Woolworth Takeover: David Jones - Report Example

REPORT “WOOLWORTH TAKEOVER DAVID JONES” By of the of the School Introduction David Jones Limited was the oldest department store in Australia, operating since 1838. As of 2014 the company operated more than 35 stores in the country, selling both international and national brands of apparel, shoes accessories, fragrances and cosmetics, liquor offer and a premium food, and home furnishings, appliances, home office and home entertainment (Hoovers Company Profile 2014). During the last four years the company’s financial position has been weakened as a result of continuously decreasing total sales (from $2,053.1 million in 2010 to $1,845.0 million in 2013) (David Jones Ltd. 2013). Dividends payout also has decreased significantly indicating on worsening financial position of the company (David Jones Ltd. 2013). In spring 2014 the company has announced about the takeover proposal to acquire all issued David Jones shares at A$4.00 cash per share by the Woolworths Holdings Limited (Chairmans Letter to Shareholders - WHL Proposal, 2014). In July 2014, there appeared public information that the takeover has been completed. The purpose of this report is to analyze critically response of David Jones Ltd. to the issue of its takeover by Woolworth with a particular focus made on the attributes of factors that influence and/or characterize communication process in the organization. Based on the findings of both primary and secondary research there will be provided recommendations of how the communication process of the company could be improved. Background David Jones was first established in 1838 by Mr David Jones a Welsh merchant who aimed to‘sell the best and most exclusive goods’(David Jones Limited 2014).Since its beginnings as a small store on George Street in Sydney, David Jones has grown to include 35 stores across Australia as well as two warehouse outlets and David Jones Online. The department store offers customers a range of Australian and international labels of clothing, accessories, cosmetics, home furnishings and technology. David Jones also offers customers’ luxury services such as gourmet food baskets, fresh floral arrangements, in store hair and beauty salons as well as personal fashion consultants. In 2008 David Jones further diversified its product range by establishing a partnership with American Express. This partnership aimed to bring David Jones further into the financial products market by creating the David Jones American express card. From 2009 onwards David Jones began to experience the impact of the global financial crisis as sales began to decrease. The national decline in consumer confidence combined with the departure of CEO Mark McInnes on the back of sexual harassment claims in 2010 placed David Jones in a challenging position. Following Mark McInnes departure Paul Zahra was appointed as CEO. As the new leader, he restructured the business and improved the presence of David Jones online. However under Paul Zahra David Jones still saw continuous decreases in total sales. Over the past three years total sales decreased from $2,053,087 in 2010 to 1,845,012 (Paddy, 2014). These sales results led to a number of merger discussions with Myer who is David Jones biggest competitor and, South African Retailer Woolworths. Issue After extensive and intensive consultation and competitive strategies, Woolworth offered a $2.2 billion takeover deal which was accepted by the already soaring David Jones shareholding (Alicia and staff, 2014). The key issues that formed part of the agreement and a successful takeover process included the fate of shareholder. At the time of takeover, Woolworth made a $4 per share payment to shareholders to be issued by 1st august 2014. The legal procedure of sealing the takeover deal constituted federal court approval which passed despite signs of discontent from Australian Securities and Investments Commission (ASIC). After the overwhelming vote of takeover, Woolworth began to reorganize the new entity through management reshuffles. This began with immediate call for former David Jones CEO,Paul Zarha to resign as a move towards new management restructuring by Woolworth. Iain Nairn who was the CEO of Country road was recruited as the new CEO of David Jones (Alicia and staff, 2014). The ensuing management reforms were meant to streamline Woolworth’s strategic plans and ensure that its market and revenue targets are within achievable range. It is worth to note that organization culture is a critical issue in the new Woolworth takeover of DJ. To ensure that it establishes and familiarize its new workforce with the organization culture, which is focused on quality and efficiency, it began to reorganize top leadership. Woolworth looks forward to boost its market size and expand its profit margin through transformed leadership and acquisition of David Jones. Communication issue analysis of David Jones Limited takeover by Woolworths While the things were not good for the company during the