Sample Business Paper on Quantitative and Technological Analysis

In today’s business environment, rapid technology change, and increased competition, modern business entities are currently reliant on mergers and takeovers as business strategies for external growth. For better financial and business performance and increased market competition, companies have adopted the techniques of merging with firms with solid financial profiles. Mergers and takeovers can influence the public interest positively or negatively depending on the particular industry or the competition in the market. The government should intervene to stop mergers or takeovers that have the potential to; reduce competition in the market, increase monopoly, affect the economy of a state, reduce the purchasing power of consumers, and result to layoffs of employees which increase unemployment, reduce financial stability of states, and negatively influence the national security.

Globally, mergers and acquisitions activity has remained robust over the years. In 2017, an average of 15,000 deals valued around $ 2 trillion took place in the United States (Shapiro, 2019). As a result of mergers, there is increased development of new products, increased competitiveness in the markets, expansion into new markets and job creation through the use of new suppliers or distributors (Kovacevic, Buljat & Krcelic, 2015). However, for these mergers to take place they must meet various conditions that are set by the government. The regulations are meant to prevent possible negative impacts on the society or the economy of a given state. To preserve the public interests of its country, a government may prevent both local and international mergers and takeovers from taking place through use of various regulatory bodies.

In the United States, one of the key reasons why the government needs to intervene to prevent a merger or takeover is to protect competition in the market. When a takeover or merger might result in a firm having undue market power over other companies, the government can intervene. This monopolistic effect causes a firm to become dominant in the market, hence able to control the supply and pricing of goods and services (Mor, 2018). The abuse may result to increase in market failure which negatively influences the public interests. In 2011, the deal between AT&T and T-Mobile was abandoned when it failed to meet the antitrust challenge which protects competition (Shapiro, 2019). Consequently, for an international merger or takeover, a host state of the target company may block an acquiring company from forming a merger to maintain its competitiveness in the market (Marian, Manuela, & Neonila, 2018). For instance, the US has previously blocked Chinese entities from taking over US companies to protect their competitive advantage in technological development.

Given that a merger combines two companies into one, it may reduce competition between firms. In the United States, there is a set of antitrust laws and institutions that gives the government the power to intervene and block mergers or takeovers. Besides, the government may also breakdown large farms into small ones to promote and maintain competition of firms in the market. Therefore, before a large merger takes place, the Federal Trade Commission (FTC) and also the Department of Justice (DOJ) enforces various conditions which may warrant them to prohibit or allow the merger to take place (Shapiro, 2019). A common condition to be met is that a merger may only be allowed if the firm agrees to sell some of its parts. The DOJ and the FTC may conduct an economic analysis of horizontal mergers and convince the courts that the upcoming merger is anticompetitive leading to its blockage.

In the United Kingdom, the government should also intervene if the mergers and takeovers are likely to hinder competition of other entities in the same market, which may be harmful to public interests. The mergers and takeovers between the states or within states are regulated under the European Union regulatory authority (Marian, Manuela, & Neonila, 2018). The takeover panel is responsible for scrutinizing any mergers and takeover investments and exercising the necessary regulations (Mor, 2018). Therefore, one common test for mergers is the ability to demonstrate there is no substantial reduction in competition in the various relevant markets. The government should stop mergers that do not support the plurality of many actors in the market with control of the business enterprises.

The US government should also permanently block merger and takeover deals between corporations to protect national security interests. According to Lenihan (2018), interventions against cross border takeovers on basis national security are mainly about the balance of power and existence of interstate competition in the economic realm. A formal block that results in the acquiring company withdrawing its bid for the target company is an unbounded intervention. The United States has formed the Committee on Foreign Investment in the United States (CFIUS) which reviews takeovers of U.S businesses by foreign entities to protect the public interest of national security.

In recent years, barriers to foreign acquisitions have been implemented at the state level. In 2018 for instance, citing issues of national security The President of the United States prevented a technology investment deal worth & 117 billion dollars by a Singapore based Chipmaker Company, Broadcom which sought to take over Qualcomm Company based in California. Government involvement sought to retain the competitive advantage of the United States in the development of wireless technology against Chinese telecommunication companies (Shaikh & Connelly, 2019). Another instance is when the United States House of Representatives passed legislation preventing the acquisition of the American Unocal Cooperation by the Chinese Oil Corporation in 2005, and the French government prevention of Pepsi takeover the French-based Danone Company (Lenihan, 2018). In these cases, international mergers and takeovers were prevented to protect the national security of the country.

The states can also prevent takeovers or mergers on the national security grounds or based on economic security, but modify them to fit their interests through bounded interventions. In 2013, the US government allowed but modified the takeover of US Sprint Company by Japan’s Softbank, since Sprint provided telecommunication services to the government (Lenihan, 2018). The modified terms indicate that the US government has veto power over the future suppliers of network equipment for the acquiring entity.

Internal Intervention by the government should also occur to stop a merger or takeover in what is known as economic nationalism. The government can intervene to protect a domestic company from takeover by a foreign entity, by supporting bids from domestic entities and blocking the foreign ones (Lenihan, 2018). When the government does not trust that a foreign acquiring company will work in the best interest of its people and country, then it should stop a merger or takeover of its domestic company by foreign investors. In this form of intervention, the government identifies a company that is vital to national security and is vulnerable for takeover by an outside source. Consequently, the government encourages another domestic company or a government entity to merge or take over the struggling firm to make foreign takeover very difficult.

