Metro Group or Tesco Group

 Metro Group or Tesco Group
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Metro Group of Tesco Group
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Metro Group or Tesco Group
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As part of the ongoing diversification plan by XYZ PLC, the insurance company wishes to
acquire majority stake, through acquisition, in one of the largest retailers in the world. The board
of XYZ PLC has identified either Metro Group the German based retailer or Tesco Group the
UK based retailer as a potential target. The strategic ambitions of the company in the acquisition
of one of the two leading retailers in the world are to maximize the return on investment and
company value of the acquisition.
According to a report by Deloitte (2013) assessing the top 250 global retailers in the world, WalMart Store Inc, a U.S based retailer, was ranked position one in terms of retail revenue, with
retail revenue of $446,950 million. Carrefour S.A., French based retailer came in a distant
second with retail revenue of $ 101,574 million. Metro Group, the U.K based retailer, was the
third largest retailer in the world in terms of retail revenue with retail revenue of $101,574
million. The fourth largest retailer in terms of retail revenue, in 2011, was Metro AG, a Germany
based retailer, which posted a retail revenue figure of $92,905 million. The report continues to
state that the results across the top 250 global retailers were a major improvement of the 2011
financial year. It is evident that the retail market despite economic turbulence continues to record
robust financial performance.
This report seeks to delve into the financial performance to establish the strengths and
weaknesses of the potential targets that is Metro Group and Tesco Group compared to Carrefour,
which is almost similar to the two potential targets. The report will take a top down approach,
starting with the economic outlook for the retail market in the world and narrow down to the
retail market industry by analyzing the two potential target retailers. 
Metro Group or Tesco Group
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Global Economic outlook for Retail Market
On a macroeconomic view of the global economy, Molka (2008) observes that it has been
characterized by increased interest rates, volatility in the major global currencies, rising oil
prices, housing crisis and diminution of corporate profits, leading to world economies to slide
into recession, and thus affecting consumer demand for goods. This has posed serious economic
implications on the operating environment for retailers. Deloitte (2013) in their report observes
that the retail industry has been operating under harsh economic environment due to the Global
Financial Crisis and the recession in the Euro zone region, and as a result stifling growth of the
industry. Deloitte (2013) continues to observe that the recession in the Euro zone region, which
is the largest economic bloc, has adversely affected the demand for imported goods. Due to
shrinking budgets among households, people are spending on basic needs, cutting down on
leisure and luxurious goods. This has posed challenges to the growth of the retail industry,
particularly in the European Union countries.
Deloitte (2013) observes that retail firms deal with four product-oriented sectors, namely fashion,
fast moving consumer goods (FMCG), diversified products and Hardlines and leisure products.
Due to tightening of budgets among households all the global top 250 retailers experienced a
slow down in Fashion and Hardlines product sectors. Deloitte (2013) reports that the fast moving
consumer goods segment outpaced all the other segments to record a revenue growth of 5.6%
against a backdrop of economic turbulence. Going into the future and looking at economic
regions that Metro Group and Tesco Group have retail branches, analyst expect growth in
Western Europe to experience an economic downturn due to the unresolved issue of Euro zone
crisis. This will have a huge impact on the financial performance of retailers with operations in 
Metro Group or Tesco Group
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the European countries due to reduced economic activities, therefore hurting household income.
The economy of the United States of America is expected to rebound having shown modest
improvement, with increased consumer spending. However, the optimistic outlook is hinged on
an amicable solution to the fiscal cliff facing the economy. China and other emerging markets
are expected to continue experiencing modest growth albeit challenges.
Company Analysis: Financial Performance
This section will look at the financial performance of Tesco Group and Metro Group and
compare with the financial performance of Carrefour to evaluate the strengths and weaknesses of
the two potential targets. The analysis will be a trend analysis on the last four financial years,
financial year 2008 to financial year 2011.
Ratio analysis
Profitability for the three retailers, Tesco group, Metro Group and Carrefour Gr