Albertson’s Acquires American Stores—

question 112

Essay

Albertson’s Acquires American Stores—
Underestimating the Costs of Integration

In 1999, Albertson’s acquired American Stores for $12.5 billion, making it the nation’s second largest supermarket chain, with more than 1000 stores. The corporate marriage stumbled almost immediately. Escalating integration costs resulted in a sharp downward revision of its fiscal year 2000 profits. In the quarter ended October 28, 1999, operating profits fell 15% to $185 million, despite an increase in sales of 1.6% to $8.98 billion. Albertson’s proceeded to update the Lucky supermarket stores that it had acquired in California and to combine the distribution operations of the two supermarket chains. It appears that Albertson’s substantially underestimated the complexity of integrating an acquisition of this magnitude. Albertson’s spent about $90 million before taxes to convert more than 400 stores to its information and distribution systems as well as to change the name to Albertson’s. By the end of 1999, Albertson’s stock had lost more than one-half of its value (Bloomberg.com, November 1, 1999).
-Cite examples of expenses you believe are commonly incurred in integrating target companies.

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Definitions:

Employed Category

A classification used in labor statistics to describe individuals who are currently employed and working.

Unemployed Category

A classification of individuals who are without a job, actively seeking work, and available to take up employment but are unable to find a job.

Unemployment Rate

The proportion of job-seekers in the labor force who do not currently hold employment.

Labor Force

The total number of people who are eligible to work, including both the employed and those seeking employment.