Analysis of Wesfarmers' Acquisition of Coles: A Financial Report

This report analyzes the Wesfarmers' acquisition of Coles, evaluating whether the takeover enhanced shareholder value. It details the rationales behind the acquisition, including the companies' business strategies and objectives. The report examines the acquisition method employed, specifically the on-market bid, and explains its significance in the context of the merger. Furthermore, it assesses the market reaction to the takeover around the announcement date, using event study methodology to identify changes in stock prices and market dynamics. The analysis highlights the favorable changes in stock prices and market conditions following the announcement, indicating positive developments and expansion for Wesfarmers. The report also references academic sources to support its claims.

Accounting and business communication
Contents

1. Rationales behind the acquisition..................................................................................................2
2. Method of acquisition...................................................................................................................3
3. Market reaction to takeover around the announcement date......................................................5
References.............................................................................................................................................6
1. Rationales behind the acquisition
The companies considered are Wesfarmers and Coles. Coles is a company that provides super
market retailing for the products in different locations. The company targets retailing for the
various product categories and serves the customers from different age groups. The company
Coles focus mostly upon the fresh food, merchandise, groceries, and other product categories.
The company has numerous operations all over the world, which required the expansion of

the business all over the locations. The firm goes well in the recent years but they required
the promotion and new space for mergers and acquisitions. The mergers and acquisitions of
the company is carried out with the firm “Wesfarmers.” The company Wesfarmers had vast
development for the business and they require the products and expansion of the customers in
varied environment (Angwin, D.2007).
The firm Wesfarmers remains as a conglomerate with the acquisition of various firms and
management of the supermarket retailing services. The company adopts the business strategy
of mergers and acquisition as a way of attaining the expansion in the business. The firm
merges with the Coles, a leading super market chain retailer in Australia having several
operations in numerous locations within the country. The company own their unique brands,
promotes the products in their supermarket for sales, and targets the customers for the sales.
The products include the different segments such as the food, groceries, and merchandise.
These products are routinely used and customers like these products much thus leading to the
growth. Being Wesfarmers as a conglomerate firm, they like to acquire the company Coles
(Cartwright, S., & Schoenberg, R. 2006). The company adopts the merging and acquisition
for the objective of the business expansion and no other reasons behind the acquisition. The
acquisition of the company is important as they influence the business and their growth too.
The main objective of acquisition is to expand the business overnight easily either through
mergers, acquisitions, takeovers, and amalgamations. The mergers and acquisition serve as
the market entry strategy and business expansion strategy as well. The mergers are
characterized by the combination of two or more entities that involves blending. In this
merger and acquisition, one company will lose the name and other company will retain their
identity. By merger and acquisition, the seller’s owners are attempting to make diversification
with the liquidity or portfolios. Buyers buy with offers to the sellers. The mergers and
acquisitions can promote the market changes to the firm, which combines with numerous
firms (Haleblian, et.al, 2009).
2. Method of acquisition
There are various methods involved in the mergers and acquisition techniques. The mergers
and acquisition helps to acquire the companies and expand business easily in combination
with two or more companies (Coyle, B. 2000). A single company will own the combination
of other two or more companies. The company Wesfarmers acquired the Coles group
focusing the reposition of the portfolio for targeting high capital weights toward the

businesses including the future earnings and growth. The firm Wesfarmers acquired the
company Coles group at 22 billion dollars. The company restored the position as leading
retailer in the country. There are different processes of mergers and acquisitions, which are
given as follows:
 Mergers
 Consolidation
 Tender offer
 Acquisition of assets
 Buyout
In the mergers and acquisitions, following techniques are widely used:
 Scheme of arrangement
 On-market bid
 Off-market bid
There is a wide difference between merger and acquisition. The merger is the process by
which two or more companies are merged together and a company will retain their name and
rights. The acquisition involves the firm taking over another firm with the establishment of
the single ownership. In mergers, the stocks of the companies are surrendered to the company
that own the name and rights. In acquisition, the surrendering of the stocks is not required.
The company Wesfarmers involves the use of the method on-market bid for the acquisition of
the company Coles. The merger and acquisition remains the first overseas acquisition. Due
to the merge of the two firms into a single firm, the firm experiences the surrendering of the
stocks to the name “Wesfarmers” which leads the firm (Hitt, et.al, 2001).
The other methods of the mergers and acquisitions are not widely used as they rely on the
different scopes and arrangements. The two companies Wesfarmers and Coles are merged by
the technique of on-market bid. There will be difference in the main features, which depends
on bid type. For market bid, cash only considered while for other techniques, all types of
cash, security, and assets are considered. This acquisition method is used as the method
involves the use of the cash with extended securities, and unconditional. For the company
Wesfarmers after the acquisition of the Coles group through the market bidding results to the
favourable conditions of business expansion. The other methods of off-market bidding and

