University of Central Punjab

Business Policy and Strategy

Assignment # 1

Merger of Metro and Makro-Habib

Submitted to:
Syed Waqas Javed

Submitted by:
Hamza Saleem

L1F18MBAM0073

Date: 29th, November, 2018.

Merger

A merger is the process of forming a new company whereby to existing companies enter into an
agreement and form a new company. Businesses enter into mergers for various reasons. Some of the
reasons are increasing profits, utilizing each other’s core competencies, increasing the market share,
utilizing distribution and supply chain networks. All of these are carried out to increase profit and please
shareholders.

Types of Merger

A merger can be of the following types

1. Horizontal merger: A merger between companies that are in direct competition with each other
in terms of product lines and markets.
2. Vertical merger: A merger between companies that are along the same supply chain .
3. Market-extension merger: A merger between companies in different markets that sell similar
products or services.
4. Product-extension merger: A merger between companies in the same markets that sell different
but related products or services.
5. Conglomerate merger: A merger between companies in unrelated business activities.

Merger of Metro and Makro-Habib in Pakistan

Metro and Makro-Habib are two well-known retail stores all around the globe. Operating in many
countries, they have earned the trust of their customer due to the quality of services and products they
offer. A brief introduction of these companies along with their position in the market (before merger) in
the Pakistani context is given below.

Makro-Habib

In Pakistan, Makro-Habib started its operation as a result of joint venture between SHV Netherland and
House of Habib(Pakistan). Initially they opened three different stores in Pakistan (Two in Karachi and
one in Lahore). Their target market was more of small and medium sized retailers, restaurants, hotels
and caterers. They targeted the customers who would purchase bulk quantity. The product range
Makro-Habib offered included mostly everything a super store can offer. From ready to eat foods to raw
food, from hardware to hosiery and from engine oils to garments, Makro-Habib offeres its customer’s
variety of products.

Metro

Metro opened its first cash & carry wholesale center in Pakistan in 2007 & expanded to 5 wholesale
centers in a short span of 18 months. Unlike Makro-Habib, Metro not only targeted the business
customers but also the end consumers (household customers). Metro offers local business and
restaurants up to 90% locally produced goods and services in order to give them a competitive edge and
act like a catalyst.

Competition between Metro and Makro

Soon after the entry of Metro in Pakistan, a strong competition started between both the giants. Makro-
Habib had to start catering the end consumer in order to cope up with Metro.

Purpose of Merger

The decision makers at both the firms were worried about the increasing competition and decreasing
revenue. In July 2012 Metro and Makro-Habib combined their wholesale business in Pakistan marking
the beginning of a long-term partnership to the mutual benefit of both companies. The merger allowed
Metro and Makro-Habib to combine resources and gain the financial strength to lead and grow in a
challenging environment and to gain synergies targeted to generate value for their customers and
suppliers alike.

With its combined strength, the company will be better able to provide a comprehensive product range
at good quality and competitive prices; all under one roof for customers. With growth of its business,
the company says it will enhance relationships with its suppliers by working closely with them. In order
to boost sales, company officials say the merger may entail some changes in the business strategies of
the new entity.

Strategy Adopted for Merger

Metro and Makro-Habib adopted the concept of horizontal merger. As both of the companies were
working in the same product and services line and serving almost the same target market, they decided
to merge their operations. The name of the new entity will be “METRO-Habib Cash & Carry”. The
company will work on the existing stores with this name. They will operate the 9 whole sale stores in 4
different cities of Pakistan together.

Post-Merger Performance

The post-merger performance of both the companies after the creation Metro-Habib Cash & Carry has
enhanced. By eliminating the competition, they have forced the customers to come to them. This has
also lead to reduction of advertising expenditure. Quality of human capital has also increased. The
profit of Metro-Habib Cash & Carry was around 2.7 billion rupees for the year ended 2015. This would
not have been possible for both the companies separately considering the competition and individual
expenses for marketing and advertising.
References

https://tribune.com.pk/story/407591/metro-makro-complete-merger/

https://nation.com.pk/14-Jul-2012/metro-makro-pakistan-combine-their-businesses

https://www.metro.pk/about-us