Acquisition deal of Amazon and Whole foods
Relevant data can be collected from reliable sources such as Financial Times, Yahoo! Finance, FAME and firms annual reports.
PART A: Company Overview
Provide a brief but comprehensive profile overview of the acquiring and target firms at the time of the acquisition announcement. Identify the firms position in their industry and their key strengths and weaknesses relative to their main competitors before the completion of the deal.
PART B: Motives and Strategic Reasons
Describe the type of the deal (related/unrelated, vertical, horizontal etc.) and the strategic reasons provided by the acquiring firm for the proposed transaction. Critically evaluate the latter in relation to the potential synergies at the time of the acquisition announcement. Can these synergies justify the deal premium paid?
PART C: Method of Payment
Discuss the way the deal was financed. Was the initial proposal accepted by the target firm or did the acquirer have to submit an improved offer? How the method of payment used in this case would affect the perception of the targets shareholders for the deal? Support your arguments with references to relevant literature findings.
For Part D and E an excel sheet should be used to show the calculations. Please also label your variables clearly (i.e., try to avoid using short-forms/symbols/signs or if short-forms/symbols/signs are used, a key table explaining the short forms/symbols/signs is provided) and carefully so that the Excel spreadsheet is easy to follow.
PART D: Announcement Returns
1. Estimate the market reaction to the acquisition announcement calculating the cumulative abnormal return (CAR) to acquiring shareholders over a 3-day announcement window [CAR(-1,+1)] using the market model. Note: -1 is the date preceding the acquisition announcement, 0 is the acquisition announcement date and +1 is the date following the acquisition announcement. The estimation period for the market model should be from 200 to 60 trading days preceding the acquisition announcement date.
2. How can the market reaction to the acquisition announcement be justified? Critically evaluate your findings in part D1 with relation to those factors that previous studies have shown that can affect the markets perception of the quality of the deal.
PART E: Long-Run Performance
1. Estimate the 2-year post-acquisition financial and operating performance of the deal. Financial performance should be based on the Abnormal Buy-and-Hold Return (ABHR) model using a matched (control) firm. The control firm should be matched by industry, size (market capitalization) and book-to-market ratio at the time of the deal. Operating performance should be measured by the industry-adjusted change in ROA.
2. Critically discuss your findings in part E1 with relation to relevant literature findings and by taking into account potential challenges in the integration process (e.g. did everything go according to plan or is there anything that should have been done differently?). Were the synergies identified in Part B realized?