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Starbucks: Merger and Acquisition Financing
The largest four companies and their brands in the coffee industry include Procter & Gamble (with Folgers as a brand name), Philip Morris (with its Maxwell House brand name), Sara Lee (with its Hills Brothers brand name) and Nestle (with a brand name of Tasters Choice) (Starbucks Coffee Company, n.d.). These companies influenced the quality of coffee and consumption patterns. In order to participate in the specialty coffee boom, large manufacturers acquired small roasters in 1990s. Consumption patterns in America showed a shift towards utilization of better and more expensive beans. Starbucks, being a coffee company, valued social responsibility. Employees were seeking to work with companies with strong values and consumers demanding more quality. There has been evident that consumers were willing to support companies with corporate responsibility (75-80% of consumers). Consequently, the company was willing to pay for being a responsible corporation for some reasons. These included increased shareholder value, using a reputation by competitive advantage, using quality suppliers, and increasing employee satisfaction. Many opportunities lie in the merging with companies as well as acquisitions. Such includes access to more market, chances to enjoy more economies of scale, and an opportunity for expansion. The company would be willing to merge with companies that share the same vision, or that can easily realign with their vision. Companies look for benefits in trying to merge with others. Starbuck would be willing to join with a company that already commanded a big market in order to access more market. As far as it concerns expansion of market, the company would benefit by joining with companies such as Procter & Gamble which has already been mentioned as one of the leaders in the coffee industry in history. Nevertheless, the company has since then expanded to other operations including in the e-commerce, solons, perfumes and pharmaceuticals industries. Joining with this company would offer an opportunity to access more market, since Procter & Gamble sold its products in more than 180 countries around the world. Diversification in the market is also an advantage that would benefit the merging because they would gain more money by selling more than one commodity. Procter & Gamble also deals with products in the areas of beauty, grooming, healthcare, snacks and pet care, fabric care, home care, family and baby care (Procter & Gamble, 2009). The coffee product is included in the category of snacks and pet care. Procter & Gamble had similar goals with Starbucks in that it had a high regard for providing goods of superior quality and value to its customers. Procter & Gamble aimed at increasing presence in developing markets, aiming at increasing affordability, accessibility, and awareness to improve on the amount of sales in the market.
Financing a merger or a takeover depends on the financial capacity of the company. There are various alternatives to financing a merger or acquisition and in this case (Business Finance, 2010) I choose revolving line credit because Starbucks is not as strong in terms of financial ability to be able to purchase Nestles. This type of financing will avail an opportunity for the company to get a loan from a bank and sign to allow similar amount of finances latter on. A bridge loan may also be useful in financing mergers and acquisition. This is where the company finances the full amount, little by little. Companies such as Starbucks may use the strategy to merge or acquire larger corporations than them, such as Nestle.
A quick outlook into the performance of the company may help in determining the strengths and weaknesses existing, as well as predict the coming performance. A company can use this to quickly judge between the viabilities of the company and thus the possible better merging partners. The following analysis compares performance between Sara Lee and Nestle, which are among the top performing companies as discussed earlier. It must be noted that analysis into the possible merger partner is a bit complex and requires more analysis than the one provided below. Nestle attained a sale increase of 3.8% during the quarter of 2009 hence falling way behind that of Sara Lee as will be seen latter. The real internal growth improved with 1% in the third quarter for the same year (Lesotha, 2010). The shares for Nestle were selling more than those of Sara Lee ($0.75 per share for Sara Lee by February 16 this year, while that of Nestle 46.96) Sara Lee attained a net sales of $ 2.6 billion while its adjusted net sales decreased by 2.5%. The adjusted operating income in the third quarter rose by 14.1% to reach a total of $62 million. Nestle would therefore be a second better merging partner for Starbucks because of better performance while Sara Lee would be the third option.
References
Business Finance. (2010). Merger and acquisition financing. Business Finance. Web.
Lesotha, P. (2010). Nestle ups buyback while sales fall 2%. Marketwatch. Web.
Procter & Gamble. 2009 Annual Report. Procter & Gamble. Web.
Tuck School of Business. (n.d.). Starbucks Coffee Company. Tuck School of Business, 1-28.
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