Essay Sample on Walmart Mergers or Acquisitions and Their Impact on Company Risk

Walmart is a multinational retail corporation that owns and operates a chain of hypermarkets, grocery stores, and discount department stores. Its headquarters are in Bentonville, Arkansas in the United States. However, in recent years the company has experienced massive growth where as of January 2019, it had 11,350 stores and clubs distributed in 27 countries all over the world (McGee, 2018). The growth has been inspired by the desire to gain new markets for its products, overcome competition from other retail giants such as Amazon, and diversification of business focus. Nonetheless, some of these acquisitions or mergers may pose a risk to Walmart based on the cultural differences, market saturation and high debts accumulated by the acquired companies.

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One of the most popular acquisition deal was done with Flipkart Company in India where Walmart agreed to buy 77% of Flipkart at a fee of 16 billion dollars, a deal which was termed as one of the biggest acquisition deal in the world of e-commerce (McGee, 2018). Other merger/ acquisition deals which have been done by Walmart in the last twenty years include; pace membership warehouse, McLane Company, The Seiyu limited, Wertkauf hypermarkets, and Massmart among other major companies in the world.

Despite these acquisitions, there is a growing concern that some of these deals may negatively affect Walmart and its capacity to offer its services around the world. This has already been evident in some countries where the acquisitions and mergers have not paid off and have resulted in loses. For example, when Walmart entered into a deal and acquired offline retailers spar Handel and Wertkauf in Germany, the deal backfired, and by 2006, Walmart had to sell all the 85 stores at a loss of $1 billion and excited the European market (Gregoriou & Renneboog, 2007). The primary reason for this downfall was the government regulations which dictated the prices of commodities offered and thus Walmart could not reduce its rates to win over new customers. Therefore government laws and regulation pose a significant risk on Walmart as far as the mergers are concerned as the company has to adjust its policies based on the rules stipulated in that country.

Another risk which faces Walmart is a possibility of cultural clashes. Walmart was started in America and has adopted the American personality and cultural aspect of life. However, some acquisitions are in countries that have a different way of life, and the acquired company may bristle at the management style of Walmart. As a result of the cultural conflict, employees of the acquired company may sometimes have a problem adapting to Walmart's organization structure, goals, and objectives (McGee, 2018).

Market saturation is another risk that could threaten the growth of Walmart and prevent it from adequately competing with its rivals. Almost all the companies acquired are in the same line of business as Walmart, and this may present a challenge in the creation of new markets especially when the acquired company has dominated the market (Gregoriou & Renneboog, 2007). As a result, there might be some difficulties in increasing the sales after acquisition because there are few customers outside the customer base that has been established.

In conclusion, Walmart's mergers and acquisition are a good sign that the company is experiencing growth despite stiff competition. However, as the corporation expands, caution should be taken to ensure that the deals which are made favors the company and do not put it into the risk of incurring huge debts that limit the growth of the company (Grigorieva & Ivashkovskaya, 2012). In most times these acquired companies have their depts which Walmart is supposed to assume.

References

Gregoriou, G. N., & Renneboog, L. (2007). Understanding mergers and acquisitions. Corporate Governance and Regulatory Impact on Mergers and Acquisitions, 1-13. doi:10.1016/b978-012374142-4.50003-8

Grigorieva, S., & Ivashkovskaya, I. (2012). The Impact of Mergers and Acquisitions on Company Value: Evidence from Russian Acquirers. SSRN Electronic Journal. doi:10.2139/ssrn.2081618

McGee, R. W. (2018). How Large is Walmart? A Comparison of Walmart Sales to Nationss GDP. SSRN Electronic Journal. doi:10.2139/ssrn.3102735