Mergers And Acquisitions: To What Extent Can Regulatory Bodies Weigh Their Social Benefits

2704 words - 11 pages

Integration: Mergers, Acquisitions and BuyoutsIntegration refers to uniting productive resources and often takes place through a merger, in which two or more existing firms unite. In my paper, I have analyzed the different types of integration and evaluated the effectiveness and usefulness of regulatory entities in monitoring merger, acquisition and buyout activities and in controlling their behavior.Essentially, there are three main types of integration, or mergers: vertical, horizontal, and conglomerate. Mergers are classified as being friendly or hostile and it is often argued that certain types of horizontal integration give rise to hostile mergers. For instance, in highly concentrated or monopolistic markets, where there are only a few competitors, hostile mergers or acquisitions often take place as firms are unwilling to cede management and ownership to rival, takeover firms. More importantly, regulatory bodies, such as, the U.S. Department of Justice, feel that mergers and acquisitions in highly monopolistic industries often result in social costs being incurred by the consumer, primarily due to increased prices and a lack of choice.Furthermore, the occurrence of a merger often raises concerns in antitrust circles. Devices such as the Herfindahl index can analyze the impact of a merger on a market and what, if any, action could prevent it. Regulatory bodies such as the United States Department of Justice, as aforementioned, may investigate anti-trust cases for monopoly dangers, and have the power to block mergers.Under its current Merger Guidelines, the U.S. Justice Department views industries with Herfindahl-Hirschman indexes in excess of 1,800 to be highly concentrated and may attempt to block a horizontal merger if it will increase the Herfindahl-Hirschman index by more than 100. However, the Justice Department sometimes permits mergers in industries that have high Herfindahl-Hirschman indexes when there is, for example, evidence of significant foreign competition, an emerging new technology or increased efficiency. I feel such evidence may not be inherently present or visible in certain forms or types of mergers and acquisitions, and therefore, prospective social benefits should also be taken into account.For instance, according to a survey conducted by McKinsey & Co. consultants, 64% of respondents mentioned adding capabilities as their number one priority as part of their acquisition goals. In my opinion, companies that have consistently added value through their acquisitions have been responsible for providing consumers with value added products and have also been responsible for their own success.The extent to which the U.S. Department of Justice can evaluate the usefulness of the Herfindahl index depends on the extent to which the U.S. Department of Justice considers the limitations of the index.First, the usefulness of this statistic to detect and stop harmful monopolies is directly dependent on a proper definition of a...

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