For many years, we have seen bigger companies merging such as ExxonMobil in 1999 and Texaco's merger with Chevron in 2001 and Safeway's merger with Albertsons in 2015.
Most Economists believe that companies should not merge since it reduces competition. An example that illustrates this would be when Chevron acquired Texaco in 2001. First of all, in order for the merger between Chevron and Texaco to gain approval, the FTC regulated Texaco to spun off its downstream assets (retail assets) to Shell.
Prior to the merger, Texaco had a joint-venture with Shell, Saudi Aramco, Motiva Enterprises and Equilon Enterprises which combined their refining and marketing operations. Then 3-4 years later, Chevron agreed to purchase Texaco for $100 billion, which would rank as the third top gas and oil producer in the U.S. and globally the fourth largest oil co. But as with all mergers, companies are required to spin off certain assets in order to prevent the co. from getting too big or anti-competitive.
In this case, Texaco was acquired to sell its downstream assets to Shell because the FTC was concerned about how keeping the joint-venture will give them too big of a market share. Therefore, Texaco was ordered by the trust and Shell had full control to use the Texaco brand from 2002 until July, 2004. By July 2004, Chevron will regain exclusive rights and start supplying gasoline under the Texaco brand from Texas to Maryland. Shell will have partial control for the use of the Texaco brand until July 2006. From July 2006, Chevron will have full control and start opening up Texaco gas stations. Chevron will allow Texaco to market in areas where it lacks a strong presence such as Tennessee and The Carolinas. Note: Chevron and Texaco pulled out of these areas in Mid-2010 after Chevron announced the gas stations only accounted 8% of U.S. sales volume.
The sad part of this merger is that Texaco pulled out in states where Chevron does not market at all such as Arkansas, Missouri, Oklahoma etc... Which is why Texaco is no longer the same as it one was prior to the merger. Which use to be in 44 states, excluding Michigan/states that border Michigan as well Montana and North Dakota. Now Texaco has gas stations in 14 states: Texas, Louisiana, Mississippi, Alabama, Georgia, Florida, New Mexico (only 4), Nevada, Arizona, California, Oregon, Washington, Idaho, and Hawaii.
Another interesting fact, before Shell took over Texaco's downstream assets, Shell was really small with only 9,300 stations in 39 states, excluding Montana, The Dakotas, Minnesota, Wyoming, Oklahoma, Nebraska, Colorado, Kansas, Maine and Vermont. Today, Shell operates in 49 states excluding Montana, most of this was done due to purchasing Texaco's downstream assets. So whenever you go/pass in theses states, except Montana and North Dakota, most of the Shell stations you'll see are former Texaco gas stations.
05/11/17
However, many economists do believe that there are some benefits of when companies merge. Suppose a retailer was struggling and closed a lot of stores that were unprofitable, probably joining another company could help solve their financial difficulties and then the company could reach to its efficiency level like it may had at one time. A good example would be Albertsons which was doing great up until the early 21st century.
Albertsons is a grocery store based in Boise, Idaho. It is second largest supermarket chain in North America after Kroger.
The chain expanded very rapidly throughout the 90's, when it bought Americans Stores (formerly Skaggs Drugs Cos.) in Texas, Oklahoma, Arkansas and Florida. This acquisition was a success which consolidated the new stores into Albertsons' Southern Division and gave them a huge stock boostage. The substantial increase in stocks, allowed the grocer to attempt expansion on a huge scale. The company made more acquisitions when it purchased Seessel's, 14 stores from Bruno, and Buttery Food & Drug. This allowed the company to enter into 5 new states: Georgia, Iowa, Missouri, North Dakota and Tennessee. Also in 1999, Albertsons made its biggest acquisition throughout the whole entire history. The chain acquired American Sores Co., which included the chains ACME in the Northeast, Lucky in California and Nevada, Jewel, Jewel-Osco in the Midwest, and two drug store chains: Osco Drug and Sav-On Drugs. The buyout of these companies made Albertsons the largest American food and drug operator, with over 2,500 stores in 37 states, until when Kroger acquired Fred Meyer during the following month of that same year.
By 2001-2004, the chain had been starting to fall down due to the company's financial trouble, it announced that it would close 165 underperforming stores in 25 states. Albertsons also announced that it would shutter its San Antonio, Houston and Mid-South divisions which resulted an exit out of those markets as well as Mississippi and Tennessee which were both part of the south division.
However by 2004, just right after stabilizing the company's financial and consolidating divisions, Albertsons acquired Shaw's Supermarkets and Star Market Co. from Sainsbury's for $2.5 billion. It also bought Bristol Farms for $135 million.