Mergers and takeovers that may increase unemployment rates in a country should be prevented. Some of the deals may lead to dismissal of employees which affects the wellbeing of the people s in a state. For instance, when a foreign entity takes over a firm, the company may choose to hire its human resource to meet business interests. Studies have indicated that about 85% of mergers have failed worldwide. The cause of this failure is attributed to the negligence of the employees and failure to address employee problems leading to high turnover rates (Vijaywargia, 2016). Mergers and takeovers that lead to job losses should be prevented as they do not represent public interests.

The government may also intervene to prevent a takeover or a merger when the acquiring or the target company fails to meet the requirements of the merger or acquisition. For instance, if a company poses legal or tax risks, the government can intervene (Shaikh & Connelly, 2019). In this case, the court which is a government body is responsible for solving the legal issues and stopping a merger from taking place.

Government intervention should also prevent a merger or takeover that may result in increased consumer goods that may affect the purchasing power of the people. In recent years, the public feels the need for stronger enforcement of the horizontal merger policy in the United States. The need increased because some of the large firms have increased market power at the expense of small firms. Some of the mergers have also resulted in increased prices for the consumers. For instance, the acquisition of Maytag by Whirlpool led to a relative increase in the clothes dryers’ prices (Shapiro, 2019). The intervention of the government will help protect the interest of consumers from high prices.

The Importance of mergers and takeovers

The main driving force of mergers and takeovers is the synergistic effect, which indicates that the values of combining two business entities result in a greater than the value of each company before the merger. Firms need to embrace the openness of the economy by adapting to new ways of doing business to survive the domestic and international market changes. Through the cooperation of mergers or takeovers, companies benefit through economies of scale, reduced cost of production, better technological excellence, better human resource capacity, improved infrastructure and research, and easier entry into foreign markets (Kovacevic, Buljat & Krcelic, 2015). Also, competition acts as a stimulus for businesses to become more efficient, innovative and productive with an increased ability to provide better products and services and employment opportunities (Mor, 2018).

Internally, organizations experience faster growth due to reduced cost of training staff or acquisition of new equipment or work permits. Besides, there is a reduced risk of doing business since merging or taking over an established company is considered a less risky investment. Since both firms are already in operation, there is immediate cash inflows and revenue generation (Kovacevic, Buljat & Krcelic, 2015). Mergers and acquisitions also allow for diversification of the firm in new areas.

Some of the major challenges that have rocked the market are political tensions between various countries and macroeconomic deceleration. In 2018, there was a reduction in cross border business deals which saw Chinese buyers who hesitated to purchase assets that are U.S based due to trade disputes and political tensions. The Chinese entities that acquired North American targets, reduced by 3.8% in 2018 in comparison to a 9.4% stake in 2016 (Shaikh & Connelly, 2019). Consequently, inbound transactions from Europe and Canada have also decreased as a result of uncertainty due to Brexit in the UK and negotiations of the Free Trade Agreement with North America. These government interventions on foreign takeovers may have an economic impact not only on the state but on the entire market.

One of the fundamental goals of corporate companies is to achieve the effective and highest level of sustainable economic growth. However, due to a lack of financial capability to expand their businesses and remain competitive in the market, firms are adopting the merger and takeover techniques as growth strategies. The government should intervene in mergers and takeovers both by local and international firms to protect the interests of its country and the people. The government enforces regulations to control monopolies to increase competition in the market, block deals that may detrimental to the national security, financial security, economic stability of the state and employment rates of the people. One of the important processes that firms interested in mergers and takeovers should follow is attaining the government approval.

 

References

Kovacevic, M., Buljat, M., & Krcelic, P. (2015). The analysis of mergers and acquisitions based on the example of a chosen company in Croatia. Economy of eastern Croatia yesterday, today, tomorrow, 4, 351-359.

Lenihan, A. (2018). Balancing power without weapons: State interventions into cross-border mergers and acquisitions (pp. 1-55). United Kingdom: University Printing House, Cambridge.

Marian, A. G., Manuela , D. R., & Neonila , M. D. (2018). A quantitative analysis of the M&As with community dimension in the European Union. Journal of Research in Industrial Organization. doi: 10.5171/2018.754678

Mor, F. (2018). Contested mergers and takeovers. In Briefing paper number 5734. United Kingdom: House of Commons Library.

Shaikh, N., & Connelly, M. (2019). International legal business solutions – Global Legal Insights. Retrieved 22 January 2020, from https://www.globallegalinsights.com/practice-areas/mergers-and-acquisitions-laws-and-regulations/usa

Shapiro, C. (2019). Protecting competition in the American economy: Merger control, tech titans, labor markets. Journal of Economic Perspectives33(3), 69-93. doi: 10.1257/jep.33.3.69

Vijaywargia, T.  Analyzing the consequences of mergers and acquisitions on human resource. Global Journal of Commerce & Management Perspective, 5(1), 32-34.