National Express Rejects Takeover Bid from First Group - Research Paper Example

NATIONAL EXPRESS REJECTS TAKEOVER BID FROM FIRST GROUP Submitted Introduction The failed acquisition between National Express Group plc and FirstGroup plc is a typical phenomenon of a hostile acquisition and acquisition business purchase. This follows the rejection of FirstGroup offer to take over the struggling East Coast rail franchise business together with its bus transport business. National Express offer to take over FirstGroup transport business follows a recent report of the current financial predicament of National Express exhibited by its £1.2 billion pounds to banks (Gill, 2009, p 1). The United Kingdom government has also complicated National Express financial woes by the government refusal to renegotiate the conditions for its East Coast rail franchise with the transport business. The hard-line position adopted by the government is attributed to East Coast rail franchise being the most lucrative in the United Kingdom serving the United Kingdom commercial hubs such as Edinburg and London. Besides, citing the government role in its financial crisis, National Express board also cited its quest to solve the £1.2 billion debt as its first priority before reconsidering the bailout from FirstGroup limited. In, addition, National Express board viewed FirstGroup as their rival in the transport business and thus postulated a sellout of the company to FirstGroup as surrender to a business enemy. National Express boards were thus eager to retain the legacy of their company’s in the transport industry (Miller, 2011, p 85). Despite, the rejection of FirstGroup offer, acquisition and acquisition provide the best bailout opportunity and option to rescue National Express from the current financial hardships. This research thus draws on the case sturdy of National Express and FirstGroup to rationalize on the best solution to solve a corporate organization financial solution. This involves an analogy acquisition and acquisition as a financial solution with other financial crisis solution mechanisms recommended in fiancé and accounting. The research establishes higher financial crisis solution rationality from acquisition and acquisition formulated financial solution compared to other possible and readily available financial and accounting options. Literature Review An acquisition mimics government bailout to corporations during financial crisis. The similarity between acquisitions and acquisition is evident in the supply of a large amount of money to the corporation under financial crisis, which is subsequently used to pay its bankruptcy threatening debts. These facts are manifest in the proposed acquisition between National Express and FirstGroup, whereby Nation Express was offered a large sum of money by FirstGroup to pay its 1.2 billion debts. The £1.2 billion proposed buyout of National Express is comparative to the government’s financial bailout to financial corporation during the 2007-2008 global financial crises (Milmo, 2009, p 1). In United States, the government acquisition styled bailout totaled $13.9 trillion leading the government bailout to be considered as more of an acquisition buyout of the financial stricken institutions than a rescue bailout package (Birdsall & Fukuyama, 2011, p 31). Acquisitions and acquisition of financial stricken corporations is also licked to the nationalization of finically poor performing or financially endangered businesses by the government (Finkelstein & Cooper, 2010, p 116). The same financial crisis incident illustrates the role of nationalization which mimics acquisition and acquisitions in the rescue of financial institutions from bankruptcy during economic downturns. A typical example of this financial rescue strategy is illustrated by the nationalization of the Northern Rock Bank in the United Kingdom at the verge of its bankruptcy during the financial crises. The Northern Rock Bank case also illustrates the irrationality of the hard-line position by a corporation board or the corporate organization stakeholders, whereby the corporation purchase value depreciates to zero as the financial crises worsens. This fact is illustrated by the failure of Northern Bank to get a private buyer during the financial crises, which prompted its nationalization by the government. The same fate of corporate organization value depreciation from financial mismanagement is also evident in the 1.3% dip in FirstGroup shares in the stock market at the prospect of its acquisition of a financially stricken corporation (R Larsson & S Finkelstein, 2007, p 24). In addition, the rationality of an acquisition of as a financial solution to National Express is reflected by the rise of National Express shares by 9.8% at the height of the rumor of its purchase by FirstGroup as the largest and highest profitable transport business in the United Kingdom (S Cartwright & R Schoenberg, 2006, p.3). Despite, the cited financial rationality of acquisition as the ultimate solution to bailout National Express from the £1.2 billion debt crises, the idea is comprehensively rejected by the company’s board, which views the decision to negotiate with FirstGroup as the divulgence their organization’s secrets to a competitor. According to the board, National Express had its competitive edge in the transport market distinct from any other transport industry in United Kingdom and its international market. On the other hand, the board prospected a strategic organizational change solution to National Express problem rather than giving up the ghost and hand over the business to a competitor. Montgomery and Wilson (2006, p 80) supports the idea of merging two related firms, which support the merger between National Express and FirstGroup in regard to their relatedness as transport industry businesses (Nahavandi & Malekzadeh, 2008, p 81). Both National Express and FirstGroup specialize in the transport business and their diversification in both railway, bus and coach transport means is also similar. Nevertheless, Navandi and Malekzadeh (2008, p 80) refutes this generalized relatedness approach in the prospect of the success of a proposed merger between two business enterprise. Instead, Navandi and Malekzadeh (2008, p 80) realizes a motive rather than a generalized relatedness determinism of the success or failure of a merger. According to Navandi and Malekzadeh (2008, p 80) the relatedness of motive between the two merging firm determines the outcome of merger. Navandi & Malekzadeh acknowledges the existence of varying or congruent motives between two merging companies. Various motives prompt corporations to pursue mergers and include the motivation for the attainment of operating, marketing, managerial, compensation or scheduling synergy for a corporation (Napier, 2007, p 281). A merger between two companies may also be prompted by the quest to reduce risks, diversification or access to better financial terms or deals for the