In 2006, Albertsons was sold to a consortium of companies. SuperValu consolidated all of Albertsons's brand names. Cerberus- led group of investors and CVS Pharmacy acquired the remaining part of the co.
After the aquisitions were completed, the co. announced that it would vacate 100 stores across all of its divisions by August, 2006. It also announced that it would shut its online delivery service on July 21, 2006.
In 2007, Albertsons pulled out of the Oklahoma market and sold those stores to Associated Wholesale Grocers. On June 2008, Albertsons LLC entered into an agreement with Publix to sell 49 of its stores to the chain. The sale was completed in September. During that same year, Albertsons also announced it would exit the gasoline business by selling 72 gas stations to Valero.
In 2012, Albertsons nearly pulled out of the Florida market by closing 13 of its 17 stores.
By the fall of 2013, Albertsons purchased a Lubbock-based supermarket-United Supermarkets LLC. The transaction deal cost Albertsons $385 million and required the company to sell its single stores in Amarilo and and Wichita Falls, Texas markets.
On February 2014, Albertsons and Safeway had plans to merge with each other. A month later, Cerberus (the parent co. of Albertsons) announced it would purchase Safeway for $9.4 billion in a deal for the transaction to close by the fourth quarter.
By the mid-end of 2014, Safeway stockholders approved the merger with Albertsons. Before their merger was completely finalized, the antitrust agencies required Albertsons to sell 146 of it stores, Safeway and Vons to Haggen Company ( a Bellingham,WA based grocery chain).
On January 30, 2015 Albertsons fully acquired Safeway Inc. After the merger, the new company announced they would have 14 divisions led by three regional offices.
Also the remaining Albertsons locations in Florida were converted to Safeway, making it its first entry in Florida. This also led Safeway to re-align the stores toward the Eastern Division.
Today, the combined co. has 2,205 stores, operated both under Albertsons, Safeway, Vons, etc..
As a result, there have many debates in general weather companies should merge or not. But there are some benefits in merging in the long run such as economies of scale where bigger firms have lower costs.
Why does it relate to me?
I am a type of a person that who is brand loyal. In this case, brands matter to me especially gas/store brands b/c its the name that makes a difference, such as quality and service.
The primary goal for this project:
Examine mergers in general such as oil companies, grocery stores etc..
What I might do with this:
Who knows maybe one day I might be a CEO of a company, I would also have to make tough business decisions such a merging. Before when I make those decisions I want to compare/contrast about merging vs. being independent and think about my loyal customers and how is it going to affect the market both in short term and long term.
Most Economists believe that companies should not merge since it reduces competition. An example that illustrates this would be when Chevron acquired Texaco in 2001. First of all, in order for the merger between Chevron and Texaco to gain approval, the FTC regulated Texaco to spun off its downstream assets (retail assets) to Shell.
Prior to the merger, Texaco had a joint-venture with Shell, Saudi Aramco, Motiva Enterprises and Equilon Enterprises which combined their refining and marketing operations. Then 3-4 years later, Chevron agreed to purchase Texaco for $100 billion, which would rank as the third top gas and oil producer in the U.S. and globally the fourth largest oil co. But as with all mergers, companies are required to spin off certain assets in order to prevent the co. from getting too big or anti-competitive.
In this case, Texaco was acquired to sell its downstream assets to Shell because the FTC was concerned about how keeping the joint-venture will give them too big of a market share. Therefore, Texaco was ordered by the trust and Shell had full control to use the Texaco brand from 2002 until July, 2004. By July 2004, Chevron will regain exclusive rights and start supplying gasoline under the Texaco brand from Texas to Maryland. Shell will have partial control for the use of the Texaco brand until July 2006. From July 2006, Chevron will have full control and start opening up Texaco gas stations. Chevron will allow Texaco to market in areas where it lacks a strong presence such as Tennessee and The Carolinas. Note: Chevron and Texaco pulled out of these areas in Mid-2010 after Chevron announced the gas stations only accounted 8% of U.S. sales volume.
The sad part of this merger is that Texaco pulled out in states where Chevron does not market at all such as Arkansas, Missouri, Oklahoma etc... Which is why Texaco is no longer the same as it one was prior to the merger. Which use to be in 44 states, excluding Michigan/states that border Michigan as well Montana and North Dakota. Now Texaco has gas stations in 14 states: Texas, Louisiana, Mississippi, Alabama, Georgia, Florida, New Mexico (only 4), Nevada, Arizona, California, Oregon, Washington, Idaho, and Hawaii.
Another interesting fact, before Shell took over Texaco's downstream assets, Shell was really small with only 9,300 stations in 39 states, excluding Montana, The Dakotas, Minnesota, Wyoming, Oklahoma, Nebraska, Colorado, Kansas, Maine and Vermont. Today, Shell operates in 49 states excluding Montana, most of this was done due to purchasing Texaco's downstream assets. So whenever you go/pass in theses states, except Montana and North Dakota, most of the Shell stations you'll see are former Texaco gas stations.
