Dixons Takeover of Elkjøp

Dixons Takeover of ElkjpThe agreed takeover of Elkjp by DixonsContents (Jump to)AbstractChapter 2 books check intoChapter 3 Sources of DataChapter 4 Research Design, and Statistical AnalysisChapter 5 ConclusionBibliographyAbstractThe roles and responsibilities of the jump on of learnors, chieftain Operating officeholder, or Managing Director, Chief Financial Officer and the remainder of upper management of a listed company, as stated by Jayne Mammatt, Senior Manager at Ernst and Young, acquit become more and more onerous in recent years (Ernst Young, 2006). The key purpose of the Board of Directors is to ensure the prosperity of a company by directing the companys affairs whilst meeting the appropriate interests of its shareowners (BREFI group, 2006). The role of the Board of Directors is to (BREFI group, 2006)Establish vision, mission and values,Set strategy and structure,Delegate to management, andExercise accountability to shareholders and be responsible to ge rmane(predicate) involvementholders.The preceding statement bears particular relevance concerning the subject of the eruditeness of Elkjp by Dixons and whether s charge eruditeness will result in a amplification in shareholder wealth. The question posed as to the fact that there is evidence that domestic acquisitions do not lead to shareholder wealth gains is borne by in studies conducted by Doukas and Travlos (1988, pp. 1161-1175) and Markides and Ittner (1994, pp. 343-366). Thus, in the case of the acquisition of Elkjp by Dixons the question to be examined is, if there is any reason to suppose that a cross-border acquisition would be different in terms of leading to shareholder wealth gains?Dixons is one of the largest retailers of electronic products in the Europe, operating in over 12 countries (DSG worldwide plc, 2006a). The company, Dixons assembly plc, is presently known as DSG International (UK air Park, 1999), however it shall be referred to as Dixons in this inter rogatory. The company operates in the following sectors under a number of brand names which the company has acquired or set up operations under its own brand (DSG International plc, 2006b)ElectricalsCurrysElectro WorldElkjpKotsovolosPartmaster DirectUniEuroDSG Insurance ServicesComputingDSG Business ServicesGenesisPC CityPC WorldPC World BusinessThe TechGuyse-commerceDixons.co.ukPixmania.comThe company earn 7,072,000,000 during 1005 2006 and generated 317,600,000 in expediencys before tax (DSG International plc, 2006). Elkjp ASA is the largest wholesale and retail interchangeer of electronic equipment in the Nordic Region with outlets located in Norway, Sweden and Denmark (Business.com, 2006) generating approximately 475 million in sales in 1999 (Dixons Group plc, 2000/02, p. 3). Dixons has been an acquisition minded company, utilizing this technique to expand into unexampled markets as well as draw out its base of operations in the same mode as Wal-Mart which utilizes the buy in approach to enter markets as opposed to setting up new operations from scratch. The foregoing is evidenced by its acquisition of ASDA in the United Kingdom and planned acquisition of Taiwanese retail Trust-Mart in China (Barboza and Barbaro, 2006). In 1999 Dixons acquired the Norwegian electrical retailer Elkjp for 444 million to establish a significant foothold in the markets of Denmark, Norway and Sweden, as well as a computer program for the launch of other branded stores in its portfolio (UK Business Park, 1999). The expansion represents a long standing policy of the company which has acquired (UK Business Park, 1999)1996, DN Computer Services, a light order computer company for 9.7 million1998, Byte, a computer retailing business acquired from Specialist Computer Holdings for 7 million to add its 16 outlets to the drawstring of 50 PC World stores1999, a chain of 39 electronic retail stores from Seeboard for 20 million1998, a stake in with Planet Online to aid in Internet computer sales1999, an investment in U.S. based Telepost Holdings for 6 million to expand its Internet based business services1999, acquisition of Elkjp for 444 million2000, acquisition of Ei System Computer in Spain for 16 million to add 12 stores to its business line2000, a 15% stake in Greek electronics retailer P. Kotsovolos for 44 million2001, the acquisition of the Danish company SuperRadio, a chain of electronics superstores2001, the acquisition of a 24% stake in the Italian electrical retailer UniEuro for 64 million,2002, the acquisition of Direct Telephone Services, a mobile phone provider for 31 million2002, the acquisition of the rest shares of UniEuros 88 stores for an additional 231 million2004, the acquisition of WHSU, known as Micro Warehouse, to expand its PC World operations2005, Dixons changed its name to DSG InternationalThe indicated deals level to the management strategy of expansion