A Merger of Coffee and Jelly Donuts

"For every three mergers and acquisitions, one is done extremely well, one fails and one kind of narrowly succeeds or fails", is a quote from Jim Campbell, President and CEO of GE, Consumer Products (Jim Campbell Quotes, 2013). This quote was especially true during the merger mania that started after World War II, and accelerated through 1996, and 2006, with nearly 7,000 mergers, totaling $3.5 trillion, occurring a year (Chaney & Jeter, 2013, p. 11). While acquisitions and mergers were common, a successful and lasting acquisition took an understanding of integration, and teamwork to expand the acquiring company, and produce a successful take over.

To ensure success, for a company such as Smucker's, Inc. acquiring Krispy Kreme, Smucker's would produce a clear business plan of the method being used to successfully unite the businesses, such as a statutory merger, to present to the board of directors. With this method in mind, it would be essential for a plan on how the combination would grow Smucker's Corporation, possible synergies that could occur because of the proposed acquisition, and accounting requirements needed for the merger, with estimated consolidated financial statements. While a failed merger is a worst-case scenario, it is important that management is made aware of potential losses, and a projected of impairment to goodwill, and how it is calculated should also be included.

To successfully merge Smuckers and Krispy Kreme, it would be necessary to use the statutory merger business method, ensuring complete control over Krispy Kreme. This method allows the acquiring business to gain control of the merging company through acquiring their net assets, in exchange for cash, stock, or a debt instrument (Chaney & Jeter, 2013, p. 15). As a result, the company that is merged becomes part of the acquiring company, and is no longer a separate legal entity, but can continue as a division of the acquiring company. In the case of Smuker's and Krispy Kreme, this would be the best combination, and would allow for Smucker is to take advantage of Krispy Kreme's brand, and franchises.

With a vertical integration of Smuckers and Krispy Kreme, a savings can be realized by integrating brands owned by Smuckers into the production of Krispy Kreme products for a reduction in costs. Smuckers can expand their business by taking advantage of their ownership of Duncan Donuts, and Krispy Kreme, increasing their sales through careful planning of franchise locations, targeting competitors business. Smuckers can take advantage of their coffee production divisions, adding product lines specific to Krispy Kreme customers. Smuckers could use their brand to increase sales of Krispy Kreme, therefore increasing profits. While not as wide spread as Duncan Donuts, Krispy Kreme has a loyal following, and Smuckers could develop the brand by expanding their supermarket business, allowing for a larger distribution. These synergies can be developed for an expansion of both brands, and greater profits.

Since the acquisition occurred as a statutory merger, the merger must be accounted for using the purchase method of accounting. The purchase method uses fair value when consolidating the assets of the acquired company, but allows for immediate recognition of losses by the acquiring company (Dharma Putra , 2013). In the merger of Smuker's and Krispy Kreme, Krispy Kreme would continue as a division of Smucker's, with all of their assets and liabilities consolidated into Smuckers financials. The following Consolidated Balance Sheet represents the merger of Smucker's and Krispy Kreme on February 1st, the day of acquisition:

Consolidated Balance Sheet Smucker's and Krispy Kreme

February 1st.

Current Assets:

Cash and cash equivalents 296,040

Receivables (less allowance for doubtful accounts) 373,850

Inventory

Finished Products 655,875

Raw Material 318,059

Deferred income taxes 23,323

Other Current Assets 111,102

Total Current assets 1,778,249

Property Plant and Equipment

Land and land improvements 89,599

Building and fixtures 460,242

Machinery and equipment 1,238,331

Construction in process 142,983

1,931,155

Accumulated depreciation (757,042)

Total Property, Plant and Equipment 1,174,113

Other Non-Current Assets

Goodwill 18,078,813

Other intangible assets net 3,187,007

Deferred income tax