Page 1: Introduction
A key issue facing any large business today is that of rightsizing i.e. developing a business that is just the right size - for the markets it operates in and for the effective running of the organisation. During the 1980s, it was common practice in the UK for many organisations to grow by merging with others. A merger is a situation in which two or more enterprises ‘cease to be distinct’. This can occur in two ways:
- The enterprises are brought under common ownership and control.
- One enterprise ceases to exist as an individual enterprise and becomes part of the other.
A take-over is a kind of merger which occurs when one company buys a majority shareholding in another. Mergers tend to occur in waves, which are then followed by a lull in activity, before reappearing again - creating a phenomenon known as the ‘merger cycle’.
An increase in merger activity often occurs in boom times because organisations seek to expand their market dominance and market share. A merger is a quick way to achieve market growth and enables an organisation to gain synergistic benefits. Synergy is usually explained through ‘simple’ mathematics in the form of 2 + 2 = 5. In other words, the sum of the parts of two organisations working together is greater than the individual components working alone.
This case study examines how, in 1990, Bass benefited from purchasing Holiday Inn Worldwide to create a synergistic new organisational structure.
Bass is a leading leisure group operating in hotels, leisure retailing and branded drinks. In the early 1970s, Bass began looking for opportunities to expand outside the brewing business. The Group already had a solid foundation for building a worldwide hotel business with its Crest brand but, in order to be truly global, it was necessary to extend hotel operations beyond its home base. Holiday Inn offered Bass a number of selling points, notably its remarkable name recognition. Holiday Inn is the most recognised hotel name in the world and ranks in the top 100 of all brand names in terms of recognition, surpassing Mercedes Benz, American Express and Diet Coke.
Acquisition of Holiday Inn
In August 1989, Bass and Holiday Corporation signed a conditional agreement completing the Bass acquisition of Holiday Inn. The sale was finalised on 7th February 1990. The acquisition of Holiday Inn brought a new global orientation to the Group and a new global focus to the brand. In the summer of 1991, Bass moved the corporate headquarters of Holiday Inn Worldwide from Memphis to Atlanta. Although Memphis had been ‘home’ for nearly 40 years, Atlanta offered the corporate infrastructure, worldwide transportation access and the international presence, Bass felt was necessary for Holiday Inn Worldwide to succeed as a global business. In Hotels, through the acquisition of Holiday Inn Worldwide, the Group now has six key brands:
- Holiday Inn
- Holiday Inn Express
- Holiday Inn Garden Court
- Holiday Inn Select
- Holiday Inn Sun Spree Resort
- Crowne Plaza.
In Leisure Retailing, the Group has two distinct Divisions - Bass Taverns and Bass Leisure. Bass Taverns Ltd operates 2,778 outlets including Toby Restaurants, Harvester Restaurants, Vintage Inns, O’Neills Irish Bars and All Bar One cafe bars. They also hold a range of town and country public houses. Bass Leisure Ltd is made up of branded bingo clubs, bowling centres and betting shops as well as supplying managing and maintaining electronic and other gaming equipment.
In Branded drinks, there are two distinct divisions in Bass, namely Bass Brewers and Britvic Soft Drinks. Bass Brewers markets over 60 ales and lagers, operates eight UK breweries, producing over 8.5 million barrels of beer per year. It has over 23% market share which includes well known products such as Carling Black Label, Worthington Draught Bitter and Caffrey's Irish Ale. Britvic Soft Drinks Ltd sells over 1.8 billion litres of soft drinks and accounts for 20% of the UK market. Its national distribution network serves over 250,000 retail outlets from 20 distribution centres across the UK with well known brands including Tango, Pepsi, 7 UP and Robinsons.