financial revitalization of the business. According to this argument, the merger between National Express and FirstGroup is thus realized to contribute to enhanced performance of the two businesses in regard to their financial synergies motivation relatedness (Rossi & Volpin, 2004, p 302). National Express Group plc motivation to remedy its risky financial situation is thus related to FirstGroup plc motive to diversify its business financial assets to the lucrative transport market in the East Coast rail franchise linking United Kingdom richest and most populous cities of London and Edinburgh. Based on this rationality, National Express plc is offered with an opportunity to solve its risky financial situation by diversifying its investment through acquisition of FirstGroup financial assets. Hypotheses 1) Null Hypothesis(Ha) a) The proposed merger between National Express and FirstGroup will positively influence the financial positions of the two companies? b) National Express plc risky financial position will be solved by its merger with First Group plc. c) National Express will retain its competitive edge in the transport industry after its acquisition by FirstGroup. 2) Alternative Hypothesis (Ho) a) The proposed merger between the two companies will negatively influence the financial positions of the two companies. b) National Express plc risky financial position will be worsened by a merger with FirstGroup plc. c) National Express competitive edge in the transport industry will be lost to FirstGroup after their merger. Methodology and expected findings The prospected financial and competitiveness future of National Express after its acquisition by FirstGroup is realized through collection and correlation of data on the financial and competitiveness information of the two companies as separate entities in the transport business. According to Navandi and Malekzadeh (2008, p 80), the crucial financial data to be sampled from the two companies relate to their financial position in term of financial risks. Data on the diversification strategy of the two firms is also important to forecast the prospected distribution of National Express financial risks (Barney, 2007, p 73). In addition, the relative financial returns of FirstGroup transport investment is also weighted against those of National Express t ascertain the favorability of FirstGroup transport market compared that of National Express. The cost leadership advantage of the two companies is also important in the prospection of their motivational relatedness before the merger. In addition, the differential compensation of the employees in the two companies is also crucial in the acquisition prospectus of the two companies. Information on the marketing segment ventured by each of the two business entity is also collected for a correlation analysis of the prospected merger. Data on the management structure adopted by the two companies in their organizational management is also important in the rationalization evaluation of a possible merger between National Express and FirstGroup companies (Hagedoorn & Duysters, 2007, p169). The data on the financial and operation cost of the National Express and FirstGroup companies are systematically sampled from the two companies accounting and financial records. On the other hand information on the management structure of the two companies is overtly demonstrated in the administrative structure of the two organizations (Walsh, 2006, p 179). Relatedness of National Express and FirstGroup in terms of financial and cost advantage is then obtained through combinatorial and individual computation of the financial and operation cost data of the two organization using SPSS statistical tool. The results illustrate the relatedness or deviation of the two organizations from the standard deviation, alpha scale (α) and t-test. The standard deviation disparity between the two organizations gives a possible indication of the idiosyncratic risks fluctuations of the two companies (Carney, 2009, 18). The α-test gives a possible indication of the resultant financial situation of the mix of the two organizations, whereas the t-test gives an indication of a normal of abnormal financial result from the proposed merger and acquisition. Conclusion The current financial risks of National Express indicate a possibility of financial motive relatedness with the diversification prospect of FirstGroup (Soros, 2008, p 93). FirstGroup position as the leading transport corporation in the United Kingdom also poses a good opportunity of National Express to diversify its transport investment from the volatile East Coast franchise to other less risky transport investment corridor in United Kingdom and internationally under the umbrella of FirstGroup plc. Bibliography Afsaneh N. and Ali, R.M., 2008. Acculturation in Mergers and Acquisitions. Academy ol Management Review, 13 (1), pp.79-90. Barney, J., 2007. Returns to bidding firms in mergers and acquisitions: Reconsidering the relatedness hypothesis. Strategic Management Journal, 9 (1), pp71-78. Birdsall, N. and Fukuyama, F., 2011. New Ideas on Development After the Financial Crisis. Baltimore: John Hopkins University Press. Carney, W., 2009. Mergers and acquisitions. New York: Aspen Publishers. Cartwright, S. and Schoenberg, R., 2006. Thirty years of mergers and acquisitions research: Recent advances and future opportunities. British Journal of Management , 17 (1) pp.1-5. Finkelstein, S.and Cooper, C.L., 2010. Advances in Mergers and Acquisitions - Volume 9. Bingley: Emerald Group Publishing Ltd. Gill, P., 2009. National Express snubs bid from rival. [online] Available at: [Accessed November 30, 2012] Hagedoorn, J. and Duysters, G., 2007. External sources of innovative capabilities: The preferences for strategic alliances or mergers and acquisitions. Journal of management studies , 39 (2), pp.167-188. Larsson, R. and Finkelstein, S., 2007. Integrating strategic, organizational, and human resource perspectives on mergers and acquisitions: A case survey of synergy realization. Organization Science, 10 (1), pp.1-26. Miller, E. L., 2011. Mergers and Acquisitions: A Step-by-Step Legal and Practical Guide. Hoboken: John Wiley & Sons. Milmo, D., 2009. National Express rejects FirstGroup takeover bid. [online] The Guardian Available at: < http://www.guardian.co.uk/business/2009/jun/29/national-express-rejects-firstgroup-takeover> [Accessed November 30, 2012] Napier, N., 2007. Mergers and acquisitions, human resource issues and outcomes: A review and suggested typology. Journal of management studies, 26 (3), pp. 271-290. Rossi, S, and Volpin, P.F., 2004. Cross-country determinants of mergers and acquisitions. Journal of Financial Economics , 74 (2), pp.277-304. Soros, G., 2008. The New Paradigm for Financial Markets: The Credit Crisis of 2008 . Philadelphia: Public Affairs. Walsh, J., 2006. Top management turnover following mergers and acquisitions. Strategic Management Journal , 9 (2), pp.173-183. Read More