FNAC-DARTY MERGER:

FROM BIDDING WARS

TO ENTITY INTEGRATION
Section A Group 6

Aarushi | BJ20001
Aritro Banerjee | BJ20011
Manav Hirani | BJ20020
Isha Gupta | BJ20021
Ramsha Marufi | BJ20041
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 1. Why did Fnac acquire Darty?

 Compensation: To make up for the loss of sales from the cultural segment, owing to
digitalization, Fnac needed to diversify to maintain sales levels, if not grow them.
Once a heavy player in the cultural goods domain, the new era of iTunes and e-books,
presented a substantial threat to this segment, if not now, then surely in the future.
Fnac realized that the only way to stay in business was to diversify into related retail
segments, and who better to do that than with Darty, their main rival? The acquisition
of Darty would allow Fnac to diversify into a key territory, with a reputed brand name
by their side.

 Countering the threat from online retailers: The revenues of French online retailers
grew by a CAGR of 22.68 percent between 2005-2015 (Computed using Exhibit
3B). Thus, Fnac knew that it had to do something to capitalize on the trend, or it
would have to lose heavily in terms of market share to the early adopters.

Fnac realized that it had 11.1 million unique site visitors, whereas Amazon was
leading with 19.4 million unique visitors, a staggering lead of 74.7% on Fnac
(Computed using Exhibit 3C). Fnac saw an opportunity in Darty, who had 5.9
million unique visitors, and the combined unique site visitors could be 11.1 + 5.9
-10%(assume overlap of user identities across website visits) = 15.3 million unique
visitors. This would mean that Amazon would lead by only 26.79%, which wasn’t as
big a lead as earlier.

 Synergies: Fnac knew that increasing combined revenue wasn’t the only way to turn
more profitable. Cutting costs was also an option. Fnac thought that by sharing certain
support and core functions with Darty, it could cut costs and explore the benefits of
synergies, to the tune of 130 million euros annually by 2019. This was a great
opportunity, and Fnac did not want to lose out on this.

Thus, Fnac saw great benefit in consolidating the market and joining forces with Darty to
tackle the brick-and-mortar chains along with the e-commerce behemoths like Amazon.

2. Use the Haspeslagh and Jemison (1991) framework (discussed in class) to

construct a post- merger integration plan for FNAC. Do you agree with how the
integration was actually done? Why or Why not?

Fnac and Darty had very different corporate cultures and identities. Fnac had 3 core
values of “expertise, independence and cultural promotion”.

FNAC:
Strengths:
 Manufacturer, Laboratories, Innovation
 Distribution: Omni-channel. The omni-channel marketing allowed purchases via
website, physical store and call-centers.
 3rd largest e-commerce player in France (unique visitors/month)

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  Leader in electronics & cultural retail space of France
 Number 1 in sales of books, electronics like (photography gear, laptops, tablets)
and publishing products (CD, DVD, BD)
 Multi-specialist
 High awareness among the consumers (6.2 million loyalty program members in
2015)
 Loyalty Program: offered better targeted promotions & sales
 The Loyalty Program contributed to 60% of the revenues as the members were
from better internet penetrated urban areas, with higher purchasing powers.

Threats:
 Losing its traditional products’ sales due to digitalization and e-commerce
competition.
 Current levels had improved but not regained their previous levels of pre-e
commerce era.
 Its waiting time for out-of-stock products was about 4 days but Amazon (superior
logistics) had entered with Prime in 2000s in France
 Competitors like Alibaba, Rakuten and its acquisition of PriceMinister, 6th most-
visited French e-retailer.