the scheme of arrangement are not adopted by the firm for the acquisition (Trautwein, F.
2013).
3. Market reaction to takeover around the announcement date
When two or more companies merge to a single company through mergers and acquisitions,
the firm will have certain changes in the market reactions. An event study is a technique
adopted for estimation of the stock prices during the merger and acquisition. The market
reaction exists in the companies when taking over around the announcement date (Bramson,
R. N. 2000).
Various changes in the market reaction occur during takeover of the companies around the
announcement date. The changes in the market reactions occur usually with the companies
during the announcement of takeover. For the companies Wesfarmers and the Coles, during
the merger and acquisitions, the market reactions occur, which favours the changes in the
stock price reaction (Rossi, et.al, 2004).
The market changes may include the price changes, security changes, and all other changes.
These changes may occur in any mergers and acquisitions. The event study methodology
provides and identifies the areas of changes. The mergers usually have the favourable effect
on the common stocks of the companies involved in the merging. The firms lead to earn large
positive returns for the mergers and acquisitions. The event study methods can lead to
identify the changing areas in the market, which may include the change in the price and
security. For the firm Coles and Wesfarmers, around the announcement data for the takeover,
the market reaction exhibits favourable changes to the stocks and prices, which clearly
indicate the development for the company and expansion (Walsh, J. P. 1988).
Changes in the price, security, and market for the firms after the announcement date results to
expand the company in wider manner. Few market experts depict that the price reaction
influenced by the announcement of the merger that relies on information content or relation
between expectations. For the firm Coles and Wesfarmers, it is clear that the announcement
had led to expand because of positive market changes. The reason behind the positive market
changes is that the company Coles already have positive relationship with the customers and
have familiar in their supermarket retailing. The company Wesfarmers on merging and
acquiring the firm Coles have expanded their business by entering the new market without
any commitments with the customers. Though the company Coles group is merged with

Wesfarmers, customers believe that the products are good and same as before mergers and
acquisitions. The firm is providing the positive changes to the market and resulted the
company Wesfarmers to gain profits and revenue with the mergers and acquisition techniques
(Barney, J. B., 1988).
References
Books and journals
Angwin, D. (2007). Mergers and acquisitions. John Wiley & Sons, Ltd
Barney, J. B. (1988). Returns to bidding firms in mergers and acquisitions: Reconsidering the
relatedness hypothesis. Strategic Management Journal, 9(S1), 71-78.
Bramson, R. N. (2000). Mergers and Acquisitions. Training & Development, 59.
Cartwright, S., & Schoenberg, R. (2006). Thirty years of mergers and acquisitions research:
Recent advances and future opportunities. British journal of management, 17(S1).
Coyle, B. (2000). Mergers and acquisitions. Global Professional Publishing
Haleblian, J., Devers, C. E., McNamara, G., Carpenter, M. A., & Davison, R. B. (2009).
Taking stock of what we know about mergers and acquisitions: A review and research
agenda. Journal of management, 35(3), 469-502.

Hitt, M. A., Ireland, R. D., & Harrison, J. S. (2001). Mergers and acquisitions. The Blackwell
handbook of strategic management, 377-402
Rossi, S., & Volpin, P. F. (2004). Cross-country determinants of mergers and acquisitions.
Journal of Financial Economics, 74(2), 277-304.
Trautwein, F. (2013). Merger motives and merger prescriptions. In Mergers & Acquisitions
(pp. 14-26). Routledge.
Walsh, J. P. (1988). Top management turnover following mergers and acquisitions. Strategic
Management Journal, 9(2), 173-183.