Oshawa Group Limited Essay Sample

Introduction
On Monday. September 8. 1988. Greg Rudka. pull offing manager at Scotia Capital. called James Vaux to office to discus about a narrative that has appeared in the newspaper that forenoon. There is a surrender of former president and main operation officer in Oshawa Group Limited. Their client Empire Company Limited interested in coup d’etat Oshawa to spread outing beyond their Atlantic Canada roots.

Decisions need to be made
James Vaux needs to find whether use debt or equity to finance the acquisition of Oshawa Group Limited.

Factor to See
1)The Grocery Business Environment in Canada
The food market concern was a mature industry. In 1998 grocers faced increasing competition non merely from other grocers. but besides progressively from assorted non-traditional sellers including drug shops. price reduction retail merchants. sweeping nines and internet-based operations.

2)The cardinal Success Factors in Canada
On the gross side. growing occurred chiefly through horizontal amalgamation and acquisition activity. First. it was by and large cheaper to get a rival than to open new shops. Acquisition besides mitigated hazards associated with come ining a new market including deficiency of local cognition. trouble of pulling a qualified work force and the menace and strength of competitory response. Horizontal acquisition activity besides generated the economic systems of graduated table in selling. procurance. distribution. engineering. and corporate operating expense and private-label development.

3)The Strength of Oshawa Group Limited:
Business advantages:
The Agora nutrient merchandisers is 2nd largest nutrient retail merchant. It provides Oshawa a strong beginning of gross ; the nutrient retail merchant generates most part of gross. The SERCA foodservice was Canada’s largest foodservice concern and distributed a full line of food market. It provides the company a strong competitory advantage in foodservice and distribution line in Canada. Company may cut down cost and taking advantages of merchandise pricing. Geographic advantages:

The Agora nutrient merchandisers is operated in all states of Canada. The company has captured the broad scope of market portions in all the states in Canada ; it provides company more beginnings of bring forthing grosss.

4)The Weakness of Oshawa Group Limited:
Human Resource disadvantage
The company has limited themselves on the decision-making. Because the household member has all the vote rights and they are active in the operation of the company. Which means. the senior direction could non easy to do determination based on the outside factors.

5)The Menaces of Oshawa Group Limited:
The major rivals are Loblaws. Metro-Richelieu and Provigo. Among those rivals. the Loblaws is a strong rival for Oshawa. From market portions to the grosss. Loblaws is already a full-blown concern in Canada.

6)The Opportunity of Oshawa:
The shop betterments had traditionally been low. which means that some of the shops would be in really hapless status and would necessitate significant investing. The company could better its shop installations ; it will increase the shop efficiency.

7)The Oshawa Group Limited Operationss:
Oshawa was a nutrient retail. sweeping and distribution company. It straight operated some food market shops. but the bulk ( 82 per cent ) of their 845 shops were franchised operations. The company was divided into a food market division. Agora Food Merchants and a nutrient service division. SERCA Foodservice. Agora Food Merchants was Canada’s 2nd largest nutrient retail merchant and was responsible for 82 per cent of Oshawa’s grosss in 1998. It operated in all states of Canada. except British Columbia. chiefly as a provider of merchandises and selling plans to independent grocers under the IGA. Knechtel. Omni and Bonchoix streamers. SERCA Foodservice was Canada’s largest foodservice concern and distributed a full line of food market and perishable merchandises to the institutional. wellness attention. hotel and eating house trades. It operated in all 10 Canadian states. but the bulk of its gross came from the western states. Between 1997-1998. the company has reconstituting which involved. sale of non-core retentions. including the divestitures of its drug shop operation. its cold storage installations and non-strategic existent estate. and enlargement of its retail and foodservice concern.

8)The Human Resource Management:
The company was formed in 1951 when Ray Wolfe foremost brought the Independent Grocers Alliance to Canada. The Wolfe household remained comparatively active in the operation of the company. retaining all of the vote equity in the house. every bit good as busying senior direction places and five of the 12 board seats.

Options
Empire does non do command ( and acquired ) . Oshawa Group Limited as a stand-alone entity. Empire does non whirl off its nutrient distribution and takes $ 1520 million ( $ 40/share ) included premium new debt to buy Oshawa ‘s Class A Shares to get Oshawa. Empire does non whirl off its nutrient distribution and get Oshawa by financing the Oshawa common portion by publishing 35 million portions ( $ 23/share ) . Empire spins off its nutrient distribution and acquires Oshawa. and so utilizing $ 145. 5 million hard currency included premium and publishing 6 million portions ( $ 44/share ) from new nutrient distribution Company to finance Oshawa common portions.