DARTY:

Strengths:
 Excellent After-sales services & support: 2-year warranty, 24/7 helpline etc. were
key factors in aiding brand penetration and recognition
 Offered Extended warranties & services which contributed a large share of
revenues
 Along with selling well known brands, it developed its own low-cost electrical
brand in 4 categories: Large & small home appliances, multimedia products,
visual and audio products.
 Bonus to vendors on sales of the services (Services’ Sales Incentive)
 Acquisition deals (Mistergooddeal.com) to catch up to the prices of online retail.
 Extensive network of stores which were well-located
 Well-known brand
 Strength of Darty existed in white, brown & grey goods which had potential to
lead the household goods retail in France

Applying the Haspeslagh and Jemison (1991) framework:

We can classify the Value Chain as:

PRIMARY ACTIVITIES:
 Inbound & Logistics: Fnac had a strong network of laboratories due to its
emphasis on innovation. Darty had an in-house brand as well along with selling

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 famous brands. Hence, a unified inbound logistic process might be beneficial for
the common products, as they would also have more bargaining power over their
suppliers. However, the product portfolios of the 2 firms are largely different.
Since, the need for autonomy is low (no human capital preservation or pressing
strategic objective can be achieved from here) and Strategic interdependence
appears to be low here due to largely different products, Holding would be apt for
this function.

 Operation: The products unique to the 2 companies, their production/operations

can be left the way they are. However, for the overlapping categories, costs and
processes can be looked into so that both the firms can employ resource sharing or
functional or General management skills and best practices with each other.
However, the overlapping area is smaller as compared to the difference in
portfolios. So, autonomy needs of Darty are high (preservation of human capital
involved in their operations which are largely different from Fnac) but the
strategic interdependence is low. (Preservation)

 Outbound Logistics: This has been a key differentiator for competitors like
Amazon. Their efficient delivery timelines as compared to Fnac’s 4 day wait gives
them advantage. So here Fnac needs to leverage the large store network of Darty
which is strategically located across the map and merge the logistic network into
one. There is a low preservation of human capital need here but combined entity
would have more bargaining power with their logistic partners etc. Thus, here
autonomy is low and strategic interdependence is high for value creation. Thus,
they should go for Absorption.

 Sales & Marketing:

o Fnac’s omni-channel marketing practices along with its franchise stores,

wide and diverse product variety at low costs, have allowed it to
strategically boost the synergy between digital and physical stores.
o Its successful Loyalty Program can be extended to Darty loyalists as well.
o Both the companies have established huge awareness among customers.
o Darty has a network of well-placed stores that can be leveraged for the
products of the merged company.
o Darty has a high reputation among the vendors as it offers bonuses to them
based on sales.
o The tricky part here is how to position these brands as one in the
consumer’s mind as they had been competitors so far in overlapping
products.
o The customer mix of the 2 isn’t exactly same as Fnac has higher
purchasing power customers as compared to Darty.
o Darty had mixed presence in rural and urban but Fnac was mostly in urban
centers.
Thus, autonomy needed here is high for both sides so that the brand loyalists don’t
feel alienated but so is the strategic interdependence so that the individual products

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 don’t cannibalize the portfolio of the merged entity. Thus, Symbiosis may be the
best fit here.

 Servicing: This is the USP and differentiator for Darty where it has made its brand
recognition on the basis of the excellent after sales services like 2-year warranties,
extended warranties, 24/7 helpline etc. which contribute a major chunk of its
revenue. This should not be interfered with much from Fnac. Thus, the autonomy
need here is very high and so is the need for strategic interdependence because
Fnac customers can benefit from this as well (resource sharing) and the merged
entity can create more value (value creation). (Symbiosis)

SECONDARY ACTIVITIES:

 Administrative, Finance & Infrastructure: Darty has been largely successful in

maintaining a higher share price viz Fnac even though they are similar in size.
Fnac required huge debt to fuel the merger so it cannot afford to lose out on
Darty’s expertise in this regard. However, there are no indications if any departure
from the current setup would benefit in this regard and hence, the need for
autonomy is high to preserve its human capital of finance and administrative
mangers but need for strategic interdependence is low. (Preservation)

 Human Resource Management: Darty’s trade unions were in the favour of

merging with Conforama over Fnac as they looked at Fnac as a competitor. Thus,
integrating the employees and inspiring trust in their minds is critical to ensure the
knowledge and human capital of Darty is preserved. The competing locations’
closure and a redundancy plan was anticipated by the unions and they were highly
distrustful of Fnac. For them their job security was the main concern. Thus, the
need for autonomy is high and so is the need for strategic interdependence because
combined they would have a larger pool for skill sharing among the people to
benefit and remove the competitiveness & mistrust among the employees of the 2
sides. Thus, Symbiosis is the way forward here.

