Wm Morrison Supermarkets PLC

Introduction
Wm Morrison is a well known leading supermarket in the UK with over 400 stores as well as being listed in the FTSE 100 market. Acquisitions and mergers play a big role in the success of various companies across the globe only if the acquisition being made is of good performance (Leepsa, & Mishra, 2013, p.40).
The factors to be considered in the case of Wm Morrison acquisition vary from political, social, economic and even environmental factors as well as the financial factors of the business. OneStop supermarkets is facing a lot of problems and hence the need for the acquisition of the Wm Morrison so that it can enhance its performance. The need for acquisition has been brought about by the reasons that OneStop PLC has been staggering in terms of performance which to a greater extent has been as a result of poor product portfolio that meets the needs of the customers of the company (Depamphilis, 2011, p.29).

The other issues which have prompted the need to acquire new business are due to the reason that OneStop have faced a lot of criticism which has not been good for the image of the business (Leepsa, & Mishra, 2013, p.39). Various accusations have been laid against the company that it does not allow its employees to have union representation, allegations of racism within the company, and issues of low health insurance rates for the employees of the company (Sherman, & Sherman, 2011, p.155). The various accusations which have been made have greatly affected the business hence the need to make new acquisition so that the business can be able to meet its objectives.
The other motives which have propelled to the idea of the acquisition of the Wm Morrison is because Morrison PLC is nearly the same match as the OneStop in terms of the particular skills involved in the running of the business and the various capabilities which are need to conduct the business (Sherman, & Sherman, 2011, p.157). The various skills and capabilities which are available at Morrison will help in boosting the target value of Morrison and also assist in increasing the sales of the company beyond the performance of OneStop PLC when it is on its own.
This implies that the acquisition of Morrison will boost the image, the performance and the long run stability of OneStop PLC and help it achieve its main objectives (Katz, 2013, p.20). The other motive which influence the need for the acquisition of the Wm Morrison is the reason that when the two companies are combined together, OneStop will help in reducing the targeted predictions on the cost of sales of the companies whereby the ratio of sales to sales will be reduced by about 0.7% while that of the administrative costs to sales ratio will be reduced by about 15%.The need to diversify and improve the image of OneStop Ltd has also led to the need for the acquisition of the Wm Morrison.
From previous researches which have been conducted on acquisitions and mergers it has been observed that there are various factors which companies must put into consideration whenever they plan to make an acquisition or even merge with another company (Sherman, & Sherman, 2011, p.158).
Political
When planning to make an acquisition, especially in a different country from where the main company is, there is need to consider the political atmosphere where the company or business to acquired operates in. Political stability is of great importance since it determines how a business will operate in addition to whether the business will be able to survive in that particular country (Sherman, & Sherman, 2011, p.159).
Legal
There are various legal aspects that influence businesses that must be considered when acquiring, starting or even merging with other businesses (Bruner, 2011, n.p). The legal structure within the UK must be able to support the acquisition of the business so that the acquisition can be of any benefit to OneStop PLC.
Economic Environment
The competition within the business environment must be considered to find out whether the business is able to cope with the competition or not and whether the competition is fair enough for the survival of the company to be acquired.
Financial Performance
Researches that have been conducted also suggest that it is important to consider the financial performance of the company to acquire since that is of great importance (Bruner, 2011, n.p). A company that is not performing well may be a greater risk which may affect the acquiring company.
In the case of Morrison, its share prices have been not been constant which means that the shares of the company in the stock market may not be good performers although it has maintained a mark of between $2.5 and $3. The company is also rated as one of the leading food retailer in the UK, which is quite a good thing for a business since it means the company is able to fight stiff competition. The previous research also adds that the performance of the company helps to identify whether the company is profitable or simply a losing company (Bruner, 2011, n.p). It helps to determine the worth of the company hence it is important the financial performance is considered when wanting to make any acquisition
Research that has been previous conducted show that the food retail industry has grown quite a lot and people have come to appreciate the industry in a big way (Sherman, & Sherman, 2011, p.159). There have been great developments in the industry in terms of the products that are being offered as well as the number of competitors in the industry have also increased. People have become more conscious of what they eat in the food industry with any of them moving towards healthy eating habits hence influencing the industry to adopt healthy food product portfolios (Katz, 2013, p.20). The deal may fail to deliver results due to the strong competition that exists in the UK market as well as the major shareholders of Wm Morrison may not be willing to let go of the company unless they are offered to an attractive bid.
Valuation
When wanting to acquire another business as part of the expansion program for any given company, it is important for a valuation of the company to be acquired to be done.
In the case of OneStop Ltd, it is important to conduct a valuation of the Wm Morrison supermarkets and determine whether the acquisition will be of value to OneStop or it will be a waste of money. In this case, it is to be assumed that the financial statements of Wm Morrison are accurate and no other adjustments are required on them (Cooper, & Finkelstein, 2011, p.1).
The information to be used in this valuation will be obtained from the income statement, the balance sheet as well as the cash flow statement, with regard to the last two years, 2012 and 2013. The most important aspects to be considered are the profitability of the company, the liquidity status of the company as well as the return on investment for the shareholders (Cooper, & Finkelstein, 2011, p.1). This will require an analysis of the ratios of the company to determine if it is a profitable investment or not.
Valuation Calculations
Ratio Analysis
This is done to simply determine the profitability of the company as well as the ability of the company to perform and meet its main objectives. The tables below illustrate the ratio analysis for year 2012 and 2013 as the most recent years of business for Wm Morrison. Figures adapted from: (http://finance.yahoo.com/q/is?s=WM+Income+Statement&annual)

Particulars
DATA IN MILLIONS OF GBp

 
2013
2012
 

 
 
 
 

Total Revenue-Sales
13,983
13,649
 

Cost of Sales (COGS)
9,112
8,879
 

Net Income
98
817
 

Gross Profit
1,206
1,217
 

Inventory
780
759
 

Cash
265
241
 

Total current liabilities
3,014
3,036
 

Total Current Assets
1,342
                       1,322
 

Long Term Debt
2,389
1,593
 

Total Equity
5,237
5,397
 

Total Assets
10,527
9,859
 

 
 
 
 

 
Year 2013
 
 

Ratio Type
Formula
Calculation in Million $
Ratio

 
 
 
 

Current Ratio
Current Assets/Current Liabilities
1,342/3,014
0.44

Debt to Equity Ratio
Total Debt/Total Equity
2,389/5,237
0.45

Inventory Turnover
Sales/Total Inventory
13,983/780
17.93

Profit Margin
Net Income/Sales
647/13,983
0.05