A Plan for Us Store Inc Takeover Finance Essay

A Plan For Us Store Inc Takeover Finance Essay

US Stores Inc is a large US grocery retailer. It has steady turnover growth in its local market. In order to find opportunity for future growth, it decides to expand in UK market through acquiring a major UK retailer. After analyzing possible targets (the big 5 in UK market), Morrisons is chosen as the most appropriate target. This is because,

Compared with other targets, Morrisons has suitable size (about 10% of US Stores Inc) for US stores Inc to takeover.

Morrisons has more similar culture and strategy as US Stores Inc. By taking over this company, the bidder could maximize its synergy benefits.

Morrisons has healthy gearing ratio, therefore, this takeover will not significantly change bidder’s existing financial structure.

Then, the valuation of the company shows Morrisons’s company value is similar to its market value (7.9 billion) and the maximum takeover price should be (11.8 billion). After considering the expense and integration cost of the bid, the first offer will be 20% premium of the Morrisions’s stand-alone basis price (about 353p per share).

Moreover, cash is chosen as the payment method through analyzing the existing corporate governance structure and debt ability of the bidder and the preference of the target company’ shareholders. In order to get first mover advantage, the hostile takeover will be chosen.

Introduction:

US Stores Inc, as the one of the USA’s largest retailer (Wal-Mart is the largest), encounters slow growth problem in its local market. The main strategy of the company is ‘offer a low price that no competitor can afford’. In order to sustain steady growth, it prepares to enter in a non-US market. Europe is a reasonable target market for US Stores Inc, because it has relatively familiar religious, government and economic institutions as USA. Especially, Ring and Tigert (2001) suggest UK grocery market which has large population and specific acquisition opportunity is an...