 Product & Technology department: The product portfolio of Fnac consists of

cultural and electronics products and some high-end small appliances. Darty had 4
categories of electrical products across small and large home appliances, visual,
audio and multimedia products. Thus, in the small-appliances category Fnac was
Darty’s competitor. Other than that, the portfolios were very different. Thus,
autonomy is high to preserve the knowledge and human capital of Darty and its
product portfolio which is strategic to the merged entity in increasing its presence.
The strategic interdependence is low as their products are largely different.
(Preservation)

 Procurement: Since the product portfolios are vastly different, their raw materials
requirements would also be different and so different suppliers. Hence, low
strategic interdependence exists with a low autonomy necessity as there is absence

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 of distinguishing human capital in Darty in this regard. Thus, Holding would be
apt here.

To summarize the Haspeslagh and Jemison (1991) framework:

Need for Strategic

Need for Strategic
Interdependence:
Interdependence: LOW
HIGH

PRESERVATION SYMBIOSIS
 Operation  Sales &
 Administrative, Marketing
Need for
Finance &  Servicing
Organizational
Infrastructure  Human resource
Autonomy: HIGH
 Product & management
Technology
department

HOLDING ABSORPTION
Need for
 Inbound &  Outbound
Organizational
Logistics Logistics
Autonomy: LOW
 Procurement

The Proposed Integration (as per the case):

 Not merging the 2 brands: Except for the common products in small appliances,
this is largely a good idea in line with our analysis (SYMBIOSIS). The common
space however needs to have only the bestselling products so as to not cannibalize
each other and improve costs for the company. Apprehensions of the customers
can be quelled by ensuring a stronger after service sales of Darty being combined
with the loyalty programs, offers etc. of Fnac and better quality and product
variety.
 Unified gift card and sharing store space: This is in line with our analysis as
well as it is based on symbiosis of the 2 companies.
 Merging Supporting functions: According to our analysis, the space of
operations is very different for the 2 companies. Fnac manufactures electronics
equipment which are very different from electrical ones. There will be some
overlapping of purchasing or support but largely they will need to function on
their own. Thus, merging the support functions would not be suitable except for
outbound logistics which can be unified and will be beneficial strategically.

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 3. How could the Fnac Darty group compete with its online retail competitors?

 Developing a Strong Hybrid Model: The current online competitors do not have
brick and mortar stores for the customers. Fnac and Darty both have a history of
giving their customers an option to order through their website and then letting them
collect from their stores. Electronic appliances, especially the larger and more
expensive ones still give rise to a demand of physical demonstration of a salesperson
from the customer. According to the case study, 70% of the customers visited a store
before making an online purchase. The group can take advantage of this and build a
robust hybrid model which caters to both the offline need of assurance and the online
need of convenience of the customer.

 Preservation Strategy of Integration: The group should fulfil its announcement of

preserving both the brands without diluting any one of them. As the products offered
by the brands are differentiable, it is possible for the group to have both the brands
under its umbrella. Marketing synergies can be used as advantage by say, marketing
Darty on the most visible areas of Fnac and vice-versa. The preservation strategy
would also be appropriate for the shareholders as they would clearly be able to track
the performances of the brands separately. Along with that, the operational synergies
of both the companies would be boundless as they would be in a position to have the
best omni channel mode of distribution for the customers. The financial and reporting
aspects of the group though could be absorbed into one.

 Constantly Innovating in a Disruptive Market: If we keep the electronics

consumer market on the disruptability index, it is placed in the ‘Volatile’ quadrant.
There is a huge scope of disruption in this market, not to mention it is always in a
state of disruption. Thus, the group would have to keep innovating with better
distribution channels, IOT enabled products, better after-sales services to match the
pace of this market and have a chance against its competitors.

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