World of Business
1- Trace the growth of a specific organization through merger and/or acquisition. Explain some of the rational for each merger/acquisition; describe any economies of scale realized?
Delta airlines and Northwest airlines Merger
Delta and Northwest airlines merger is one of the greatest mergers in the airline industry creating the world’s biggest carrier. The merger which was approximately $3.1 billion is expected to restructure the US airline industry and will use the Delta name in its operations with its headquarters situated in Atlanta. This huge merger between the third largest Delta and the fifth largest Northwest airlines will help in creating a global giant with more than 700 jets, 6400 daily flights, almost $35 billion revenue yearly and the new company’s value of almost $17.7 billion, far above their current market value.
The merger will also have approximately 75000 employees globally with no hub closures expected and a 1.25 delta share for each of the Northwest airlines shareholders in addition to the seniority protection of the frontline employees for both airlines via fair and equitable seniority integration. The merger of the Delta and the Northwest airlines was also facilitated by the fact that they have very few overlapping routes which may interfere with their operations since Delta had most routes in Europe and Latin America while Northwest concentrated its business in Asia (Fedor Web).
This major merger in the airline industry will further marry the Delta’s route networks in Europe and Latin America with the Northwest’s Asia networks and further create more routes thus widening its networks. This giant merger is expected to initiate significant and plausible efficiencies that will undoubtedly make the US and world’s customers’ gain greatly from savings on expenses for airport operations, technology and suppliers as well as heightening competition in the carrier industry.
The merger was aimed at benefiting the two parties involved by making them more efficient in service provision and their respective operations. The merger was also intended to increase international presence and the ability to fund long term investments in the airline industry as well as offsetting the higher fuel prices which has fundamentally affected the financial viability of the airline operations. The merger will not lay off any employee but will tend to raise the salaries of all the employees for both airlines and further reduce their previous pay cuts that existed before the merger (Fleming Web).
The merger of Delta and Northwest airlines is intended to provide a better solution of meeting the stakeholders’ objectives. The merger is expected to help the financiers, employees and passengers achieve their main intentions since it will allow the new company to make profits that will be used in increasing the dividends, raising workers pay, and satisfying their clients respectively. A stable and continuous profit will be maintained by the company to sustain its operations hence improving the various stakeholders’ aims. Other benefits that may be accrued are creating a global US carrier that intensively competes with other foreign airlines as well as enabling their customers from across the world get access to a global route system that will allow them to travel anywhere just by using same company’s facilities (Fleming Web).
Increase of destinations greatly helps in adding further schedule options and extra opportunities to make more money while redeeming frequent flyer miles thus making a more financially stable airline company with a vast opportunity of growing and expanding. All the customers from both the airlines will benefit from each other’s greater services and strengths to various destinations as well as easing the integration risk due to their complementary networks and common membership in the Sky Team alliance. Although this merger was initially opposed by the Northwest’s airline due to the anticipation of job loss, there was a great promise of pay rise and good working conditions for all the employees due to the wonderful profits that were made from the merger. Due to the wider networks, the company will reach greater markets that its competitors may not reach hence causing threat to the existing small airline companies (Fedor Web).
The merger will lead to the benefit from the economies of scale by reducing each other’s fixed costs especially the cost of fuel since the new bigger firm will have lower average cost and will further be allowed discounts for most of their purchases due to bulk buying. The larger company may also get a very favorable rate of interest and a less costly head office to run rather than the two headquarters for both companies that existed before. The merger further intensifies competitive advantage in the airline industry due to greater investments in R&D because of the available high profits that can be used to finance risky investments. Merger may also protect the companies from closing down due to liquidity challenges and further improves on diversification in routes and sharing of management skills (Fleming Web).
2- Create a chronology of events leading up to a chapter 11 filing of a specific organization; continue the chronology through the organizations emergence from bankruptcy?
Eastman Kodak Bankruptcy
Kodak Company which was one of the iconic American companies saddened many people worldwide when it surprisingly applied for bankruptcy making it ranks as the top local business news. Most people blamed the universal technological trends which gulped up retailers, publisher and other great and small industries on Kodak’s decline. The management of Kodak was initially seen as failing the huge company by not coping up with the technology in the imaging, copiers and other facilities and products that the company deals in (Hill & Gareth 383).
However, in August 2004, the company announced its intention to digitalize its operations after almost a century of service without transformation under the leadership of Carp. Transformations were very challenging because it required both transformation in market shift and obsolescence of their main research and various operations that reduced the competitiveness of the company (Hill & Gareth 383)
In 2001, when Carp took over Kodak Eastman as the CEO he made several changes in the company’s culture to facilitate the company’s performance by recognizing digital expertise to help the company succeed. He further ordered the redesign of the Kodak Park by injecting millions of dollars to affect the project’s success. Under his leadership, Kodak shocked many people in the industry by building a leading brand in digital camera such as Easy Share which ranked first in the US market. They additionally built a primary site for online photos but it was unfortunate since the printing of images, which was the consumer’s digital strategy, was unsuccessful. Kodak, although concentrated on its cameras, invested more on the cameras simply because it covered larger part of their market share (Hill & Gareth 383).
