L'Oreal and Body Shop: Acquisition Factors and Organizational Culture

This report provides a comprehensive analysis of L'Oreal's acquisition of The Body Shop, examining the impact of the macro-environment through a PESTLE analysis, and comparing the organizational cultures of both companies using Handy's Cultural model. It explores the factors considered by L'Oreal before the acquisition, such as human capital, brand image, cost, and financial position. Furthermore, the report identifies factors contributing to the acquisition's failure. The analysis highlights the challenges related to political and economic factors like tax implications and exchange rate fluctuations, social issues such as the brand's image, and the importance of aligning organizational cultures for successful integration. The report emphasizes the need for thorough due diligence and strategic planning in mergers and acquisitions to mitigate risks and achieve desired outcomes, offering valuable insights into the complexities of such business ventures.

L'Oreal and Body
Shop

Table of Contents
INTRODUCTION...........................................................................................................................1
PART 1............................................................................................................................................1
1. Analysis of impact of macro environment on the current situation of the organisation..........1
2. Analysis of organisational culture of L'Oreal and Body Shop................................................2
3. Discussion of different factors which would have considered by L'Oreal before making the
decision of acquisition of Body Shop..........................................................................................4
4. Different factors which have an impact on the acquisition of Body Shop made by L'Oreal
resulting in failure of project........................................................................................................5
PART 2............................................................................................................................................6
Personal reflection of writing the report......................................................................................6
CONCLUSION................................................................................................................................6
REFERENCES................................................................................................................................8

INTRODUCTION
Acquisition can be defined as the mode of transfer of ownership in which one
organisation is purchased by another one for the purpose of getting monetary benefits. After
taking the possession of an entity all the financial statements are formulated in consolidated form
in which parent company is responsible to form them on the basis of subsidiary (Bamber and
Gransden, 2019). Present report is based upon the acquisition of Body Shop which was acquired
by L'Oreal. Body Shop is a beauty products, cosmetic and perfume company founded in
year1976 and the another enterprise which has acquired it is L'Oreal which is a personal care
entity. It is one of the largest cosmetic brands that are providing products and services in
multiple countries. This assignment covers various topics such as analysis of macro environment,
organisational structure of both the companies, factors taken in to consideration by L'Oreal to
acquire Body Shop etc. Apart from this, all the elements which has affected the acquisition and
resulted in failure are also discussed in this project.
PART 1
1. Analysis of impact of macro environment on the current situation of the organisation
Macro environment: It can be defined as the set of such forces which are affecting an
organisation externally and for all the business entities it is very important to keep an eye on
them so that effective policies for future could be formulated. As L'Oreal has acquired Body
Shop therefore it is very important for the company to assess the macro environment for current
situations. For this purpose, PESTLE analysis could be used which is having six different
elements. Discussion of all of them in the context of the company is as follows:
 Political: Different elements which are related to political situations such as corruption,
stability of legal authorities, trade restrictions, tax etc. are political factors. When L'Oreal
acquire Body Shop various issues which are related to tax and legal implications. The
amount for the acquisition was around 652 million pounds. Due to Brexit the percentage
of tax has been increased therefore the company has paid additional taxation of the total
amount which have resulted in higher cost of acquisition (Dial and Storkey, 2017).
 Economic: There are various component of this element which are exchange, inflation,
interest and deflation rates. Body Shop is a UK company and L'Oreal is a french
company so it has affected the acquisition because the changes in exchange rates affect
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the price of currency. L'Oreal was required to pay the 652 million pounds in the local
current of UK and due to changes in rates the company have faced economic challenges.
 Social: Changes in perception, culture, attitude, age, lifestyle etc. are social factors which
are required to be taken in to consideration by companies. When L'Oreal was acquisition
Body Shop it has also faced social issues such as decrement in the demand of it products
due to bad market image of the acquired enterprise. The reason behind it was practices of
it on the animal which affected the good image of L'Oreal (Faivre-Tavignot, 2016).
 Technological: Latest technology, innovation, advancement in technology etc. are some
elements of this factor and for companies such as L'Oreal it is very important to pay
attention towards it to meet the expectations of clients. When Body Shop was acquired by
it then company tried to use all the latest techniques to market new products . It has
resulted positively and helped the company to spread awareness about both the
companies.
 Environmental: Corporate social responsibility is one of the key element of it in which
companies are required to perform operational activities in ethical manner and make sure
that operations are not leaving negative impact upon the environment. L'Oreal ignored it
and acquired Body Shop which was executing business in unethical way because of its
practician on animals. Due to this legal involvement in the business were faced by the
organisation.
 Legal: Different types of regulations such as patent, copyright, labour law, acquisition
act etc. are legal implications that should be kept in the mind by organisations such as
L'Oreal while acquiring other companies. In order to make the acquisition of Body Shop
a successful decision it was very important for the company to comply with all the laws
and legislations. All of them were taken in to consideration while formulating decisions
and it has helped to acquire the company successfully (Gupta and Sinha, 2015).