through acquisition as a long term business plan, of which Elkjp was another link in that process.This examination shall seek to examine the statement as to whether the pattern of the cross border acquisition of Elkjp by Dixons has lead to a gain in shareholder wealth in light of the statement that there is a sufficient body of evidence in domestic acquisitions that such transactions do not, in most instances, lead to gains in this area. The foregoing question shall be examined through research conducted into the pre and post merger standings of Dixons, as well as other indicators of shareholder values as represented by stock prices, assets, and tax growth. As stated by Broxterman and Murad (1999, p. 3) the objective and concern of the Board of Directors and Chief Executive Officer and upper management staff is to increase shareholder value. They state that this is measurable through the following means (Broxterman and Murad (1999, p. 3)Return on Capital Invested, or EVA (Economic Value Added)This term has become a popular metric that measures the trend of an im conjure upment or a decline in shareholder value, and in the instance of public companies this is reflected in the stock price. Accordingly, an increase in shareholder value moves stock prices upward, whereas a decline in this metric sends them downward.Groves (2006) states that in simple terms, a company increases shareholder value through either a reduction in its cost base whilst maintaining revenue and or through increasing its revenue whilst maintaining or reducing its cost base. Bierman (2006, pp. 1-2) makes the same argument, stating that Business corporations attempt to make profits and increase the value of the stockholders position. These theories confine to acquisition activity as well, as these transactions represent a facet of corporate strategy to expand their operations and to increase their profit Rappaport, 1997, pp. 14-29). such can also result, increased profits, from economies of scale, which is the reduction of duplicate operations that thus lowers costs in administration, warehousing, manufacturing, delivery, supply chains and allied functions. Utilizing the foregoing as a guide, research into these aspects will provide definitive information to equate whether an acquisition has met these conditions as indicated above.Dixons management strategies have functioned in much the same manner as the fabled John F. Welch, Jr., the former Chairman and Chief Executive Officer of General Electric during their storied years in that Who knows what theyll buy or sell next? (Higgins, 2000, p. 10). This illustration has been utilized because between 1987 and 1988 General Electrics return on shareholders equity increased from 17.6 percent in 1986 to 18.5 percent in 1987 and to 19.4 percent in 1888 (Higgins, 2000, p. 9). Furthermore the companys balance sheet and cash flow remained strong during this period (Higgins, 2000, p. 9). Despite the foregoing the companys share price did not reflect this performance as a result of the perception of outsiders (Higgins, 2000, p. 9). The foresight of Welsh and General Electric was acknowledged to the highest degree a decade later when Noel Tichy, a corporate analyst said The two greatest corporate leaders of this century are Alfred Sloan of General Motors and maw Welsh of GE (Higgins, 2000, p. 10). The preceding represents the spirit of the examination of Dixons, in that their acquisition minded strategy is seemingly challenged in the same manner.Chapter 2 Literature ReviewIn researching the subject as to whether there is any reason to believe that the cross border acquisition, as represented by Dixons of Elkjp, should or does represent a difference between domestic acquisitions which by and large have proven not to lead to an increase in shareholder wealth, there is evidence to prove such is not necessarily the case. Jarrel and Poulsen (1889, pp. 12-19) support the analysis that domestic acquisitions do not generally lead to shareholder increases in their analysis as rep ort in The Returns to getting Firms in Tender Offers Evidence from Three Decades., as does Loder and Martin (1990, pp. 17-33) in unified Acquisitions by Listed Firms The Experience of a Comprehensive Sample. Doukas and Travlos (1988, pp. 1161-1175) in The make of Corporate Multinationalism on Shareholders Wealth, Markides and Ittners (1994, pp. 343-366) Shareholder Benefits from Corporate International Diversification as well as Yeung and Morck (1992, pp. 41-56) in Internationalization An vitrine Study Test point to evidence that companies in comparison achieved better result from international acquisitions. The preceding authors explain the improved results concerning gains as being a factor of market synergies.A review of the Annual Reports of Dixons and Elkjp for the periods between 1999 through 2005-2006 represented a key source of direct