Merger And Acquisitions: A Case Study

There are some rationales that have been proposed as motives for mergers and acquisitions. Some of them rely on the theory of industrial organization and refer to enhancement of the market power, efficiency gains and preemptive motives. Some others rely on corporate governance theories and refer to motives such as the correction of internal inefficiencies, agency problems and capital market imperfections. To facilitate our exposition I have classified the list of merger rationales into two main groups. The key distinction between these two groups of merger motives is the effective claimant of the merger gains. The first group includes drivers that increase the value of the merging firms because they raise actual or future profits and in which

They evaluate then the effects of mergers on the involved market products’ prices, quality, diversity of choice and innovation since these are the factors that directly affect consumer surplus. This assessment is based on the type of the merger. Motta (2004) summarizes that, whereas horizontal and vertical mergers posses antitrust concerns, conglomerate mergers do to a less extent because they do not necessarily have an impact on the product market and therefore on

However, it has been acknowledged that, in differentiated products markets, tough competition may rule the market even when only two firms compete. The reason is that in these markets the degree of competition depends on the differentiation of the product rather than on the number of competitors. Then, the extent to which the merging firms will increase prices will depend on the degree of substitution between the merging products and the remaining ones. More specifically, the potential enhancement of market power due to a horizontal merger is analyzed under the unilateral effects or coordinated effects of the merger. While coordinated effects refer to the scope of collusion, facilitated by the lower number of competitors, unilateral effects refer to the risk that the merged firm, acting independently of any remaining rivals, finds profitable to raise prices after the merger. Oligopoly models of competition regarding at merger unilateral effects predict that whenever the merging products are substitutes and the market is composed of symmetric firms, prices in whichever mode of competition will increase.In turn, the factors that would impede such adverse effect on prices are free entry, efficiency gains and product repositioning