Merging Firms and Their Competitors - Assignment Example

Merger analysis Task: Relevant market Wild Oats is among the largest firms in the American and Canadian food market. The entity deals in both organic and natural food. Therefore, the entity commands a large proportion of the North American market. This is a lucrative market for any entity owing to the high incomes of the population. The entity has a differentiated product portfolio. Hence, the entity has numerous products. The other products include Vitamins. Therefore, the entity’s market ranges from that of organic foods to vitamins. This represents a wide range of products, which have allowed the entity to have stable revenues that are not vulnerable to the instability in one product. The American and Canadian markets have a massive potential, which has sustained numerous firms. Several firms are in this industry. Therefore, Wild Oats faces substantial competition from its rivals hence the entity has to ensure that it provides its clients with value through its products. Failure to provide its clientele with value would culminate in the entity losing part of its market segment (Harbin & Humphrey, 2010). Owing to the competitive nature of the market, organizations have to advertise their merchandise. This keeps the general population aware of the products that they are offering. This means that the advertisement budgets for such entities is massive relative to others markets. However, the entities also earn significant profits, which can cover the funds that they commit into such campaigns. This market is characterized by strict rules. Therefore, entities spend enormous resource in attempts to meet the industrial standards. This means that failure to comply with the industrial standards would culminate in enormous losses. Therefore, the entities have to be cautious in processing their products. The entity sells food in a nation where the population and the government are wary of the consequences of unhealthy diet. Consequently, the government has enacted laws that seek to protect the population from unhealthy delicacies. Such conditions have made production incredibly challenging. Therefore, entities have to hire excellent technician. Additionally, entities have to employ advanced production technology (Mackey, 2007). Merging firms and their competitors The merger entailed two firms in the food industry. The two firms sell natural and organic food merchandise. This merger consolidated two leading firms in a single industry subsequently reducing competition in the food sector. The two firms involved were Wild Oats and Whole Foods. Whole Foods commenced operations in Texas. The entity has countless stores countrywide. John Mackey founded this entity in 1978. The firm began to expand in the mid 1980. Its expansion strategy entailed buying other smaller firms hence; acquiring their clientele. The expansion strategy allowed the entity to make an entry in food markets of numerous southern states such as New Orleans. The entity expansion strategy enabled it to launch its stores in West Coast states such as California. The increase in its outlets necessitated the entity to increase its production capacities. Consequently, the entity acquired Allegro Coffee Company. This allowed the entity to meet the demand of its expanding clientele in the various states. Whole Foods’ management seemed an ambitious lot since they commenced a globalization campaign by entering the British market. The entry into the British market commenced with the opening of a massive store on Kensington High Street. Whole Foods specializes in modestly processed products. The entity adheres to standards that the entity has created. Whole Foods ensures that it eliminates ingredients that are unacceptable owing to their side effects. This allows the entity to contribute towards the campaign against obesity. The entity ranks highly in adherence to corporate responsibility matters. This has become a massive concern for current entities since it affects the entity’s corporate image. An entity’s corporate image affects the entity brand which key in wooing new clientele (Mackey, 2007). The other entity was Wild Oats. The entity also produced natural and organic merchandise. The entity commenced operations in Colorado in 1987. The entity commenced business by first purchasing Crystal Market. By 1996, the entity had a considerable number of stores. Similarly, this entity expanded by acquiring other stores. The acquisition of other stores allowed it to reach additional clientele and create a niche. Wild Oats made an entry into other states such as British Columbia. By 2007, the entity had 141 stores across America. This had transformed the entity into a big player in the industry, which had enormous competition. Evidently, expansion in this industry entailed acquisition of other stores. After the food company acquires other stores, it would then boost its production capacity to enable it meet the clientele requirement. The government is under pressure to undertake measures, which will roll back the levels of obesity. Subsequently, the government has advised the public to consume low calorie food. This has created a trend in this sector. As such, entities have to ensure that their products conform to such governmental requirements (Mackey, 2007). Pros and cons of the merger The proposed merger between Wild Oats and Whole Foods was horizontal in nature. Consequently, it resulted in merging of two leading firms in an industry. This would result in a monopoly in the sector (Harbin & Humphrey, 2010). Merged firms The proposed merger would have culminated in the merger of the two leading organizations in their sector. This would have resulted in the entities creating an exceedingly dominant brand since the organizations were strong individually. The merger would have also resulted in a firm with a massive capital base, countless stores and massive personnel. The entity would have the required ingredients required to dominate the sector completely. Additionally, the resultant entity would have a differentiated product portfolio. Consequently, poor performance of one product would have minimal impacts on the entity’s revenues. This merger would have automatically created a monopoly. A monopolistic entity has the capability to drive away competition through various strategies such monopolising suppliers. This would create operational difficulties for its rivals leading to their closure. The resultant monopoly can also adopt a price reduction strategy. This would drive out rivals since they do not possess the resource to undertake such a strategy (DePamphilis, 2011). Despite the advantages that emanate from such a merger, there are some disadvantages. First, the individuals may lose their individual identities. Merger entails lengthy negotiations. The negotiation finalizes on certain issues such as the fate of redundant employees. The redundant employees especially in the managerial level face possibility of unemployment (Moyer et. al. 2012). Rival firms Rival firms will be the victims of this merge since this consolidation will result in a monopoly. Monopolistic entities dominate a sector, leaving rivals with a minimal proportion of the market. Additionally, such entities can also institute strategies that will sabotage and cripple competition. Evidently, the above merge seems to be to the detriment of rival firms. However, if the merge fails to work as planned, then the rivals will have an opportunity to consolidate their markets segments (DePamphilis, 2011). Consumers The merger of leading firms will culminate in a massive entity. This entity has the resources required to provide the entity with merchandise of exceptional quality. Additionally, the massive output scale can results in reduced cost. Hence, the entity can pass this benefit to the consumer via reduced prices. According to the above details, the most likely benefits are reduction in prices and quality products. However, the consolidation reduces the variety of products available to clientele. Furthermore, the monopolistic entities can increase prices randomly without losing clientele since rival firms do not have the capacity to meet the demand that would result (Moyer et. al. 2012). Market structure changes The merger would create a monopoly. The monopoly would be dominant owing to its resources and the product range. This would leave a few rival firms that can challenge the dominance of the monopoly. The monopoly strategy will characterize the industry. Enormous firms do not adapt to changes in their sector, but they trigger changes in the industry while leaving the smaller firms to adapt to developments in the sector (Roberts, 2009). References DePamphilis, D. (2011). Mergers, Acquisitions, and Other Restructuring Activities. San Diego, CA: Elsevier. Harbin, J. & Humphrey, P. (2010). Whole Foods Market. Inc Journal of Case Research in Business and Economics. Retrieved on July, 12, 2012 from http://www.aabri.com/manuscripts/09288.pdf Mackey, J. (2007). Whole Foods Market, Wild Oats, and the Federal Trade Commission. Retrieved on July, 12, 2012 from http://www2.wholefoodsmarket.com/blogs/jmackey/2007/06/19/whole‐foods‐market‐wild‐oats‐and‐the‐federaltrade‐commission Moyer, R., McGuigan, J., Rao, R. & Kretlow, W. (2012). Contemporary Financial Management. Mason, OH: Cengage Publishing. Roberts, D. (2009). Mergers & Acquisitions. New York, NY: John Wiley and Sons. Read More