On Monday, September 8, 1988, Greg Rudka, managing director at Scotia Capital, called James Vaux to office to discus about a story that has appeared in the newspaper that morning. There is a resignation of former president and chief operation officer in Oshawa Group Limited. Their client Empire Company Limited interested in takeover Oshawa to expanding beyond their Atlantic Canada roots.
Decisions need to be made
James Vaux needs to determine whether use debt or equity to finance the acquisition of Oshawa Group Limited.
Factor to Consider
1）The Grocery Business Environment in Canada
The grocery business was a mature industry. In 1998 grocers faced increasing competition not only from other grocers, but also increasingly from various non-traditional vendors including drug stores, discount retailers, wholesale clubs and internet-based operations.
2）The key Success Factors in Canada
On the revenue side, growth occurred primarily through horizontal merger and acquisition activity. First, it was generally cheaper to acquire a competitor than to open new stores. Acquisition also mitigated risks associated with entering a new market including lack of local knowledge, difficulty of attracting a qualified work force and the threat and intensity of competitive response. Horizontal acquisition activity also generated the economies of scale in marketing, procurement, distribution, technology, and corporate overhead and private-label development.
3）The Strength of Oshawa Group Limited：
The Agora food merchants is second largest food retailer. It provides Oshawa a strong source of revenue; the food retailer generates most portion of revenue. The SERCA foodservice was Canada’s largest foodservice business and distributed a full line of grocery. It provides the company a strong competitive advantage in foodservice and distribution line in Canada. Company may reduce cost and taking advantages of product pricing. Geographic advantages:
The Agora food merchants is operated in all provinces of Canada. The company has captured the wide range of market shares in all the provinces in Canada; it provides company more sources of generating revenues.
4）The Weakness of Oshawa Group Limited：
Human Resource disadvantage
The company has limited themselves on the decision-making. Because the family member has all the voting rights and they are active in the operation of the company. Which means, the senior management could not easily to make decision based on the outside factors.
5）The Threats of Oshawa Group Limited：
The major competitors are Loblaws, Metro-Richelieu and Provigo. Among those competitors, the Loblaws is a strong competitor for Oshawa. From market shares to the revenues, Loblaws is already a matured business in Canada.
6）The Opportunity of Oshawa：
The store improvements had traditionally been low, which means that some of the stores would be in very poor condition and would require substantial investment. The company could improve its store facilities; it will increase the store efficiency.
7）The Oshawa Group Limited Operations:
Oshawa was a food retail, wholesale and distribution company. It directly operated some grocery stores, but the majority (82 per cent) of their 845 stores were franchised operations. The company was divided into a grocery division, Agora Food Merchants and a food service division, SERCA Foodservice. Agora Food Merchants was Canada’s second largest food retailer and was responsible for 82 per cent of Oshawa’s revenues in 1998. It operated in all provinces of Canada, except British Columbia, primarily as a supplier of products and marketing programs to independent grocers under the IGA, Knechtel, Omni and Bonchoix banners. SERCA Foodservice was Canada’s largest foodservice business and distributed a full line of grocery and perishable products to the institutional, health care, hotel and restaurant trades. It operated in all 10 Canadian...
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