BOP Assignment
A firm’s internal and external environment affects its performance in the market. It is worth noting that there are several tools of analysis used to determine the manner in which a given organization performs in its environment. Business operations take place within an environment. The environment factors are classified into internal and external factors depending on the type and ability of the firm to control. In this case, BHS is an example of an enterprise that was bought by an investor and merged into his wider business. After a while, it was on the verge of collapse, and he sold it, but it was then put under administration eighteen months after its sale. Thus, the essence of this document is discussing the laws governing mergers and acquisitions in the United Kingdom, with a focus on BHS that has recently been placed under administration. It also looks into environmental analysis tools and these include internal environment using McKinsey 7S model, industry competition using Porter’s Five Forces Analysis and macro environment using PESTEL Analysis.
Part One
Policy and Laws for Mergers and Acquisitions in the UK
Enterprises are merged and acquired in the United Kingdom in two principal ways. First, there is a court-approved scheme of arrangement where a bidder acquires a hundred percent of the share capital of a target enterprise, and this is done under a court approval of a shareholder vote. Second, a contractual offer occurs in the scenario where shareholders are obliged to acquire shares of an enterprise.
Scheme of Arrangement
A court order is usually preceded by the approval of a plan of arrangement where three-quarters of the votes should support the scheme. As such, it is advantageous because two bodies approve it, which entail the court and majority of the shareholders, and it binds the shareholders.
In truth, the Enterprises Act 2006 was changed to include the clause that a cancellation of a scheme arrangement cannot effectuate a public takeover, and this serves to ensure shares are not transferred to any bidders under whichever circumstance (Boateng et al., 2014). On a similar note, the Enterprises Regulations 2007 states laws governing mergers across borders. In this essence, it states that a merger between a European Economic Area enterprise and one in the UK should follow the same rules stated above.
Contractual Offer
A fifty percent or higher, threshold is selected by a bidder in a target enterprise’s share to ensure a contractual offer is reached. In this regard, it is advantageous because, with more than fifty percent acceptance, control can be achieved swiftly (Boateng et al., 2014). Because of this, the other advantage is that amending terms in competitive situations is made much easier by the fact that there is great flexibility in terms and conditions. It should be noted that hostile bidders make a contractual offer because of the level of cooperation needed as well as the complications that a scheme of arrangement might bring to the table.
Principal Regulations
There are several regulations to mergers and acquisitions in the United Kingdom. First, the Enterprise Act of 2002 was amended by the Enterprise and Reform Act 2013. Accordingly, it states that the UK Enterprise Act encompasses transactions that are hard to review under the Merger Regulation. Second, the Regulation (EC) 139/2004 on controlling concentrations between mergers states that the Merger Regulation requires notifying and clearing concentrations in the European Union before implementing the law. Third, the disclosure and transparency rules require that an enterprise’s substantial voting shares that are traded on a regulated market be disclosed.
Fourth, the prospect rules require that issuing a prospectus or equivalent documentation for securities that are transferrable be effectuated. It is also the same in the case a UK-regulated market is to receive these shares. Fifth, listing rules apply to enterprises in the public domain where these should receive approval from shareholders for related substantial acquisitions and party transactions. As such, these typically amount to a quarter of the market capitalization, gross profits, gross capital, and gross assets (Cartwright & Cooper, 2014).
Sixth, the Enterprises Regulations 2007 govern mergers between an incorporated enterprise in a different European Economic Area and another in the United Kingdom. Seventh, the Criminal Justice Act 1993 incriminates the possession of insider information to encourage other people to trade in the shares of a given firm given this advantage. Eighth, the Financial Services and Markets Act 2000 prohibits engaging in misleading practices, making misleading statements, insider dealing, and all instances of market abuse. Ninth, the Enterprises Act 2006 includes statutory procedures for mergers and acquisitions in the UK. It also has procedures relating to schemes of arrangement as well as the compulsory acquisition of minority shareholdings. This Act prohibits the use of unlawful monetary assistance to make acquisitions of shares of public enterprises. Lastly, it has provisions that grant a public enterprise the rights to investigate all individuals who have shown interests in the shares it is auctioning.
Principal Regulators
Takeovers and mergers have five principal regulators (Cooper & Finkelstein, 2014). First, the Pensions Regulator performs the intervention in the operation of occupational pension schemes. Second, the Competition and Markets Authority investigates cases regarding mergers and acquisitions because it is the replacement to the Competition Commission and Office of Fair Trading. Third, the European Commission controls mergers and acquisitions within the European Union. Fourth, the Financial Conduct Authority administers Disclosure and Transparency regulations, Prospectus regulations, and Listing regulations for takeovers. Finally, the Takeover Panel administers the code for takeovers in the United Kingdom.
