Loblaw was founded in 1919 by the Toronto grocers,Theodore Pringle Loblaw and J. Milton Cork. The company first opened a self-serve retail grocery store in Toronto. After series of operations Loblaw was acquired by George Weston Ltd., which became a majority shareholder of about 64% of stake in the company.
Loblaw operated in many split corporates and franchise stores, with approximately 100 more corporate stores compared to franchise stores. Loblaw sold merchandise to franchises and also received fees from them in exchange for services related to operating stores. Loblaw operated mainly in two segments, that is, retail and financial services. The retail segment comprised up to92% of the company’s total earnings and 98% of its total revenue in 2012. On the other hand, the financial segment consisted of President’s Choice Financial (PC Financial) and offered core banking and credit services, along with this it also offered insurance for cars, houses, travel, pets, etc.
The company had maintained its strength in the industry since its inception, however, the company began to struggle in early 2000s. For this, several initiatives were taken to change the leadership in order to cater the threat of Wal-Mart’s entry in Canada. The pressure began to generate due to lower prices causing the increase in competition. Loblaw responded to this by making changes in its operations including the creation of new head office in Brampton.
Unfortunately, the operational changes made by the company resulted in challenges in terms of financial performance throughout the 2000s. The company then took a strategic decision to move to a common platform to operate as a more efficient national merchandiser. Costs associated with the supply chain problems were substantial and dramatically reduced profitability. As a consequence, the company experienced its first annual loss in nineteen years, in 2006.
The poor performance in 2006 contributed to significant change in management. The company later developed a simplified, innovativeand growth strategy with an objective to improve the position of Loblaw again.
Considering the Canadian retail food industry, which was generating an estimate of $76.6 billion, Loblaw owned 32.5% of the grocery retail market share in 2012,although the company was subjected to high competition from several large competitors like, Sobeys Inc. which was the second largest firm in the industry.
For many years, Loblaw’s management was considering Shoppers Drug Mart as an attractive acquisition target. Apart from the main objectives that align with the strategic objectives of the company such as, nutrition, health and wellness, the management also predictedthe acquisition target in light of potential synergies along with reduced operating costs of the business. In this regard, the potential synergies as a result of the merger of Loblaw and Shoppers were estimated to be more than $300 million per year.
For this purpose, the company now felt the attractive opportunity to use shares as a currency to make acquisition. Therefore, it had to be evaluated whether it is appropriate to make offer to acquire Shoppers Drug Mart.
Impact of Mergers
This sort of merger prompts oligopoly. An oligopoly is an organization structure in which a firms rule. At the point when a business is imparted between a couples of firms, it is said to be exceedingly focused. Albeit just a couple of firms command, it is conceivable that numerous little firms might likewise work in the business. Case in point, real aerial shuttles like British Airways (BA) and Air France work their courses with just a couple of close contenders, yet there are alsonumerous little carriers catering for the holidaymaker or offering pro administrations.
Firms that are associated cannotact freely of one another. A firm working in a business sector with simply a couple of contenders must consider the potential response of its nearest adversaries when settling on its own choices. Case in point, if a petrol retailer like Texaco wishes to expand its piece of the pie by decreasing value, it must consider the likelihood that nearby adversaries, for example, Shell and BP, may decrease their cost in striking back. A comprehension of diversion hypothesis and the Prisoner’s Dilemma aides admire the idea of relationship.
This method is essential to Loblawas it is associated. Since Loblaw cannotact autonomously, therefore, itmust expect the reasonable reaction of an opponent to any given change in their cost, or their non-value movement. At the end of the day, they have to plan, and work out a scope of conceivable choices taking into account how they think adversaries may respond.
Oligopolists need to settle on discriminating vital choices, for example, whether to contend with opponents, or conspire with them, whether to raise or lower value, or keep value steady…………………
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