last few years, in its Annual Financial Report 2013 the company’s management has not provided information on its strategic plans, explaining that “disclosure of any further information about business strategies, future prospects, likely developments and expected results of operations would be likely to result in unreasonable prejudice to the Consolidated Entity (David Jones Ltd. 2013, 42). However, by April 2014 the Board of David Jones Limited has officially announced about the Woolworths Holdings Limited proposal to acquire David Jones shares at A $4.00 cash per share (Chairmans Letter to Shareholders - WHL Proposal, 2014).This was a big organizational change in David Jones and communication was vital to the effective implementation of this change (Elving 2005). Communication should cover not only people at all levels of the organization, but also the two merging organizations (Brahma & Srivastava 2007). In order to communicate externally the takeover proposal made by Woolworths Holdings Limited to David Jones Shareholders, there have been issued several announcements to the Australian Security Exchange (ASX) and letters to all Shareholders, including the following: On 18 June 2014, David Jones announced the outcome of the WHL shareholder meeting in relation to WHL’s proposed acquisition of David Jones (ASX and Media Release, 2014, 9). On 24 June 2014, David Jones announced about the WHL’s intention to make a bid for the remaining share is did not already own in Country Road limited and informed that it continued to assess the implications of the 9.89% stake in David Jones that entities associated with Solomon Lew hold (ASX and Media Release, 2014, 9). On 30 June 2014, David Jones announced that it had received a letter from WHL informing David Jones that the A$4.00 offer under the Scheme is WHL’s best and final offer, subject to no competing proposal emerging (ASX and Media Release, 2014, 9). No information has been found on the internal communication of this issue. Therefore, the analysis of the company’s communication of takeover issue to its shareholders and employees is limited to the information which is publicly available on the company’s website. Metaphors Metaphor is defined as “a way of seeing a thing as if it were something else” (Putnam, Phillips & Chapman 1999, 127). In the organizational theory there are identified several key metaphors, including: domination metaphor, machine metaphor, organism metaphor, brain metaphor, culture metaphor, political metaphor, physic prison metaphor, and flux and transformation metaphor (Morgan 2005). The three key metaphors that can be applied in David Jones case are machine metaphor, organism metaphor, and culture metaphor. The machine metaphor applies to the David Jones Ltd as the company is viewed as “an organization drifting into mechanistic mode of operations” (Morgan 2005, 350). This approach is appropriate for such huge company, which has many subsets working together and where processes and operations are set to be automatic in order to increase the overall company’s efficiency. The organism metaphor is defined by Morgan (2005, 350) as “an organization drifting out of alignment with the challenges of the external environment”. In case of merger between David Jones and Woolworth it is important to understand also the “strategic fit” between these two companies (Brahma & Srivastava 2007). While viewing the company as an organism, it is important to consider not only physical integration of the assets of the merging firms but also procedural integration and managerial and socio-cultural integration (Brahma & Srivastava 2007). The culture metaphor can be viewed as part of the organism metaphor. In case of merger and acquisition it implies that a corporate culture of the organization is in transition stage (Morgan 2005, 350). Critique on response In relation to culture metaphor, there is evident eminent challenge as David Jones’ takeovers by Woolworth as there are different corporate cultures in each organization and if not managed properly, it may lead to the cultural clash (Brahma & Srivastava 2007). Cultural clash and stress among employees also may result in problematic acquisition integration process. Changes in culture are difficult for the employees who are exposed to new practices and who are expected and or required to change or adjust as seen by Woolworths management restructuring (Bastien 1987). Another critique focusses on the unceremonious induced resignation of Mr.Zaraha in an attempt by Woolworth to restructure David Jones management. Executive departure is one of the potential outcomes that often occur in result of mergers and acquisitions (Brahma & Srivastava 2007). Large number of company executives and talented employees tend to leave the organizations soon after the acquisition (Brahma & Srivastava 2007). In regard to organization metaphor, there is significant huddle of better performance projections. This holds in relation to the David Jones style of communication with its shareholders and general