Their hard copy pictures which they strived to excel in also had very little demand due to the internet which made viewing and sharing easier thus altering customers’ attitudes on. Kodak did not anticipate the effect of phones on the digital cameras even as their digital cameras proved expensive to the consumers. However, the question that lingers in most people’s mind is whether Kodak was wrong in adopting new technology such as introduction of digital photography. Kodak failed to merge with many companies during financial times to boosts its finances and R&D thus making it trail behind in the industry which it once dominated (Hill & Gareth 383).
Kodak’s strategic management failed to foresee the effects of digital phones which did not require films just as Fuji film did in the market. The company did not know how to respond to the increased use of digital cameras, USB cables, and SD cards which were more suitable thus eventually killing the Kodak business. Kodak sold most of its profitable subsidiaries such as its copier division hence reducing its revenue. The company was then unable to pay its creditors and even engaged in layoffs due to inability to sustain its operations thus reducing its local employees from 60,400 to almost 7,000, closed 13 manufacturing plants and 130 processing labs since 2003.
Kodak is working extra hard to arrange for funds of almost $844 million that would see it exit emergency in mid 2013. The company and its subsidiaries filed voluntary petition for reorganization which is intended to improve its liquidity both in the US and abroad. They plan to solve resolve legacy liabilities and focus on its valuable business line even after making pioneering investments on digital and materials deposition technologies which generated almost 75% of its revenues in 2011. The company has successfully acquired a fully committed $844 million credit facility which has been approved by the court from the Citigroup to boost its liquidity and working capital. The company strongly believes that it has enough liquidity to smoothly continue with its business in the normal line whilst paying its employees wages and maintaining its customer programs (Waters & Bradshaw Web).
The company will seek to address its cost effectiveness as they abandon some of its traditional businesses by coming up with a lean, world class, digital imaging and profitable company. The company further promised to be committed in a culture of collaboration and innovativeness which they urged all their employees to adopt for betterment of the company. It will reorganize its structure and operations to fit all the objectives of its shareholders by deeply consulting great firms such as FTI Consulting Inc. on the better ways of improving the company. Kodak will monthly file its monthly reports with the Bankruptcy court and also file its quarterly report with Securities and Exchange Commission (Waters & Bradshaw Web).
Target Corp., Consolidated Income Statement USD $ in millions 12 months ended Feb 2, 2013 Jan 28, 2012 Jan 29, 2011 Jan 30, 2010
Sales 71,960 68,466 65,786 63,435
Credit card revenues 1,341 1,399 1,604 1,922
Revenues 73,301 69,865 67,390 65,357
Cost of sales -50,568 -47,860 -45,725 -44,062
Credit card expenses -467 -446 -860 -1,521
Gross profit 22,266 21,559 20,805 19,774
Selling, general and administrative expenses -14,914 -14,106 -13,469 -13,078
Depreciation and amortization -2,142 -2,131 -2,084 -2,023
Gain on receivables held for sale 161 – – –
Earnings before interest expense and income taxes 5,371 5,322 5,252 4,673
Net interest expense -762 -866 -757 -801
Earnings before income taxes 4,609 4,456 4,495 3,872
Provision for income taxes -1,610 -1,527 -1,575 -1,384
2,999 2,929 2,920 2,488
(Target Corp Web).
Annual Financials for Wal-Mart Stores Inc.
