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Mergers And Acquisition Essay

1430 words - 6 pages

Outline the economic arguments for and against British Home Stores (BHS) taking over Arcadia?British Home Stores has grown from a single store in South London to a multinational retail company with a major presence both in the UK and later on in overseas clothing markets. In 1986 they merged with Habitat/Mothercare to form Storehouse plc. Then in May 2000, Philip Green bought Bhs from the Storehouse Group. Green has been successful so far and has managed to turn the business around and increased the value of the business from 0m to an estimated 0m and raise operating profits by 257 percent. After a failed attempt to takeover Marks & Spencer earlier this year Green continued his ambition to expand his empire by moving in to takeover the Arcadia group which has a large portfolio of brands including Topman/Topshop, Miss Selfridge, Burton, Dorothy Perkins, Wallis and Evans. The deal would complete a horizontal takeover and, through external growth, create the biggest fashion retail group in the U.K.A combination of Bhs and the Arcadia, the UK's second largest retailer after Marks & Spencer, would catapult Green's retail empire into pole position in the womenswear market, taking its share to 12.9%, ahead of Marks & Spencer's 12.1%. This would in turn increase the buying power of the company and leave Green in a position to take control of the fashion market sector. With these points in mind there are both economic arguments for and against the takeover that I will evaluate and explain. Firstly it can be argued that the takeover will bring a number of benefits to the economy in both the short and long run however there are sometimes trade offs which, will lead to an economic argument against the takeover.Mr Green and Bhs will argue that the takeover of the clothing retailer will bring the company economies of scale such as financial economies whereby the company will be larger so it will be able to borrow money from the bank with a greater ease and possibly at a lower rate of interest. Also there will be a greater amount of revenue that could be used to finance further growth. This could be an advantage to the economy as further growth and expansion plans could lead to more jobs not only in the retail industry but increase availability for the producers of the clothing. This would bring a possible multiplier effect in areas of expansion on the whole boosting the economy and increasing employment.When economies of scale occur there is a decrease in long run average costs (as shown in figure 1). The takeover may bring new ideas as a result of synergy, the idea that two firms combined will be more productive if combined compared to operating separately, one example of synergy could be that there will be no need for two market research departments trying to identify the latest fashion so the running costs for the department will fall. With lower average costs it could be argued that Bhs would have the ability to lower prices to the consumer...

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