information concerning the boodle of the firms which in term could be correlated against the stock prices for said periods. As stated by Higgins (2000, p. 9) in his book Best Practices in Global Investor dealings The Creation of Shareholder Value, the activity registered by stock prices might not accurately reflect the performance of the company, however, the preceding analogy referred to the inception of diversify merger and acquisition strategy in the 1980s by Jack Welsh of General Electric, whose principle are understood now.Chapter 3 Sources of DataIn equating whether Dixons management strategy in the acquisition of Elkjp has added to shareholder value, the analysis of a number of sources shall be utilized to bring forth information to enable a determination to be reached. Past history as represented in the Annual Reports for both companies represents the most relevant data concerning revenues, profit and related data. Internet sources present the opportunity to examine stock prices from a present day and historical basis to correlate against the revenue result achieved in various years to reach a determinatio n of the preceding in generating shareholder wealth.The utilization of books and journal articles represent sources that will aid in reviewing opening as well as foundational and theoretical information on shareholder wealth as well as the duties and responsibilities of the Board of Directors and upper management in this regard. Internet sources represent the means to seek information not only on theoretical aspects as mentioned previously, but information on company activities as reported in various newspapers and press releases. The combinations of these sources will permit a balanced view as to equating the examination of the question, thus all shall be utilized.Chapter 4 Research Design, and Statistical AnalysisThe design of the research is to present the factual accounting and stock share price data as the conclusive means via which to reach a determination as to if the acquisition of Elkjp by Dixons has or has not resulted in gains to shareholder wealth. This approach has be en taken as a result of studies and information as provided by Doukas and Travlos (1988, pp. 1161-1175) and Markides and Ittner (1994, pp. 343-366) on international acquisitions, as well as the internet source of BREFI (2006) that outlined the roll of the Board of Directors, along with Broxterman and Murads (1999, p. 3) insights into return on capital invested, or EVA (Economic Value Added).The summary of financial activity with respect to Dixons acquisition of Elkjp is contained in the following TableTable 1 Dixons Acquisition of ElkjpFinancial Summary 1998 through 2006(in millions)(Dixons Annual Reports, 1999 through 2005/06)The foregoing statistical figures have been compiled in keeping with the stated aims and objectives of this examination as well as to present the actual results of operations. This Table effectively indicates that Dixons share prices have increased since its acquisition of Elkjp, as have revenues.Chapter 5 ConclusionDixons acquisition of Elkjob represents on e of a string of acquisitions performed by the company since 1999. Elkjps revenues during the period 2004/05 were 1,003m (Dixons, 2004/05) with 2005/06 sales registering in special of 1,500m (contentmanager.net, 2006). Considering that Dixsons paid 444 for Elkjp in 1999, the earnings understandably indicate that Dixons has received more than its moneys worth in return.The stock price and revenues figures clearly prove that in this instance Elkjps as well as Dixons shareholders have benefited from this acquisition, as well as the other acquisitions and company actions since 1999. prone that Economic Value Added, as stated by Broxterman and Murad (1999, p. 3) is the key determinant of shareholder vale, Dixons has demonstrated that their concern for shareholder value has been met. The dramatic gains made by the company are a result of its overall approach to management of the firms resources, as well as continued expansion and growth. These principles have boded well for Elkjps share holders, as well as Dixons.BibliographyBarboza, D., Barbaro, M. (2006) Wal-Mart said to be acquiring chain in China. 16 October 2006. The New York TimesBierman, H. (2006) change magnitude Shareholder Value. Springer PublicationsBREFI group (2006) The Board of Directors roles and responsibilities. Retrieved ion 22 November 2006 from http//www.brefigroup.co.uk/resources/board_roles.htmlBroxterman, W., Murad, D. (1999) Enhancing Shareholder Value. 23 September 1999. FEICA 1999 Conference, Lucerne, SwitzerlandBusiness.com (2006) Elkjp Asa. Retrieved on 22 November 2006 from http//www.business.com/directory/retail_and_consumer_services/consumer_electronics/Elkjp_asa/profile/CNN Money (1999) Freeserve IPO shit on line. 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