05/11/17
However, many economists do believe that there are some benefits of when companies merge. Suppose a retailer was struggling and closed a lot of stores that were unprofitable, probably joining another company could help solve their financial difficulties and then the company could reach to its efficiency level like it may had at one time. A good example would be Albertsons which was doing great up until the early 21st century.
Albertsons is a grocery store based in Boise, Idaho. It is second largest supermarket chain in North America after Kroger.
The chain expanded very rapidly throughout the 90's, when it bought Americans Stores (formerly Skaggs Drugs Cos.) in Texas, Oklahoma, Arkansas and Florida. This acquisition was a success which consolidated the new stores into Albertsons' Southern Division and gave them a huge stock boostage. The substantial increase in stocks, allowed the grocer to attempt expansion on a huge scale. The company made more acquisitions when it purchased Seessel's, 14 stores from Bruno, and Buttery Food & Drug. This allowed the company to enter into 5 new states: Georgia, Iowa, Missouri, North Dakota and Tennessee. Also in 1999, Albertsons made its biggest acquisition throughout the whole entire history. The chain acquired American Sores Co., which included the chains ACME in the Northeast, Lucky in California and Nevada, Jewel, Jewel-Osco in the Midwest, and two drug store chains: Osco Drug and Sav-On Drugs. The buyout of these companies made Albertsons the largest American food and drug operator, with over 2,500 stores in 37 states, until when Kroger acquired Fred Meyer during the following month of that same year.
By 2001-2004, the chain had been starting to fall down due to the company's financial trouble, it announced that it would close 165 underperforming stores in 25 states. Albertsons also announced that it would shutter its San Antonio, Houston and Mid-South divisions which resulted an exit out of those markets as well as Mississippi and Tennessee which were both part of the south division.
However by 2004, just right after stabilizing the company's financial and consolidating divisions, Albertsons acquired Shaw's Supermarkets and Star Market Co. from Sainsbury's for $2.5 billion. It also bought Bristol Farms for $135 million.
In 2006, Albertsons was sold to a consortium of companies. SuperValu consolidated all of Albertsons's brand names. Cerberus- led group of investors and CVS Pharmacy acquired the remaining part of the co.
After the aquisitions were completed, the co. announced that it would vacate 100 stores across all of its divisions by August, 2006. It also announced that it would shut its online delivery service on July 21, 2006.
In 2007, Albertsons pulled out of the Oklahoma market and sold those stores to Associated Wholesale Grocers. On June 2008, Albertsons LLC entered into an agreement with Publix to sell 49 of its stores to the chain. The sale was completed in September. During that same year, Albertsons also announced it would exit the gasoline business by selling 72 gas stations to Valero.
In 2012, Albertsons nearly pulled out of the Florida market by closing 13 of its 17 stores.
By the fall of 2013, Albertsons purchased a Lubbock-based supermarket-United Supermarkets LLC. The transaction deal cost Albertsons $385 million and required the company to sell its single stores in Amarilo and and Wichita Falls, Texas markets.
On February 2014, Albertsons and Safeway had plans to merge with each other. A month later, Cerberus (the parent co. of Albertsons) announced it would purchase Safeway for $9.4 billion in a deal for the transaction to close by the fourth quarter.
By the mid-end of 2014, Safeway stockholders approved the merger with Albertsons. Before their merger was completely finalized, the antitrust agencies required Albertsons to sell 146 of it stores, Safeway and Vons to Haggen Company ( a Bellingham,WA based grocery chain).
On January 30, 2015 Albertsons fully acquired Safeway Inc. After the merger, the new company announced they would have 14 divisions led by three regional offices.
Also the remaining Albertsons locations in Florida were converted to Safeway, making it its first entry in Florida. This also led Safeway to re-align the stores toward the Eastern Division.
Today, the combined co. has 2,205 stores, operated both under Albertsons, Safeway, Vons, etc..
As a result, there have many debates in general weather companies should merge or not. But there are some benefits in merging in the long run such as economies of scale where bigger firms have lower costs.
Why does it relate to me?
I am a type of a person that who is brand loyal. In this case, brands matter to me especially gas/store brands b/c its the name that makes a difference, such as quality and service.
The primary goal for this project:
Examine mergers in general such as oil companies, grocery stores etc..
What I might do with this:
Who knows maybe one day I might be a CEO of a company, I would also have to make tough business decisions such a merging. Before when I make those decisions I want to compare/contrast about merging vs. being independent and think about my loyal customers and how is it going to affect the market both in short term and long term.