2. Analysis of organisational culture of L'Oreal and Body Shop
Organisational culture: It is the set if belief, values and attitudes followed by management
of an organisation while carrying out operational activities. In order to reach the long term
business objectives it is very important for management in enterprises to follow effective
workplace culture. For the purpose of analysing them Handy's Cultural model could be used. It is
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having four different elements. L'Oreal and Body Shop are also having separate cultures and
discussion of them is as follows:
Task culture: It is used by companies to find best suitable solution for all the problems
that are faced by the organisation. Managers who are using it allocate different tasks to staff
members so that they can work for the attainment of same objective. In order to find effective
ways to deal with serious business issues such as decreased profitability it could be used in
L'Oreal an Body Shop.
Role culture: When this culture is followed in the organisation then managers allocate
different roles and responsibilities to all the staff members for the attainment of long term
business goals. It is also beneficial for the enhancement of employee engagement in operational
activities. For the purpose of performing all the operational activities in systematic manner it
could be adopted by L'Oreal and Body Shop (Mao, 2018).
Power culture: Leaders in organisation following this culture keep all the power of
decision making in their hands and they do not allow the employees to give their opinion of the
strategies. Sometimes it may result in decreased staff engagement. For short term goals it is the
best suitable option of organisations culture. In order to increase profitability in less time it could
be used in L'Oreal and Body Shop.
Person culture: In this type of culture employee give preference to their personal goals
rather than organisational objectives as they want to grow themselves. By using it companies
such as L'Oreal and Body Shop can increase staff engagement by making the employee believe
that they are superior of the enterprise.
From all the above described culture Body Shop is following task culture for the purpose
of dealing with all the problems that are faced by it due to its practices on employees. L'Oreal is
using role culture which guides it to allocate different roles and responsibilities to all the staff
members according to their capabilities (Ponte, 2019).
The cultures of both the companies are compatible with each other because both of them
results in higher employee engagement and attainment of organisational goals. The level of
compatibility create different opportunities for L'Oreal. Description of all of them is as follows:
Future growth: Compatibility in task and role culture of both the organisations results in
future growth of the organisation because with the help of them companies will be able to
increase employee engagement. As L'Oreal and Body Shop's cultures are having higher
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compatibility so it will help the employees to work harder and help the company to enhance
profitability so that it can reach to its long term business goals and attain growth.
Highly motivated staff members: The staff members of Body Shop and L'Oreal will be
highly motivated with the help of higher compatibility of cultures. Reason behind this
opportunity is that in both the cultures staff is motivated to perform their jobs effectively so that
they can get rewards by making contribution in organisational success. Role and task culture will
facilitate L'Oreal to improve the engagement level of employees in their jobs and attain higher
benefits for development of business (Porangaba, 2019).
3. Discussion of different factors which would have considered by L'Oreal before making the
decision of acquisition of Body Shop
When an organisation is planning to acquire another company then it is very important
for it to pay attention towards key element about the other enterprise. It can help to make sure
that the decision of acquisition is good. When L'Oreal acquired Body Shop then different
element of the enterprise were analysed by management. All the factors which have facilitated
decision making are as follows:
 Human capital: While acquiring an organisation it is very important for companies to
analyse the human resources the enterprise going to be acquired. It can help to determine
that staff members of the entity are able to perform operational activities properly or not.
L'Oreal has paid attention to this factor to determine that the employees working in Body
Shop are able to contribute in the development of organisation or not. It has also helped
to decide the amount which was provided as the consideration of acquisition.
 Brand image: When a decision of acquisition is formulated then it is very important for
the company which is planing to acquire the another one to analyse its brand image in the
market. If it is good then only it is decided to acquire because acquiring an enterprise
with lower brand image will be a bad decision. It was also assessed by L'Oreal in context
of Body Shop to make sure that the acquisition will result positively for the business
(Pye, 2016).
 Cost of acquisition: In order to make sure that the decision of acquisition will be good or
bad for the company it is very important for entities to analyse the cost of acquisition so it
that it could be decided that the decision will result positively of negatively. L'Oreal have
also taken this factor in to consideration when it was planning to acquire Body Shop
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because a higher amount may result in lack of fund or future operations. It was the main
element which would have taken in to consideration by L'Oreal while planning for
acquiring Body Shop.
 Financial position: An organisation which is planning for acquisition will analyse the
financial condition of the another enterprise so that the decision regarding the amount of
consideration could be taken. For example, if this was not analysed by L'Oreal and Body
Shop was having huge amount of debts then it would have resulted in huge losses for the
company. In order to deal with this threat L'Oreal have assessed this factor also and then
decided the amount which will be provided to Body Shop for acquisition (Schaltegger,
Lüdeke-Freund and Hansen, 2016).
While formulating the decision of acquiring Body Shop L'Oreal have focused on all the
above described factors so that it can respond the issues which may take place in future. By
paying attention towards all the factors the company would have formulated the decision of
acquiring Body Shop and attaining benefits in future.
