Mergers and acquisition

Essay by jamesfowl March 2004

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Outline the economic arguments for and against British Home Stores (BHS) taking over Arcadia?

British Home Stores has grown from a single store in South London to a multinational retail company with a major presence both in the UK and later on in overseas clothing markets. In 1986 they merged with Habitat/Mothercare to form Storehouse plc. Then in May 2000, Philip Green bought Bhs from the Storehouse Group. Green has been successful so far and has managed to turn the business around and increased the value of the business from �0m to an estimated �0m and raise operating profits by 257 percent. After a failed attempt to takeover Marks & Spencer earlier this year Green continued his ambition to expand his empire by moving in to takeover the Arcadia group which has a large portfolio of brands including Topman/Topshop, Miss Selfridge, Burton, Dorothy Perkins, Wallis and Evans. The deal would complete a horizontal takeover and, through external growth, create the biggest fashion retail group in the U.K.

A combination of Bhs and the Arcadia, the UK's second largest retailer after Marks & Spencer, would catapult Green's retail empire into pole position in the womenswear market, taking its share to 12.9%, ahead of Marks & Spencer's 12.1%. This would in turn increase the buying power of the company and leave Green in a position to take control of the fashion market sector. With these points in mind there are both economic arguments for and against the takeover that I will evaluate and explain. Firstly it can be argued that the takeover will bring a number of benefits to the economy in both the short and long run however there are sometimes trade offs which, will lead to an economic argument against the takeover.

Mr Green and Bhs will argue that the...