Wal-Mart Merger if You Were to Pick

Wal-Mart Merger

If you were to pick one company for Wal-Mart 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.

The primary candidate for Wal-Mart to acquire would be United Parcel Service (UPS). UPS is known for having the best IT systems and logistics processes of any of the global third party logistics providers (Alghalith, 2005). It is also very well-known for being a company culture that relies heavily on standard metrics of performance including performance dashboards to provide real-time visibility of each shipment, no matter how large or small (Ragu, 2009). UPS would complement the extensive supply chain expertise of Wal-Mart and would also add significant depth of global operations that the company has struggled to get in place over the last decade (Sodhi, Son, 2009).

The benefits of this merger include the expertise UPS has in global supply chain and logistics operations, their extensive IT investments and ability to provide logistics optimization across multiple business units, and a proven ability to quickly deploy entire divisions to support complex business strategies. UPS is also known for having redefined advanced logistics processes including Vendor Managed Inventory (VM) and the definition of Earned Value Management (EVM) throughout supply chain operations (Cohan, 2008). Due to all of these factors, UPS would complement and provide Wal-Mart with the potential to expand globally at a much faster pace than they have been able to in the past. The lessons learned from UPS in 3rd party logistics will also give Wal-Mart insights into how they can better manage their supply chains as well (Gereffi, Christian, 2009). Wal-Mart would gain a strong foundation for global growth and also be able to monetize their existing strengths in supply chain operations as well. Most importantly, Wal-Mart would have an excellent foundation on which to base their global launch efforts, into countries they had been limited to being able to quickly set up operations in due to the constraints of their supply chain (Hansen, 2009). The IT strengths of UPS would also allow Wal-Mart to expand out their scorecard and dashboard approaches to managing pricing in real-time (Cohan, 2008). This pricing management capability further underscores why UPS would be an excellent acquisition, as UPS uses price optimization today for their quoting, pricing and services programs (Alghalith, 2005).

How would you finance a takeover of this chosen corporation? Explain your reasoning.

The transaction would be in common stock and financed as a new equity offering through the investment community. The combined value of Wal-Mart and UPS would be nearly $250B, with UPS contributing $70B of that amount. This would be a leveraged buyout with an offer of stock swaps for UPS shares. As the merger is going to generate significant shareholder value in its initial five years, the focus needs to be on creating a higher P/E Ratio. As UPS is trading at $70 a share, paying cash per share would be too costly a strategy.