Standards
Industry and type of company. Is Empire looking for a concern similar to its concern. or does Empire desire to diversify? Level of gross revenues and net income border. Would Empire see a company with a lower EBITDA border than itself? Geographic location. Where does Empire privation to purchase? Is at that place any operation advantage by taking Oshawa? Bid monetary value and hazard direction of company. What monetary value would Empire do command? Does it hold any hazard of publishing new equity? Is it deserving to take the monetary value? The PV of the entire hard currency flow after synergism. Is the PV of entire hard currency flow great than 0? Or smaller than 0? Greater than without acquisition?

Evaluation of Options
1)Alternative 1
If Empire does non do a command. the Oshawa is traveling to stand-alone operation. Criteria 1. 2. 3. 4. 5 do non satisfied. Although. Empire does non hold to take hazards of taking over the Oshawa. but it will loses a large opportunity in bettering its market portions in the Food Service and Merchants industry. In a worst scenario. Oshawa becomes one of the major rivals in the market. The company faces more competitions in market.

2)Alternative 2
Standards 1: Oshawa has strong background in nutrient service and distribution industry. since Empire has the nutrient service division already. The advantage of geting Oshawa is heightening its operations in nutrient service industry. Not diversify its concern. Criteria 2: I assume the gross will be 7 billion ; the EBITDA border is 2. 4 % in1999. In 1999. Oshawa has EBITDA Margin 2. 4 % is excessively low than its major rivals Loblaws 5. 1 % million and Provigo 4. 0 % . EBITDA border shows that the Oshawa has excessively many runing disbursal. the disbursals shrink the net incomes from entire gross. This job indicates that Oshawa needs a solution on this job. Empire has EBITDA about 6. 8 % . it is higher than Loblaws and Provigo. It means that Empire is making good on commanding the disbursals and bask net incomes from grosss.

By geting Oshawa. Empire could use its method on Oshawa. and do Oshawa more profitable and happen out its more possible profitableness. Alternate 2 does fulfill in standards 1. Standards 3: The Oshawa had concern in all states in Canada ; it reasonably much covers a great geographic market. By geting Oshawa. Empire additions more strength in nutrient service and merchandiser industry. and more market portions around Canada. Alternate 2 does non fulfill in standards 3. Standards 4: The Empire will offer a monetary value for $ 40 per portion to buy Oshawa’s portions. Empire takes new debt about 35*40= $ 1400 million dollars. But in the paper. it says Empire could non take any new debt any longer. because imperium has already with excessively much debt. Any more extra debt means comparatively expensive and endanger its A debt evaluation. Alternate 2 does non fulfill in Criteria 4. Standards 5: Since it is non suggested to take extra loan. There would non be acquisition happened. There is no PV of future hard currency flow after synergism. Alternate 2 does non fulfill in Criteria 5.

3 ) Alternative 3:
Standards 1: It will be same as alternate 2 standards 1. The Alternate 3 will fulfill standards 1. Standards 2: It will be same as alternate 2 standards 2. The Alternate 3 will fulfill standards 2. Standards 3: It will be same as alternate 2 standards 3. The Alternate 3 will fulfill standards 3. Standards 4: The Empire will offer $ 23 per portions by publishing more stocks to finance the trade. But the Oshawa has controlled excessively many portions in Empire ; there is a truly high potency hazard that Empire will take over by person else if it is non Oshawa. Harmonizing to its hazard degree. Empire should non finance the trade by publishing portions. The alternate 3 will non fulfill standards 4. Standards 5: Since it is non suggested to publishing more portions. There would non be acquisition happened. There is no PV of future hard currency flow after synergism. Alternate 2 does non fulfill in Criteria 5.

4 ) Alternative 4:
Standards 1: It will be same as alternate 2 standards 1. The Alternate 4 will fulfill standards 1. Standards 2: It will be same as alternate 2 standards 2. The Alternate 4 will fulfill standards 2. Standards 3: It will be same as alternate 2 standards 3. The Alternate 4 will fulfill standards 3. Standards 4: The Empire will whirl off its nutrient division. utilizing some hard currency and publishing new portions from the new entity to get Oshawa. The new market portion monetary value of the nutrient division is $ 44 per portion. so Empire publishing 6 million portions to finance the acquisition. Additional hard currency was besides in the trade. Because Wolfe household does non merely like equity. they besides need hard currency to spread out their concern. It is much more safe on the control over of the company by Empire. So this alternate satisfies criteria 4. Standards 5: The possible PV of the company future hard currency flow in infinite old ages after synergism is $ 3500 million in EBITDA Margin Enhancement Method. $ 135 million in Cost Reduction Potential Method. The sum of them are greater than non geting Oshawa $ 510. It shows that it has a possible profitableness after acquisition. Alternate 4 satisfy standards 5.

Decision
As James Vaux. I will take alternate 5 based on the standard analysis.

Plan of Action
The Empire will whirl off its nutrient division. And so measure its portion monetary value. publishing new portions and hard currency to get Oshawa 65 % of the entire portions. $ 145. 5 million hard currency included premium and publishing 6 million portions ( $ 44/share ) from new nutrient distribution Company to finance Oshawa common portions.