For this coursework I have to analyse the takeover of Safeway by Morrison and compare the gains and losses of the company and the companies shareholders and see over all who got the best deal.For my hypothesis I think that Morrison's got the best deal when they took over Safeway because they were taking hold of a significant percentage of the market, and if marketed properly would attract more customers, make better profits thus please the shareholders.Economic theoryA takeover is a change in a corporation's controlling interest through either a friendly acquisition or a hostile bid.
Hostile takeovers aim to replace the target company's existing management and are usually attempted through a public tender offer. Other takeover methods are unsolicited merger proposals to directors, accumulation of shares in the open market, or proxy fights. The reason Safeway was a target for Morrison was that it was losing profits and customers, which made it weak and therefore a target for a take over.When a firm becomes too big and dominates the market other companies may complain to the monopolies commission that this causes restricted competition and that the market is being monopolised by such a firm. When a firm dominates the market and wants to get even bigger, smaller firms could perish and thus reduce competition.
This is what happened when the bigger firms such as Tesco and Asda/Wal-Mart tried to buy Safeways, they were denied the right to by the Monopolies commission, because, otherwise they would become too big and have too much power.A stakeholder is a person who has something to lose or gain in business. For example if a business goes bankrupt all the workers would lose their jobs and thus their stake in the business, which makes them stakeholders.The stakeholders of Safeways and Morrison's are the suppliers, workers, and owners. If the takeover of Safeway by Morrison's went wrong lots of people would lose their jobs, such as truck delivery drivers, workers in both stores and the shareholders.The market is very competitive, every firm wants to be the biggest and strongest, and have the most customers.
In recent years the Grocery Market has seen a number of takeovers from major retailing brands that have sought to consolidate their market share and expand their retail operations. The most high profile takeover, the Safeway purchase by rival supermarket giant Morrison, saw the confirmation of four major players in the grocery market. But recent acquisitions have involved multiple convenience store groups:. Nov 2002 - T and S takeover by Tesco.
January 2004 - Adminstore takeover by Tesco. February 2004 - Bells Stores takeover by J Sainsbury. August 2004 - Jacksons Stores Takeover by J SainsburyFirms compete with each other by trying to be the most profitable. To achieve this profitability they try to have the most competitive prices and quality of goods to attract customers.The big supermarkets are doing all they can to be the strongest, by buying out their competitors and trying to grow bigger and stronger.The supermarket market is an oligopoly.
An oligopoly is a market structure where just a few companies control a high percentage of the total market. Because the monopolies commission stopped the bigger companies buying Safeways the supermarket market is still an oligopoly because all the giants have a near equal share of the market (except Tesco's who have much more). But, for example if Tesco's bought Safeways the supermarket market would basically be a monopoly, with one company controlling way over a quarter of the shares, whereby leaving no room for competition and giving one company all the power.Firms seek to grow larger for many different reasons, some of these reasons will benefit the firm and others will benefit the consumers. The first reason is they want to secure the most market share in whatever product they are selling preferably over 25%.
They want to own this amount of market share (market segment) because this makes them the ability to make big profits. This would also enable cheaper prices using economies of scale. The advantages of a monopoly are the company can enjoy economies of scale, which means cost savings. Because of size, if you buy more you can negotiate better prices.
This is shown by Tesco's, who are the biggest supermarket, have the lowest prices, which proves that statement. The worry about firms becoming too large is they become a monopoly, which is good for that firm but not good for customers. If a firm becomes a monopoly it will mean that they will have no competition. As such, it could do more or less what it pleases, so service could become poor and the customers would have a good choice, because either the shop owns the whole market or they have the lowest prices around.In the supermarket market I don't think there will be a fear of this because the government is keeping a close eye on firms becoming too big, like when they stopped the bigger supermarkets buying Safeway.
