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The best laid plans

Bold plans for acquisitions can look impressive on paper. Describing how market synergies will allow the new, larger company to better compete and become even more profitable can sound plausible.

But for any company looking for expansion, two recent examples demonstrate that hope is not a plan and that the company must be able to execute on it's plans, or the risk may end up nearly swallowing the company.

 

Minneapolis' own Target learned this lesson in a very difficult and expensive fashion, with the massive expansion and sudden collapse of its venture into Canada. Very basic elements of what should be fundamentals for a retailer, such as supply line maintenance and pricing, contributed to that failure.

Recently, a similar failure has struck a West Coast grocery chain Haggen, which had purchased 146 Albertsons and other grocery stores for $1.4 billion. The deal was supposed to create a regional power out of the Washington-based chain.

Instead, it has turned into a Chapter 11 filing, with Haggen suing Albertsons for anticompetitive behavior and Albertsons suing Haggen for failing to pay for inventory acquired in the deal.

Like Target, Haggan appears to have been unable to deal with the core elements of the retail business, like keeping their shelves stocked and being competitive in the local markets on price.

Albertsons was once part of the Eden Prairie-based Supervalu chain but was sold off in 2013 for $3.3 billion in an effort to reduce some Supervalu's debt load. The significant debt of the acquisition clearly caused problems for Haggan, and should serve as a cautionary tale for any company that must take on substantial amounts of debt to complete a deal.

It is essential that due diligence prior to a deal must be comprehensive and alert a buyer to potential problems before the deal is consummated.

Source: wsj.com, "West Coast Grocer Haggen Files for Chapter 11 Bankruptcy," Peg Brickley, September 9, 2015

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