If you were to pick one company for Krispy Kreme Doughnuts to merge with, what would it be? Explain your choice with respect to possible benefits of this merger and why you would choose this company over any other choice for a potential.
One of the most appropriate companies for a feasible merge with Krispy Kreme Doughnuts is Winchell’s Donuts. The reason for choosing Winchell’s Donuts over Dunkin’ Donuts, Tim Hortons and Starbucks Corporation is because it is one of the companies which has over the time expanded its product line with seventy different varieties of doughnuts as well as beverages. According to Smith (288) Winchell’s Donut has about 200 stores, mainly in western states as well as in Guam, New Zealand, Saipan and Saudi Arabia.
Temple & Peck says that merger between Krispy Kreme Doughnuts and Winchell’s Donuts will enable the two companies to grow and enter new markets (1). This also represents the primary mechanism through which the two companies can become multinational by joining forces and coordinating their business activities (Temple & Peck, 1). By agreeing to this merger it means that Krispy Kreme Doughnuts will relinquish its image as a fast paced pure player in the fast foods in exchange for a more stable and glamorous identity (Groppelli & Nikbakht, 517).
Some analysts according to Groppelli and Nikbakht indicate that the benefits of size as a means to reduce competition and gain from economies of scale. When both Krispy Kreme Doughnuts and Winchell’s Donut merger both companies will share information about their strengths and weaknesses by clearly evaluating their future expected cash flows and when they are satisfied that they can benefit each other in different ways the outcome is likely to be good (Groppelli and Nikbakht, 517).
Krispy Kreme Doughnuts on the other hand must determine how both companies will work out the future patterns of geographic distributions, the technological base and their management skills. The two companies should complement each other to make the merger work. Groppelli and Nikbakht continue to indicate that “the success of these two mergers will come from careful analysis, advance planning and the application of modern decision making techniques to calculate a fair exchange of values and long run benefits for the combined company” (518).
How would you finance a takeover of this chosen corporation? Explain your reasoning.
The cash need the merger between Krispy Kreme Doughnuts and Winchell’s Donuts will come from debt financing to raise the cash (Gaughan, 335). While stock could be used to generate the cash, debt requires lower flotation costs, thereby giving debt a cost advantage over stock. For the case of Krispy Kreme Doughnuts the ability to raise debt financing will be influenced by several factors such as the amount of unencumbered tangible assets as well as the anticipated earnings and cash flows of the bidder (Gaughan, 335). Gaughan on the other hand says that one aspect that is different about debt financing for the takeover compared with other capital investment decisions is that the assets and cash flow of the target as well as of the bidder may enter into the evaluation as the resources that will be available to the company if and when the deal is completed.
What would your second and third choices be for a merger with Krispy Kreme Doughnuts? Again, explain your reasoning for wanting to merge with these companies, and why they would be second or third choices rather than your first choice. Remember to make use of the background materials in your analysis as well as additional research.
The other possible choices for this merger include Dunkin’ Donuts, Tim Hortons and Starbucks Corporation. This because the three companies are major competitors for Krispy Kreme Doughnuts hence merging either of these companies will expand the market share of Krispy Kreme Doughnuts. The reason for this merger according Gaughan is that such merger will lead not only to revenue growth but also to improved profitability through synergistic gains (119). In addition Gaughan says that the reason for wanting to merge with Dunkin’ Donuts, Tim Hortons and Starbucks Corporation is also based on the fact that we live in an increasingly globalized world puts pressure on Krispy Kreme Doughnuts to be truly global (122).
In conclusion, Gaughan says that the fastest way to achieve such ‘global figure’ is through merger with these companies with international markets reach (122). It will enable the company to increase its products scope and therefore increasing its market share. However, Krispy Kreme Doughnuts should now that entering new markets presents a unique additional challenges and risks especially for the management. The Global reach for Krispy Kreme Doughnuts means that rather than seeking potentially diminishing returns by pursuing further growth with their own nation, cross border deals may be an advantageous way of tapping new market niches.