4. Different factors which have an impact on the acquisition of Body Shop made by L'Oreal
resulting in failure of project
If a company is acquired by another one then it cannot be assured that the acquisition will
result in failure it may also become a huge failure due to various factors. In order to determine all
of them it is very important for management of companies to analyse the external business
environment because mostly macro factors result in the failure. Body Shop was acquired by
L'Oreal for 652 million pounds for the purpose of developing the business, capturing large
market share and increasing the profitability. Somehow this decision resulted negatively for the
organisation and became a failure (Tuten, 2019). All the element which have affected the
acquisition in unfavourable manner are as follows:
 Higher cost of running the shops: It was the main reason for the failure because L'Oreal
have faced the higher cost for operating the shops of Body Shop. Due to this expenses of
the company were continuously increasing and profitability was decreasing. The entity
was not able to bear these higher costs and it has resulted in the huge failure for the
business.
 Popularity of online shopping: Now a days people are becoming addicted to online
shopping and they want that all the products that are needed by them should be available
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on online websites. The availability of Body Shop's products is very low because it si
having large number of offline stores around the world. It was also one of the key factors
which are resulted in the failure of acquisition. Due to this factor the company have faced
lower demand of its products in the market and also faced the challenge of decreased
profits (Worek and et.al., 2018).
All the above described factors have resulted in the failure of acquisition of Body Shop
for L'Oreal. Organisation have faced issues due to this decision because it has affected the
market image and sales in the market.
PART 2
Personal reflection of writing the report
I am a student and my teacher allotted a project to me which was based upon the case
study of L'Oreal's acquisition of Body Shop. When I was working on this project I have learned
various things one of them was related to acquisition because my knowledge about it before
working on this report was very low. When I worked on this project them I have gained
understanding of different elements which should be focused by an organisation while planning
to acquire the another company. This report has guided me to enhance the ability of researching
online because successful completion of the assignment required detailed information of the
acquisition decision of L'Oreal. I have also faced some issues when I was working on this project
which was lack of information about the project topic. For the purpose of dealing with it I have
taken help of lecturers and my classmates who were having detailed knowledge of it. My overall
experience of working on the project was very good and with the help of it I was able to analyse
my own strengths which are effective communication, proper time management etc. One of the
key weakness which was also identified by me while working on the project was lack of
knowledge of working on a computer. I have overcame it by taking proper assistance of tutor and
other students of my class.
CONCLUSION
From the above project report it has been concluded that acquisition is the process of
buying an organisation for a pre-decided consideration. When a decision of acquiring a
company is formulated by business entities then it is very important to analyse the impact macro
environment on this decision. For this purpose, PESTLE analysis could be performed as it can
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help the management to analyse the forces that may leave negative impact upon business. Some
of the elements which should be focused before acquisition are brand image, financial position,
cost of acquisition etc. The element which may result in the failure of the acquiring decision are
higher cost of running shops, lower availability of online shops etc.
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REFERENCES
Books and Journals:
Bamber, D. J. and Gransden, C. A., 2019. Perfume Consumption in India: An Exploratory Study.
In Exploring the Dynamics of Consumerism in Developing Nations (pp. 76-100). IGI
Global.
Dial, M. and Storkey, C., 2017. Futureproof: How to Get Your Business Ready for the Next
Disruption. Pearson UK.
Faivre-Tavignot, B., 2016. Social business and base of the pyramid: levers for strategic renewal.
John Wiley & Sons.
Gupta, S. and Sinha, N., 2015. Sustainable buying intention in different purchase situations: A
Study. ASBM Journal of Management. 8 (2). p.78.
Mao, Q., 2018. Essays on Competition and Product Variety. The University of Wisconsin-
Madison.
Ponte, S., 2019. Sustainability, global value chains and green capital accumulation. In Handbook
on Global Value Chains. Edward Elgar Publishing.
Porangaba, L. H., 2019. Acquired Distinctiveness in the European Union: When Nontraditional
Marks Meet a (Fragmented) Single Market. Trademark Rep.. 109. p.619.
Pye, O., 2016. Deconstructing the roundtable on sustainable palm oil. The oil palm complex:
Smallholders, agribusiness and the state in Indonesia and Malaysia, pp.409-411.
Schaltegger, S., Lüdeke-Freund, F. and Hansen, E.G., 2016. Business models for sustainability:
A co-evolutionary analysis of sustainable entrepreneurship, innovation, and
transformation. Organization & Environment. 29(3). pp.264-289.
Tuten, T. L., 2019. Principles of Marketing for a Digital Age. SAGE Publications Limited.
Worek, M. and et.al., 2018. Acquisitions, disclosed goals and firm characteristics: A content
analysis of family and nonfamily firms. Journal of Family Business Strategy. 9(4).
pp.250-267.
Online
Factors resulted in failure of acquisition of Body Shop. 2019. [Online]. Available through:
<https://www.bbc.com/news/business-38905530>
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