BHS Opportunities and Risks
When British Home Stores (BHS) was bought from billionaire Sir Philip Green for one billion pounds in 2015, it was out under administration in this regard it is still trying to keep afloat the current market. It should be understood that the enterprise is one of the biggest retail failures after the bust of Woolworths back in 2008. Currently, it threatens the closure of up to 164 stored and the loss of more than eleven thousand jobs despite the fact that it has existed for over eighty-eight years.
There were two major advantages of putting the business under administration. As such, apart from saving it from collapsing, the government ensured that the business underwent negotiations to find a suitable individual who would buy it and run it as expected. On a similar note, it went through the restructuring process to ensure that failures in the past were not going to be the cause of its permanent closure in the future (Quinn, 2016). This has been very helpful since stakeholders in the firm need protection from creditors given the unsuccessful negotiations they have held with various buyers. Similarly, it has not been possible to meet all the contractual payments associated with the business because of a mediocre cash balance gave the diminished property sales, both in value and number.
The store began operating in 1928 following the success of high street brands and seeking to be cheaper than rivals such as Woolworths. In this regard, it sold everything for less than a shilling and this included grocery and café products as well as clothing and home-ware merchandise. However, the lack of focus and under-investment became the two most serious problems that the enterprise was expected to solve.
Other enterprises, like supermarkets and retailers, began challenging its hold despite the fact that BHS opened stores in Hong Kong and Moscow. It failed on the online strategy where enterprises like Asos and Amazon were thriving (Quinn, 2016). The group that bought the business, Retail Acquisitions, took only a year and a month to draw twenty-five million pounds from the business for fees such as interest payment and management. The business was already insolvent when sold because of a deficit of forty million pounds and another written off two hundred million pounds, which came after a merger with Green’s wider business. Thus, putting it under administration may not solve anything because it is no different from Woolworths.
a. Internal Environment
The internal environment of a firm is made up of factors that originate from within the organization including the management, employees, corporate culture, and value that govern the operations of the business. The success of an organization depends on the ability of the managers to understand and control the internal factors that affect the organization. Some factors such as conflicts among the employees and lack of teamwork can have detrimental consequences on the operation of the business. These factors are well analyzed by use of the McKinsey 7s analysis tool.
McKinsey 7s tools constitute seven divisions of the internal environment; that is those factors that influence the attainment of the business goals. The 7s are the strategies employed in various activities such as marketing, the structure of the firm, the systems the business put in place to aid in various activities, the staff, the style of the firm, for instance, the leadership style, shared values and the skills of the employees. The seven framework is a useful tool to the management as they use it to monitor and assess change within the internal environment . The model holds that for a firm to have a good performance, the seven internal forces must be properly aligned.
A strategy refers to the purpose of the firm and ways employed to enhance competitiveness. Examples of strategies of a firm are the marketing strategies, market entry strategies, and the market positioning strategies. The structure relates to the division, coordination, and integration of mechanisms of a firm. The systems involve the formal procedures involved in carrying out activities like resources allocation and rewarding the employees and clients. Every organization has guidelines that govern its operations and the interaction between various parties.
The guidelines are the shared values of the organization and play a key role in determining success. The staff represents the human resource of the form and the factor analyses the attitude, educational and demographic characteristics of the employees. The skills are the distinctive capabilities and core competencies of the employees. The seventh internal factor in this model is the style, which represents the behavioral pattern of the managers, and the professionals . The seven factors are part of the model and are beneficial as they determine the performance of any given organization.
Application of the model is important to any business since it helps in identifying the needs that need realignment to improve the performance of an organization during the change process. Whenever a company is undergoing any change like during a merger, change of leadership, introducing new systems, the model is a crucial tool that helps in understanding the relationship between various organizational elements and determines the impact of change. Apart from improving the performance of a firm, the model is also used to forecast the future, align processes and departments after an organizational change has taken place and to determine the most efficient ways of implementing a proposed business strategy.
b. Industrial Competition
Various tools are used to determine the level of competition in the industry. One of the tools is known as the Porter’s five forces analysis, which draws the five factors from the economics of industrial organization. The forces determine the level of competition within an organization and consequently help in analyzing the attractiveness of the industry. The industrial rivalry is usually in the form of completion, price, product introduction, and advertising battles. The rivalry is best analyzed by use of the five components of the Porter’s model, which include the intensity of competition, barriers to market entry, the bargaining powers of the buyers, bargaining power of the suppliers and the threat of new entrants and substitutes.
