Mergers and Acquisitons - Case Study Example

A merger actually refers to a business combination of two or more firms in which only one firm survives and the other firm or firms go out of existence. In a merger, the surviving firm acquires the assets and liabilities of the other firm(s). A relevant example here is the recent merger of HDFC Bank and Times Bank. After the merger, Times Bank will go out of existence and expanded HDFC Bank will continue to exist. A merger takes place when the firms involved in the combination are of unequal size.

The larger or stronger firm continues to exist because of its stronger bargaining power and the smaller or weaker firms go out of existence. Four periods of economic history have witnessed very high levels of merger activity, which are called a merger waves. These periods are characterized by cyclical activity i.e. large number of mergers followed by relatively fewer mergers ((ICMR), 2003). The current period is called as the fifth wave. In the first three waves, merger activity was concentrated in the United States of America.

The fourth and the fifth waves were global in nature though the impact of the wave is most pronounced in the United States of America. The current merger wave began in 1992. This wave is marked by a large number of mega-mergers and cross-border mergers. Prior to this, there had been four different waves of mergers and acquisitions happening each being predominantly different. A famous example of the acquisition in the fourth wave of merger and acquisition row is the acquisition of Safeway, Britain's fourth largest supermarket group (Sky News, 2003) by William Morrison Supermarkets which operates in Central London and England (Arla Foods, 2003).

The major drivers for the current wave are deregulation, globalization and technology. The increasing levels of deregulation are enabling companies to enter or expand their operations in areas which had significant regulatory barriers. The sectors where the impact of the wave is most visible are telecommunications, entertainment and media, banking and financial services. Safeway PLC was going through a troubled phase of business and was also struggling to cope up with the competition from the other retail giants in UK.

As part of this struggle to compete, Safeway has also started experiencing the decline in its brand equity. All these struggles of Safeway were despite its strong national portfolio of having almost more than 450 outlets all across the United Kingdom. Going ahead, though William Morrison is a regional retail player in the United Kingdom having its strength in Midlands and in Northern Europe. Though William Morrison PLC is a regional player, the main strength of the company is its brand image and reputation in the market.

One of the fundamental motives that drive mergers and acquisitions is the growth impulse of firms. Firms that decide to expand have to choose between two generic growth strategies, one is the organic growth and the other being the acquisition driven growth. The former one is a slow,