Corporate Finance: Tesco acquisition strategy - Essay Example

?Introduction Acquisition has been one of the strategies that the organisations in different parts of the world use to expand their market share, increase their customer base, enter into a new market, capitalise on the opportunities from the markets and for several other reasons. Besides this, organisations also acquire other firms in order to reduce their costs, improve their profitability, and strengthen its position in the market (Johnson, & Turner, 2010). Acquisition has been one of strategies that have been used by organisations for so many important purposes (Verbeke, 2013). Acquisition helps organisation to grow and enter markets where it is not already present. This report analyses one of the retailers of United Kingdom, Tesco. The report identifies and analyses the acquisition that the company has undergone from the year 2003 to 2009. The report also discusses reasons and objectives of these acquisitions. The report then also assesses whether the acquisitions have been able to achieve their objectives or not and whether these acquisitions have been successful or not. At the end, the report provides the conclusion of the overall topic. TESCO ACQUISITION STRATEGY IN HISTORIC PERSPECTIVE Tesco has been growing over the years. The company is not only penetrating itself in the markets where it is operating but the company is also adapting the market development strategy. The company has used different strategies to expand its offerings in other markets. Acquisition or acquiring another firm is one of the strategies that the company has acquired to not only expand its offerings in new markets but also to penetrate in the markets where it is already operating (Hill, & Jain, 2007). According to the Annual Report of Tesco (2012), the company has planned to acquire further more retail stores in the next five years and this would further help the financial statements of the company to become stronger (Tesco, 2012). There have been a number of firms that the company has acquired in the same markets as well as in other markets and some of the major ones have been discussed in this report (Tesco, 2012). TESCO’S ACQUISITIONS FROM 2003-2009 and their reasons ACQUISITIONS in 2003 Acquiring C Two Network in Japan In Japan, Tesco acquired C Two-Network Company in the year 2003. The objective of this acquisition was to introduce and start telecom division in Japan. The idea of this acquisition was to offer mobile as well as home phone services so that the services could harmonise with the existing Internet service offered by the company. (BBC, 2004). So the aim was to further capitalise on the opportunities prevailing in the market with a new product. Such a strategy is known as product development as the company offers the new product in the same market. Acquiring Kipa in Turkey In addition to acquiring C Two Network, the company had also acquired most of the shares of Kipa which is Turkish supermarket chain. The idea was to enter Turkey and further use this acquisition as the base to capitalise on the opportunities in Turkey. With the passage of time, the company had grown its number of stores in Turkey (Tescopoly, 2007). Acquisitions in 2004 Acquisition of Adminstore Tesco acquired Adminstore which included 45 stores of Cullens, Europa and Harts in different parts of London (BBC, 2004). The idea was to capture a higher market share in London and to reduce the competition. Acquiring Fre’c In the year 2004, 25 stores of Fre’c were also acquired by Tesco in Japan. This allowed the company to strengthen its position in the competitive market of Japan (Finch, 2004). Even though Japan has been a difficult and a challenging market for the firms from Britain, however there are many opportunities for companies in Japan as it is one of the biggest markets for retailers. Therefore to capitalise on these opportunities Tesco acquired Fre’c. Acquisitions in 2005 Acquriring Safeway /BP Tesco had acquired 21 remaining stores of Safeway/BP as their partnership was dissolved with Morrison in the year 2005. (Tran, 2005) The aim was to strengthen its position in the market. Acquiring Ting Hsin’s Hymall business Tesco also acquired 50% of the shares of Ting Hsin’s Hymall business in the year 2005, which operates hypermarkets in Shanghai and the North-East of China. Penetration in the China market was the aim of this acquisition. Big W acquisition Another company that was acquired by Tesco in the year 2005 was Big W. This acquisition was aimed to help the company to penetrate in the market and increase their customer base (Hall, 2005) Acquisitions in 2006 Acquiring Casino’s Leader Price 80% of the shares of Casino’s Leader Price supermarkets were purchased by Tesco during the year 2006 in Poland. The company was already operating in Poland since 1995 and therefore this acquisition was aimed the company to penetrate in the market. Casino’s Leader Price supermarkets already had 220 stores in Poland in which almost 2,200 employees were working (BBC, 2006). Tanekin business acquisition Another company that has been acquired by Tesco is Tanekin business. This comprised of eight stores around Tokyo which were already trading under the Tsurukame format. The aim of this acquisition was to help Tesco to further strengthen its position in Japan. Acquisitions in 2007 Carrefour and acquisitions 11 stores of Carrefour were acquired by Tesco in Czech Republic. This acquisition was aimed to help Tesco to increase its stores and sales in this part of the world (Tescopoly, 2008). Edeka acquisition Edeka was acquired by Tesco in the year 2007 and it helped Tesco to increase its stores to 85 in Czech Republic. As the market of Czech Republic is highly competitive, therefore Tesco has been aiming to increase its stores to increase its sales and market share (Tescopoly, 2008). Makro acquisition Another acquisition that the company has made during the year 2006-2007 was in Malaysia. The company had acquired Makro. This acquisition was aimed to further strengthen the position of the company as well as to make the retailer as the market leader in Malaysia (Williams, 2006) Assessment of the acquisitions by Tesco Acquisitions in 2003 Acquiring C Two Network in Japan Japan has always been a challenging market for companies from Britain. The same is the case with Tesco. The company announced to sell its business in Japan in the year 2011. In the year 2012, the company had formed an agreement with the largest retailer of Japan, Aeon (Tesco, 2013). So, it can be said that the acquisition of C Two-network Company has not been successful as the company has not been able to survive in Japanese market. Acquiring Kipa in Turkey Kipa was acquired to enter in the market of Turkey. The acquisition has been highly successful for the company as the company generates revenue of ?745 million from this market. The number of stores in Turkey has also been increasing and after opening new stores the number of stores in Turkey has reached to a figure of 191 (Tesco, 2013). Therefore it can be said that the acquisition of Kipa was a successful one (Williams, 2006). In addition to this, the company had also acquired most of the shares of Kipa which is Turkish supermarket chain. The idea was to enter Turkey and further use this as the base to further capitalise on the opportunities in Turkey. With the passage of time, the company had grown its number of stores in Turkey (Tescopoly, 2007). Acquisitions in 2004 Acquisition of Adminstore Adminstore was acquired to increase the market share of the company in London. The acquisition has been highly successful as the company is the market leader in United Kingdom retail industry. The company generates revenue of ?43,579 million only from the market of United Kingdom (Tesco, 2013). Thus it highlights that the company has been able to strengthen its position in United Kingdom. So the acquisition has been highly successful. Acquiring Fre’c 6 The acquisition of Fre’c is an unsuccessful one for Tesco as the company has sold out its business in Japan. The strategy was to increase the customer base and to strengthen its position in the highly competitive market of Japan. However this acquisition did not even help Tesco to achieve their objective and thus this acquisition is considered as an unsuccessful one. Acquisitions in 2005 Acquriring Safeway /BP Safeway was acquired to strengthen its market share in the market of UK. This acquisition can also be considered as successful as the company has been able to strengthen its market share and has become the market leader (Tesco, 2013). So this is another successful acquisition of the company. Acquiring Ting Hsin’s Hymall business China has become an important place for Tesco. The international sourcing headquarters of Tesco is at Hong Kong. The international hub of Tesco is at Shanghai, China. The company buys good from the market of China of worth ?2.25 billion every year. Total revenue generated from the market of China is ?1,432 million. The company has 131 stores in China thus making it an important place for Tesco (Tesco, 2013). So, the acquisition of Ting Hsin’s Hymall business is a successful one. Big W acquisition 7 The company