Venue Finder »
Looking for somewhere to host your event? EN's Venue Finder lets you search by location, capacity and event style, across the best venues in the UK.
Lucy Nicholson reveals...
Meet the entrepreneur on a mission to cool down stresses execs over a hot stove at her base in Cumbria. EN reaches for the blue plasters as Lucy Nicholson reveals...
| Joined-Up Thinking |
| Thursday, 30 November 2006 | |
|
James Graham considers the pitfalls and successes of buying a competitor. An annual meeting at supermarket group Wm Morrison is quite a unique affair. A kind of warm tide of affection is directed towards chairman Sir Ken Morrison.  A few years ago, one journalist described the supermarket’s AGM as a “love-in”, where the only voice of dissent was a shareholder from Coventry complaining of mucky tables at the café in his local store. Then Morrisons bought Safeway for £3bn, a merger that pushed the company into the red and sparked the chaos of profit warnings, boardroom bust-ups and a tumbling share price. Stock dived from a high of 260p before the acquisition to a low of 147p. Come this year’s meeting in May, the small shareholders were just as friendly but City financiers wanted to hear about succession, convinced Sir Ken had messed up the integration of the two businesses. They wanted a departure date. The 75-year-old satisfied this demand, but he’ll keep them waiting until January 2008. By that time, he may well leave the business firing on all cylinders. In September Morrisons reported better than expected half-year profits and robust current trading figures, sending its shares up 18p to 251.5p, a two-year high. When the Safeway bid was unleashed in January 2003 it was widely seen as an audacious move by a plucky outsider, cheekily stealing a march on his much bigger rivals. The job of integrating Safeway, a business twice Morrisons’ size, appears to have been far tougher than the board expected, though. “The business was not as efficient as we thought it would be,” admitted former chief executive Bob Stott as the group announced its first profit warning for 37 years in 2004. “We have found stock we have had to clear through, a few TVs to say the least. Plus 50,000 pairs of Levi jeans, some mountain bikes and some old wines.” But it wasn’t just a question of old stock. Morrisons’ board was accused of approaching the integration arrogantly, and not being prepared to adapt or deviate from the Morrisons way of doing things. Should Sir Ken’s experience be held up as a cautionary tale for other businesses? The stakes were particularly high in this case, but there is a clear message, and it’s one that everybody involved in mergers and acquisitions preaches – get the integration right. Morrisons suffered a dramatic and very public fall from grace, but it wasn’t the first business to struggle with a merger and won’t be the last. The merger of Bank of Scotland and Halifax in 2001 is considered a success, but customer service suffered and some Scots still complain about the “Halifaxisation” of the Bank of Scotland. For JJB Sports, the acquisition and rapid disposal of TJ Hughes coincided with a steep decline in the group’s share price. In January 2002, shares were worth around 425p. Two years later, they had halved in value, dropping as low as 150p at one point. Admittedly these were tough years for the business, which was hit by the suicide of chief executive Duncan Sharpe, poor sales and a price-fixing scandal. In March 2002 the group agreed a £42 million takeover of TJ Hughes, a clothing and homeware chain. JJB insisted it could grow the business and open 100 branches, but analysts were worried about this shift away from its core business. Within 18 months JJB was looking for a buyer and eventually sold to a management team for £55.8 million, lower than the forecast £60-70 million. The reason: the group said it wanted to focus on its core business. “You have to question whether the underlying rationale was sound in the first place,” says Christine Adshead, partner in charge of transaction services in the North West for accountancy firm PricewaterhouseCoopers. Her unit advises businesses to try and ensure mergers work. “People generally look at why they fail, but they need to look at how to make them succeed,” says Adshead, who singles out the importance of putting people first, not being distracted from day-today business and being focused on the value the deal is supposed to bring to the business. In the case of TJ Hughes that value was perhaps a moot point and the concerns of analysts and investors clearly never went away. But when inflation is low and consumers are spending less, how else can a business grow? The market expects year-on-year growth and mergers and acquisitions can often be the easiest way to achieve this. The problem is that far too many of these deals fail to deliver the desired results, such as cost savings, greater market share and better operational efficiency. Common failings are poor planning and scant regard for staffing issues. The latter can cause huge problems in those businesses where the people are supposed to be one of the key assets. Good companies are also often scuppered by bad acquisitions that don’t deliver the promised profit growth. This can cause severe problems if the acquirer has overpaid and used a large amount of debt to secure a deal which it then has to repay. A report published in January by the accountancy firm KPMG surveyed 100 large recent takeovers. Titled “The Morning After”, it found that more than two-thirds failed to enhance value after a year. In a quarter of cases, the deal destroyed value.
KPMG said this showed that many companies were using acquisitions simply to hold their position in a competitive market. Many deals lacked value because buyers had paid too much, reflecting a shift in power from the buyer to the seller through the rise of the auction process. The survey also highlighted poor post-deal planning, with just 59 per cent of companies doing this prior to a deal’s completion, compared with 95 per cent of private equity houses. However, Rebecca French, head of integration advisory in the North for KPMG, was encouraged by some of the findings.       |
