Complication and benefits of Merger and Acquisition to Cerberus Capital and Safeways.

In general, when company merge and acquire other company it will either used cash or stock to do it.  There are pros and cons of using cash and stock for doing merger and acquisition.

The advantages when firms used cash are: 

• The parent's shareholder or the acquirer's shareholders maintain the same level of control over their company and subsidiaries. 
• There is a simplicity and preciseness in the company's structure and environment  which give a great chance of success
• The recipients can spread their investments

The disadvantages of cash are:

• Shareholder may be liable for capital gains tax (CGT)
• There will be stress or tension of acquirer's cash flow and difficulty of adjusting financial gearing 

The advantages to target shareholders of receiving shares in the acquisition process are:

• capital gains tax can be postponed
• maintain an interest in the combined entity
• for the acquirer the advantages of offering shares is that there is no immediate outflow of cash

However the disadvantages of that are:

• the price earning ratio game can be played
• there will be dilution of existing shareholder's position
• capital structure of the firms can have bad effect from the changes

Though at first acquiring and merging with other companies using cash or stock sounds good and can improve the company's performance and market competitors, there are always risks and down side of it. 

Cerberus Capital Management would acquire Safeway for $9.4 billion. This M&A was planned to help both companies cut cost and expand their product selections which enables them to compete with big box retailers, convenience stores and grocers. 

"This combination will improve our ability to respond to increased competition and customers' changing needs." said Safeway Chief Executives Officer Robert Edwards. 

Combining two supermarket chains create a total of 2,400 stores, almost double size of Safeway today and slightly little than its rival Kroger's roughly about 2,600 stores. The merged will create a quarter million employees, 27 distribution centers and 20 manufacturing plants across the country. 

Safeway shareholders get a healthy payday out of the deal because the company will pay investors $40 per share which is 72 percent increase over Safeway's stock price a year ago. Also Safeway shareholders will get $32.50 per share in cash plus other distributions with a value of $3.65 per share. 

This M&A brings a lot of potential benefits for both companies to compete in this tough supermarket and grocery retail competitions. Also this can help Cerberus Capital Management to distribute their brand further and cut cost because Safeway is the second largest US Mainstream Grocery Operator which can help Cerberus Capital, a private equity firm, to operate their business and improve their performance and create opportunities for them to attract investors. From this acquisition, Safeway's shareholders get higher earnings and shares. This is a good sign because these shareholders get benefits from the M&A process. 

However there will be complication arises for this M&A such as Safeway or Cerberus's chain Albertsons have to closed their stores. Even though the Executives said there are no plans to closed down any stores but analyst said there will be many redundancy that stores sooner or later will inevitably close. This is true because purchasing $9.4 billion in cash is not an easy thing. Companies have to pay debts somehow even Sobeys has been ordered by Competition Bureau to sell its 23 stores to approve the $5.8 billion(which is lesser than Cerberus deal) purchase Safeway Canada grocer.