public. In this case, the organizational change was poorly communicated and this heightened risk of resistance to change and rumors, which potentially would exaggerate the negative aspects of the change (Elving 2005). For example, there is information that the company’s CEO, Paul Zahra resigns after the takeover (Greenblat, 2014). However, no information was available on the corporate website. Thus, the company has not provided official denial or confirmation regarding the role of Paul Zahra in the company, encouraging thus development of rumors and gossips (Michelson & Mouly 2002). Recommendations Strategic business environment analysis Following the insights of the organism metaphor, it is necessary to pay more attention on the external environment in which David Jones and Woolworths operate. Thus, it is recommended to analyze the nature of the environment, evaluate appropriateness of strategic managerial and organizational styles (Morgan 2006). Effective communication In terms of the cultural metaphor, it is important to ensure effective communication to the employees in order to decrease uncertainty and to avoid negative reactions among employees (Brahma & Srivastava 2007). Therefore, David Jones’ and Woolworth management should have focus on this specific issue developing effective communication and socio-cultural integration strategies. Regarding the communication strategy, the company has had to make put more efforts in order to ensure effective implementation of its communication strategy on the David Jones takeover. In order to increase the chances of communication strategy’s effective implementation it is recommended to minimize the level of rumors and gossips by communicating the upcoming changes properly. As the company has identified its corporate website as the main source of news and media releases for David Jones, there should be continuous update on the corporate issues and changes both externally and internally. As the information on internal communication is limited to the public, no specific recommendations on internal communication improvement can be given. However, it is possible to suggest that communication process between top executives, middle and senior management as well as among other employees should be improved. References: Alicia Barry and staff. Federal Court approves David Jones takeover by Woolworths despite ASIC concerns.ABC News.April 9, 2014 ASX and Media Release 2014, ‘David Jones Confirms Scheme Meeting Date of 14 July 2014 and Provides supplementary disclosure’. Retrieved from http://www.davidjones.com.au/For-Investors/ASX-and-Media-Releases Bastien, D. (1987). Common patterns of behavior and communication in corporate mergers and acquisitions. Human Resource Management, 26(1), 17-33. Brahma, S., & Srivastava, K. 2007, ‘Communication, Executive Retention, and Employee Stress as Predictors of Acquisition Performance: An Empirical Evidence’. The Icfai Journal Of Mergers&Acquisitions, IV(4), 8-26. Chairmans Letter to Shareholders - WHL Proposal, 2014. Retrieved from http://www.davidjones.com.au/For-Investors/ASX-and-Media-Releases David Jones Limited Group Policy, n.d., ‘External Communications and Disclosure’. Retrieved from https://www.google.com.ua/url?url=https://www2.davidjones.com.au/downloads/ExternalDisclosurePolicy.pdf&rct=j&q=&esrc=s&sa=U&ei=p7QWVNyLDIftPPnXgOgD&ved=0CB8QFjAA&sig2=vYreTeI5JkHcnVF0sot_Vw&usg=AFQjCNEN0RUyAFWU5szcXuQCs81gnG8byA David Jones Limited, 2013, ‘Australian Packaging Covenant – Action Plan (2013-14). Retrieved from http://www.packagingcovenant.org.au/ David Jones Ltd, 2013, ‘David Jones Ltd - Annual Report’. Reportal.SDN. BHD, Kuching. Davidjones.com.au, 2014. David Jones - Consumer Notices. Retrieved 15 September 2014, from http://www.davidjones.com.au/Consumer-notices Elving, W., 2005, ‘The role of communication in organisational change’. Corporate Communications: An International Journal, 10(2), 129-138. Greenblat, E., 2014, ‘David Jones boss Paul Zahra resigns after Woolworths SA takeover’. The Sydney Morning Herald. Retrieved 15 September 2014, from http://www.smh.com.au/business/retail/david-jones-boss-paul-zahra-resigns-after-woolworths-sa-takeover-20140812-10307m.html Hoovers Company Profiles, 2014, ‘David Jones Limited’. Dun and Bradstreet, Inc, Austin. http://www.abc.net.au/news/2014-07-17/david-jones-takeover-federal-court-hearing/5604262 http://www.crikey.com.au/2014/04/09/djs-south-african-rabbit-takeover-bid-leaves-myer-in-the-lurch/ Michelson, G., & Mouly, V., 2002, ‘You Didnt Hear it From Us But…’: Towards an Understanding of Rumour and Gossip in Organisations. Australian Journal of Management, 27(1 suppl), 57-65. Morgan G., 2005, ‘Reading and Shaping Organizational Life”. Images of Organization, Thousand Oaks, Claifornia, 345-362. Paddy Manning. DJ’s South African rabbit: takeover bid leaves Myer in the lurch.Crikey. Apr 09, 2014 Putnam, L., Phillips, N., & Chapman, P. (1999). Metaphors of communication and organization. Managing Organizations: Current Issues, 125-158. Read More