has acquired number of firms in UK to strengthen its market share and to reduce competition. These acquisitions have been successful and Big W is among one of these firms that have been acquired by Tesco in UK. Acquisitions in 2006 Acquiring Casino’s Leader Price 8 Casino’s Leader Price was acquired by Tesco to penetrate in the market of Poland. ?2,176 million of revenue is generated by the company from this region (Tesco, 2013) thus making the acquisition a success. Tanekin business acquisition 9 Tanekin is another company that Tesco has acquired to make its position stronger in the competitive market of Japan. However even this acquisition did not help the company in increasing its profitability to a great extent. Thus the company announced in 2011 to sell its business in Japan (Tesco, 2013). Acquisitions in 2007 Carrefour and acquisitions 10 The retail market of Czech Republic is highly competitive. Therefore the aim of Tesco was to acquire its competitors so that it could strengthen its position in the market of Czech Republic. The company had entered this market in 1996 and with the passage of time the company has become an important player in the market. In Czech Republic, the acquisition of Carrefour and others have helped the company to grow. There are now 376 multi format stores in Czech Republic (Tesco, 2013). Tesco has expanded its services and it is one of the leaders in this market. Therefore the aim of strengthening its position by acquiring Carrefour has been successful (Tescopoly, 2008). Edeka acquisition Edeka was another firm that Tesco had acquired in the market of Czech Republic. Edeka had exit the market of Czech Republic because of being highly competitive. However Tesco has been able to do well and flourish in this market. It is one of the leaders in this market. Thus, this acquisition is said to be successful as the aim of strengthening its position has been achieved (Tescopoly, 2008). Acquisition of Marko The acquisition of Makro has been successful for Tesco in the market of Malaysia. The company has increased its number of stores to 47 and the company generates revenue of ?937 million from the market of Malaysia (Tesco, 2013). Thus the acquiring of Makro has been fruitful for the company in achieving its aim of strengthens its market share and increase revenues. Conclusion Acquiring another company is not as easy as it looks. There are many benefits that a company can have after acquiring another firm. However acquisition also posses different challenges and difficulties for firms that are acquiring as well as firms that are being acquired. It is important for businesses to understand challenges and issues that may come up after the acquisition as well. Challenges such as cultural differences, differences in organisational policies and rules, differences in management style etc are some of important considerations that the management must consider and understand while acquiring another firm (Griffin, Pustay, & Liu, 2010). If such differences are not considered then an acquisition that may look profitable and lucrative for the management, may eventually result in a chaos situation and thus would lead to a disaster in the long run (Ricks, 2009). Therefore it is important for the management to focus on the financial as well as on non-financial aspects as well. References BBC. (2004). Tesco snaps up Cullens and Europa. Available from http://news.bbc.co.uk/2/hi/business/3419635.stm [Accessed 19 April 2013] BBC. (2006). Polish retailer bought by Tesco. Available from http://news.bbc.co.uk/2/hi/business/5186340.stm [Accessed 19 April 2013] Finch, J. (2004). Tesco buys bankrupt Japanese store chain. The Guardian, Available from http://www.telegraph.co.uk/finance/2903106/Tesco-and-Asda-go-on-buying-spree-at-Big-W.html [Accessed 19 April 2013] Griffin, R. W., Pustay, M. W., & Liu, C. (2010). International business. London: Pearson Prentice Hall. Hall, J. (2005). Tesco and Asda go on buying spree at Big W. 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Available from http://www.tescopoly.org/index.php?option=com_content&task=view&id=581&Itemid=137 [Accessed 19 April 2013] Tran, M. (2005). Tesco buys 21 Morrisons petrol stations. The Guardian, Available from http://www.guardian.co.uk/business/2005/sep/26/supermarkets.tesco [Accessed 19 April 2013] Verbeke, A. (2013). International business strategy. Cambridge: Cambridge University Press. Williams, R. (2006). Tesco Acquires Malaysian Makro. IBTimes, Available from http://www.ibtimes.co.uk/articles/20061206/tesco-acquisition-malaysian-makro-business.htm [Accessed 19 April 2013] Read More