Dollar tree and family dollar are two companies operating in the same industry. Both companies operate a chain of discount stores where items that are worth less than $1 are sold. The plans to merge the two companies have been received with various perceptions because it is expected to affect the various stakeholders in different ways. Additionally, there are advantages and disadvantages that are associated with the decision. This paper discusses the issues in detail.
The companies operate in an industry where there are a few firms offering similar products. This means that the companies operate in an oligopolistic market where they try to differentiate the products and services that they offer to the customers. The merger between the two firms will have a great impact in the industry (Peralta, 2015). The other firms in the industry are aware of the effects and this is why there was an effort to engage in a hostile takeover.
To the industry, the merger will result to greater market power to the new company since it will have greater market share as compared to the other companies in the industry. As one company grows in the industry, its chances of becoming a monopoly increases, since it can engage in competitive strategies that are meant to eliminate the other companies from the market. This can include lowering the price of its products to a level where the other companies find it unprofitable to operate, hence exit the market (Pran, 2015).
From a positive point of view, the merger will attract greater value of shares as already witnessed by the increase price of shares in the stock market. This will benefit the shareholders in the industry. The new company will achieve a greater market share and this means that its chances of survival will increase. The merger will create a synergy since the weaknesses of one of the companies are solved by the strengths of the other company. Family tree will benefit greatly from the good management capabilities of family dollar (Peralta, 2015).
The customers will benefit from the improved ability to deliver goods and services. They will also be able to access the new company products from various outlets that will now be more than they were before the merger. However, problems may arise in the future if the company starts behaving like a monopoly hence charge a greater price for the company products and services (Pran, 2015).
Looking at the negative effects of the merger to the company, it has already been stated that the company has to sell some of its retail outlets so as to ensure that its competitive abilities will not adversely affect the competition in the market. The loss of the outlets will mean fewer revenues for the new company. The other challenge is ensuring that the employees of the companies work together in the new company (Peralta, 2015). Many of the employees will have to lose their jobs, and this may affect the running of the new company adversely. For the shareholders, dilution of their share ownership will result, and since some will receive a refund of their capital, they may not be happy with the merger.
In conclusion, mergers occur because of the perceived benefits. However, a successful merger requires appropriate management of the new company to ensure that the negative effects do not adversely affect the running of the new company. There should be a way of eliminating the challenges that are expected when implementing the merger.
Peralta K. (2015). Dollar Tree completes purchase of Family Dollar | The Charlotte Observer. Retrieved from http://www.charlotteobserver.com/news/business/article26568373.html
Pran D. (2015). Dollar Tree and Family Dollar Will Sell 330 Stores to Seal Merger Deal - The New York Times. Retrieved from http://www.nytimes.com/2015/07/03/business/dealbook/dollar-tree-and-family-dollar-will-sell-330-stores-to-seal-merger-deal.html?_r=0
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