Morrison Case Study

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Motives for the proposed acquisition
If our company acquires Morrison, shareholders could benefit from synergy. Hillier (2013) states that synergy occurs when the acquisition makes the value of the combined firm greater than the sum of the value of the acquiring and acquired firm. There are mainly following three resources of synergies.
1. Revenue enhancement
Firstly, Morrison could bring a higher market gain through improving media programming, distribution network and balancing product mix. In 2014, Morrison has launched an advertisement campaign through many TV channels and websites which brings a good public image. Secondly, we could mitigate our weakness in distribution by taking advantage of Morrison‘s nationwide distribution network which is made up with 8 major distribution centers. In addition, Morrison could also help us to alter our portfolio of products because it provides a wide range of grocery, fresh foods and alcoholic products. Finally, since Morrison and our company are in the same sector, it is horizontal acquisition which could reduce competition we are currently facing to and strengthen monopoly benefits.
2. Cost reduction
According Hillier (2013), a horizontal acquisition could increase operating efficiency through economies of scale. Generally, the cost per unit is relate to the size of production, a company would experiences economies of scale in which the cost per unit decrease with an increase of production size until it reaches the optimal firm size and after that diseconomies of scale will show up. Furthermore, we could share same central facilities such as computer systems, corporate headquarters and management which could reduce the management costs. A lower operating and management costs could miti...

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... also future prediction.
 These valuations are just estimation and there is no absolutely right valuing method.
Time value of money needs to be considered, so need to discount the future value to present value.
 DCF model could be the basic valuation, other valuing method, like Market Multiples should be considered to make result more accurate.
 If there are significant difference between DCF and other method, the assumptions and predictions should be reconsidered.
 The difference between the EV without synergy and with synergies could give us an purchasing price boundary when we negotiate with the target company.
 Since we believe the share price of Morrison might be undervalued and we now cannot afford the risk of paying large amount of cash, stock exchange might the best method of financing. But negotiated exchange ratio has to be based on synergies.

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