The level of competition is an important factor that entrepreneurs should consider when determining the industry to venture in and the appropriate business strategies should a business to employ to remain competitive in the market. Failure to understand this factor can make a business to be thrown out of the market. The second factor analyzed in Porter’s model is the barriers to market entry. The level of competition in an industry is likely to be low when such barriers to market entry exist because few new companies will join the industry. In the case of a perfectly competitive market, companies are likely to face stiff competition.
The bargaining power of the buyers and suppliers is also an important factor that influences the profitability of the firm. If both the buyers and suppliers have a high bargaining power, the profits of the firm are likely to reduce. Buyers, in this case, bargain for a low price of goods while the supplier's lobby for high prices for the purchases, consequently reducing the profits and increasing the operating costs of a firm. The final factor that Porter analyzed is the threat of entry of substitutes and new entrants . The entrance of new businesses in an industry depends on the regulations and barriers put in place to control market entry.
Industrial competition is an important factor that the entrepreneurs should consider when entering a market: chances of business success declines with an increase in the level of competition. Porter’s model is a helpful analysis tool that can be used when analyzing the industrial competition.
c. Macro-environment
The macro-environment factors are the uncontrollable factors that originate from outside the business and affect the performance, decision making and strategies employed by a firm. One of the analysis tool used when evaluating these factors is the PESTEL model. The model analyses the political, social, economic, technological, legal, and ecological factors that affect a firm.
The political factors are those factors that relate to the political forces of a country, for instance, the stability of the country and attitude of the political movements. These factors are above the control of the business but may adversely affect its operations like in the case of an outbreak of political wars, which causes the destruction of businesses and creates fear in a country making some sales to decline. The economic factors relate to the level of economic stability, for instance, the level of economic growth rate, the cost of raw materials, employment level, and inflation . These factors affect the purchasing power of the consumers and as a result affecting both the demand and supply of commodities in the market. In addition, the economic factors are responsible for various cycles such as boom and recession that businesses experience
The social-cultural factors relate to the culture of the society in which a firm operates. They include the distribution of the population regarding age, rate of population growth, demographics, education level, lifestyles, wealth distributions, and social classes. These factors determine the types of goods that the company sells and determines the values portrayed by the employees when interacting with the consumers. The technological factors refer to new developments and inventions in the industry. This factor determines the cost that a firm incurs in the technology advancements practices. Lastly, the ecological factors refer to the guidelines and conditions imposed on the industry to promote conservation of the environment. These factors include regulation of waste disposal mechanism, recycling procedure and the type of fuel used for industrial operations. Therefore, the firm has no control over the macro-environment in which it operates and must find ways of adjusting itself to fit in the environment.
In the case of NHS, it is noted that the environment has affected the firm in several dimensions. Technological advancement has affected the management as well as the marketing departments of the firm. The company applies the advanced technology to coordinate production and reach the customers the direct client interface on the online store and the Message broker programs. The success of the firm is also influenced by the sales strategy the company employs. The company puts emphasis on the quality of the products it provides rather than the price and as result creates a high level of satisfaction among the consumers.
The size of BHS discourages the entry of new businesses in the market. The entrepreneurs wishing to enter into the industry are forced to form a partnership so as to expand the size of the business and gain a competitive advantage like BHS. BHS is among the leading fashion retailers in UK and has many outlets and a prime location which gives it a competitive advantage over the new entrants and substitutes. The clients who buy from BSH have a high bargaining power due to availability of substitutes. Also, specific suppliers of key products are quite powerful in their bargaining power. BSH uses strategies like product differentiation and specializing in production of certain types of fashion wear to protect itself from the industrial rivalry in the market.
Conclusion
In conclusion, BHS was bought by Sir Philip Green and merged into his wider business. However, the company began failing, and he sold it to a group of retailers. Afterward, the company was put under administration, and its future is uncertain because it has not embraced online marketing, it has several debts, and other retailers, as well as supermarkets, are competing for the market share it had since its opening in 1928. In the UK, mergers and acquisitions follow the codes set by the Takeover Panel. Similarly, some factors affect the operations on a firm. These factors are broadly categorized into macro and microenvironment.
The macro-environment factors are those that are beyond the control of an organization while the microenvironment is the factors that originate from within the business. Competition is also a key factor that determines the performance of a company. It is important for the managers to analyze these factors by use of the analysis tools available to them and implement measures that help in reducing the impact of the factors to the business operations and profitability.
Bibliography
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