MW and FS are both supermarket chains which operate in different parts of a country. Both are listed on the countrys Stock Exchange. MW operate in the north of the country while FS stores are located predominantly in the South. Recently the Chairman of FS has approached the Chairman of MW and suggested that MW may wish to present a takeover bid for FS. The Chairman of FS has indicated that such a bid would be favorably received by his Board of Directors and would pre-empt a bid being made by other less desirable predators in the industry. According to the Chairman of FS, there would need to be some staff rationalization and about 10% of the total number of stores of the combined group would need to be sold as a result of demands which would be made by the countrys competition regulatory organization. However, he believes that there would be increased profitability for the combined group as a whole which would lead to improved shareholder value. At this stage no public announcement of the possible takeover has been made and all the information relation to it is being treated as strictly confidential.

MW was established over 100 years ago by Mr. W. His son (KW), who is now over 70 years old, is the Chairman of the company. The W family has maintained the strong control over the business and still owns nearly 40% of its shares. The main principles established by Mr. W was that of offering quality products at a reasonable price and this principle has been rigidly maintained throughout the companys history. Organisationally, MW stores are split into two operations areas the North West and the North East although it is controlled from its Head Office by the KW and his management team. Each individual store is managed locally by a Store Manager and an assistant. In addition, there are supervisors, till checkout staff, store keepers and shelf stackers working in each store. Other skilled trade staff are also employed including butchers, bakers and fishmongers.

Recent results have shown that MW has increased its sales by 8% and profit by 15% over the previous year. MW has become a popular suit of the company's ability to cut its operating costs and increase its profitability each year.

KW follows the sound principles of business development established by his father. He prefers to rely on a capital structure which is low geared and has generated organic growth rather than undertaking large takeovers. The last time MW undertook a takeover was 25 years ago when it bought six supermarkets. If a bid is made for FS then it is most likely that KW will wish to offer a share exchange rather than pay any cash. He is acutely aware of competition in the industry within the country and has been advised by the Finance Director that there are two other main competitors which may put forward counter-bids if MW makes an offer for FS.

FS

FS's stores operate within the South West and South East of the country. Approximately 55% of its shares are held by ten major institutional shareholders who have been disappointed in recent performance. These institutional shareholders have been impressed by the success of MW and instructed the Chairman to begin takeover negotiations with KW

Performance of both companies for the last financial year for simplicity, the data supplied below represents the average for each store in the relevant area. All stores for each company are built to a standard layout. On average, FS stores are 20% smaller in terms of area than MW stores.

Tumover Cost of sales (excluding wages) Overheads Salaries

MW

FS

North West

$ Million

North East

$ Millions

South West

$ Millions

South East

$ Million

Turnover

10.0

8.0

6.0

5.0

Cost of sales (Excluding Wages)

4.0

3.0

2.0

1.8

Overheads salaries

1.0

1.0

0.7

0.6

Non-supervisory wages

1.0

0.7

0.7

0.6

Other overheads

1.0

1.1

1.1

0.9

Local taxes

1.0

0.8

0.7

0.6

Net Profit

2.0

1.4

0.8

0.5

Additional information

Per store

North West

North East

South West

South East

Total square metres

6,000

6,000

4,800

4,800

Average number of customer visits

0.3 million

.25 million

0.15 million

0.1 million

Managers and supervisors

15

12

14

12

Total staff

69

56

56

51

The profit attributable to ordinary shareholders in the last financial year was $225 million for MW and $200 million for FS. Inventory is held centrally by each company in its own secure warehouse. It is issued daily to each store. On average, each MW store has an inventory turnover of 2 days while each FS store has an inventory turnover of 3.5 days.

Required:

(a) Produce a SWOT analysis for MW (6 Marks)

(b) Explain how such an analysis can assist the company in achieving its organisational objectives (6 Marks)

(c) In your capacity as Management Consultant for MW, prepare an initial briefing report for the Board's consideration prior to any combination of the two businesses which compares the performance of the two businesses. Your report should include an analysis of the data provided in the scenario by making whatever calculations you think appropriate (8 Marks)