Fiscal year is February-January. All values USD millions. 2011 2012 2013
HYPERLINK “http://www.marketwatch.com/investing/stock/wmt/financials” Sales/Revenue 418.95B 443.85B 469.16B
HYPERLINK “http://www.marketwatch.com/investing/stock/wmt/financials” Cost of Goods Sold (COGS) incl. D&A 315.29B 335.13B 352.49B
COGS excluding D&A 307.65B 327B 343.99B
Depreciation & Amortization Expense 7.64B 8.13B 8.5B
Depreciation – – 8.4B
Amortization of Intangibles – – 101M
HYPERLINK “http://www.marketwatch.com/investing/stock/wmt/financials” Gross Income 103.67B 108.73B 116.67B
2011 2012 2013
HYPERLINK “http://www.marketwatch.com/investing/stock/wmt/financials” SG&A Expense 80.76B 85.27B 88.87B
Research & Development 0 0 0
Other SG&A 80.76B 85.27B 88.87B
Other Operating Expense 0 0 0
Unusual Expense 260M 0 0
EBIT after Unusual Expense (260M) 0 0
Non Operating Income/Expense 2.9B 3.1B 0
Non-Operating Interest Income 201M 162M 187M
Equity in Affiliates (Pretax) 0 0 –
HYPERLINK “http://www.marketwatch.com/investing/stock/wmt/financials” Interest Expense 2.21B 2.32B 2.25B
Gross Interest Expense 2.27B 2.38B 2.33B
Interest Capitalized 63M 60M 74M
HYPERLINK “http://www.marketwatch.com/investing/stock/wmt/financials” Pretax Income 23.54B 24.4B 25.74B
Income Tax 7.58B 7.94B 7.98B
Income Tax – Current Domestic 5.24B 5.34B 6.23B
Income Tax – Current Foreign 1.47B 1.4B 1.77B
Income Tax – Deferred Domestic 857M 1.5B 30M
Income Tax – Deferred Foreign 19M (299M) (48M)
Consolidated Net Income 15.96B 16.45B 17.7
(Market Watch Web).
The income for the two companies has been increasing for the last three years from 2010, 2011 and 2012. In Wal-Mart Company, the sales grew by 5.94% in 2010 to 2012 and later reduced to 5.70% in 2012 financial year. The sales for the Wal-Mart company rose from 2010 to 2011 financial years and slightly dropped in 2012 financial year.
The cost of goods sold for the Wal-Mart company increased by almost a double digit from the 2010 financial years to 2011 financial year but slightly reduced in 2012financial year. The net income for the Wal-Mart company increased by almost 2% in 2010 but reduced by almost 3% in 2011 which later increased by almost 5% in 2012. The gross profit margin for the Wal-Mart company rose from 3.26%, 4.38% and 7.31% in the financial years 2010, 2011, and 2012 respectively due to the increase in sales.
On the other hand, Target Group Company recorded a slight increase in its sales from 2010 to 2011 and further increased a bit more in 2012. The cost of sales for the Target Company also increased throughout the last three financial years and a very progressive increase in the net income from 2010, 2011, to 2012. The gross profit margin for the Target company also increased from the 2010, 2011, to 2012 respectively due to increase in sales.
Generally, cost of sales for the two companies increased little by little for the last three financial years 2010, 2011, and 2012. The net incomes for the two companies also increased progressively for the three financial years 2010, 2011, and 2012. The gross profit margin for the two companies increased gradually for the last three financial years.
Expenses= Gross margin – Net Income
In Target company, expenses are $18, 721, $18630 and $19267 million in 2010, 2011, and 2012 respectively. This showed a slight reduction in expenses from 2010 to 2011 and an increase by $637 million dollars from 2011to 2012.In Wall-mart company, the expenses increased from $88.31, $92.96, and $99.67 billion in 2010, 2011, and 2012 respectively.
Fleming, Susan A. “Airline Mergers: Issues Raised by the Proposed Merger of United and Continental Airlines: Testimony before the Committee on Commerce, Science, and Transportation, U.S. Senate.” Washington, D.C: U.S. Govt. Accountability Office, (2010): Internet resource. HYPERLINK “http://books.google.co.ke/books?id=6WZzoOfNjkoC&pg=PP2&lpg=PP2&dq=Delta+airlines+and+Northwest+airlines” http://books.google.co.ke/books?id=6WZzoOfNjkoC&pg=PP2&lpg=PP2&dq=Delta+airlines+and+Northwest+airlines.
Fedor, Liz. It’s A Go for World’s Largest Airline. Star Tribune, 2008. Web. 8 Apr. 2013. HYPERLINK “http://www.startribune.com/business/17672684.html?refer=y” http://www.startribune.com/business/17672684.html?refer=y.
Hill, Charles W. L, and Gareth R. Strategic Management. Cengage Learning, 2012. Print.
Waters, R, and Bradshaw, Tim. Kodak files for bankruptcy protection. Travel & Leisure, 2012. Web. 8 Apr. 2013. HYPERLINK “http://www.ft.com/cms/s/0/68054e1c-4267-11e1-93ea-00144feab49a.html” http://www.ft.com/cms/s/0/68054e1c-4267-11e1-93ea-00144feab49a.html.
Target Corp. Target Corp: Consolidated Income Statement. EBIT Financial Analyses Center. Web. 8. Apr. 2013. HYPERLINK “http://www.stock-analysis-on.net/NYSE/Company/Target-Corp/Financial-Statement/Income-Statement” http://www.stock-analysis-on.net/NYSE/Company/Target-Corp/Financial-Statement/Income-Statement.
Market Watch. The Wall Street Journal, 2013. Web. 8 Apr. 2013.