A Merger analysis of Carrefour and Tesco.

Business Studies Coursework

A Merger analysis of Carrefour and Tesco

Introduction

I have decided using my knowledge of trade across different countries to propose and a merger for this piece of coursework. This merger was an idea of mine as I thought Britain’s largest supermarket operator should merge with France’s largest supermarket operator. Neither one nor the other company has particularly large market shares in the market in Britain for Carrefour, and France for Tesco, although each company has stores currently operating in those countries. This is why I have decided to investigate a merger between these two large companies, to discover if this external economy of scale is too large to increase profits, too large that they may have a monopoly over the Anglo European market or whether the arguments between managerial decisions and the amount of corporate downsizing will be too difficult to maintain a secure and steady working atmosphere.

Why Tesco?

Tesco has the largest market share in the UK, with a 27% share of the market, although regarded by the competition committee to be verging on the edge of a monopoly it is a highly successful business. However it has little stores in France and those stores do not receive much diversity in products, they are mostly based around alcoholic goods targeted at British consumers travelling to France to buy alcohol with lower tax, which is cheaper. The share of the market is so low in France they are not regarded as a main competitor among the market leaders. This is why I chose Tesco, it has yet to establish itself as a successful multinational (unlike Wal Mart) and could provide, with this merger a greater amount of competition on the global market and this therefore will drive prices down.

Why Carrefour?

Carrefour has the largest market share in France with a 21% share of the market. It runs a chain of hypermarkets, which sell more than groceries; they have a diverse product range, which includes television and media products, garden products and athletic equipment. This diversity has given Carrefour a competitive edge and now it is the most popular store in France. However this large chain has little impact on the UK market and if it did then it could drive competition away. It has not yet established itself as a successful multinational company and could provide ...

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Why Carrefour?

The Aim

To create a successful merger, which will not affect the public in a bad way and will increase competition on a global scale, bringing all prices of many supermarkets down

Why Merge?

This Anglo-European merger will affect not only the market dominance in their own countries but also in the entire world. This will heavily affect the global market dominance of Wal mart the world’s biggest supermarket chain.

The merger will create new opportunities for the quaternary industries in creating greater capital for research and development of new products. This means that these new products are retailed in the stores, and the public will have a more diverse range of products to select.

The merger will also bring down supermarket prices on a global scale, due to increasing global competition, rather than national competition which would have happened if I had chosen a British merger, perhaps between J Sainsbury and Tesco, which on the international market would not have much success. These cuts in prices will benefit the consumers and in turn will increase the merged company’s market share, meaning success.

Profits would rise and stores would be able to be set up all over the world, giving employment to many of the unemployed and giving opportunities to the local communities to purchase quality foodstuffs at low prices (due to increased competition and low tax in these countries) and for the community to improve.

All these points are the possible positive effects of the merger, however there are other less beneficial effects, which I will explain below.

Why Not Merge

The merger itself, will be very large and the new business created (which for the rest of the essay will be called Tefour) may form a diseconomy of scale, and communication will be less efficient as there will be a greater number of employees and more layers of management to deal with a greater amount of capital. This will be highly ineffective as a business and the merger will be seen as a failure unless something is done about it.

Another problem may be the corporate downsizing, which may take place (although unlikely due to the branches having a span across two countries so there would be little need to close down already running branches and therefore people can keep their jobs) due to a lot more retained profits every year, which means that they will not need so many employees as Tefour will be one large company, so people who work in the offices and some of the managers may be made redundant, as there is no use for two managers who do the same thing.

Another problem will be the arguments over managerial positions, which could mean a decrease in staff motivation, which again is not a good thing but does not greatly affect the company’s success anyway. Also both the managers may have different managerial styles, which would lead to some of the staff leaving because they do not agree with some decisions.