrefour. According to TNS Worldpanel over £1 in every £7 (14.3%) of UK retail sales is spent at Tesco. In the UK, Tesco coped well with tough competition by the hard discounters and a difficult non-food market, particularly in the second half, to deliver solid progress in the year. UK retail revenue increased by 9.1%, including a like-for-like increase, including petrol, of 4.3% (3.0% excluding petrol).

Sainsbury Profile

J Sainsbury PLC was founded in 1869 and incorporated in 1922, London. For the past 140 years, the company grew rapidly; today it is one of the “big four”# supermarket chain in UK. It currently sorely operates in UK and employs about 150,000 people. Its cooperation business is composed of four areas, which are supermarkets, online business, property market and banks. The Sainsbury supermarket operates a total of 890 stores comprising 547 supermarkets and 343 convenience stores around the UK.

Operational Comparison

Comparing Tesco and Sainsbury would be problematic because although both are grocers based in the UK, Tesco has expanded significantly overseas with large operations in Thailand, Eastern Europe and elsewhere, whereas Sainsbury has not. Similarly Tesco has a far larger internet/home delivery business than Sainsbury. Tesco also has a larger non-food business than Sainsbury. Not only are these two companies made up of different blends of business models, but Tesco may have depressed its current performance profile ...