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The consequences of corporate acquisitions affect peoples’ lives, the state of the economy, and investors’ wealth. The current state of 70–75% acquisition failure is intolerable.
For example, the announcement of a merger between two business entities can be analyzed to see whether investors believe the merger will create or destroy value. The basic idea is to find the abnormal return attributable to the event being studied by adjusting for the return that stems from the price fluctuation of the market as a whole. [ 2 ]
Coordinated effects arise where, under certain market conditions (e.g., market transparency, product homogeneity etc.), the merger increases the probability that, post merger, merging parties and their competitors will successfully be able to coordinate their behaviour in an anti-competitive way, for example, by raising prices. [6]
The classic example is the merger of Bell Atlantic with GTE, which became Verizon Communications. Not every merger with a new name is successful. Not every merger with a new name is successful. By consolidating into YRC Worldwide , the company lost the considerable value of both Yellow Freight and Roadway Corp.
In that sense, as long as the post-merger market price is higher than pre-merger, the fact that producer surplus and firm profits rise is immaterial from the point of view of the regulators. In that case, only those mergers in which the fall in unit cost is sufficiently large to ensure a lower price after the merger should be permitted. [4]
Merger simulation is a commonly used technique when analyzing potential welfare costs and benefits of mergers between firms. Merger simulation models differ with respect to assumed form of competition that best describes the market (e.g. differentiated Bertrand competition, Cournot competition, auction models, etc.) as well as the structure of the chosen demand system (e.g. linear or log ...
Mergers and acquisitions with HHI scores of 2,500 or above will be considered anti competitive and an in-depth analysis produced, if the scores are well above 2,500 they are considered to enhance market power they may only be allowed to progress when significant evidence is shown that the merger or acquisition will not increase market power. [10]
One notable example of this was the planned acquisition of SLM Corporation (formerly known as Sallie Mae) by a group including Bank of America and JPMorgan Chase. [ 2 ] [ 3 ] In the United States, much of this litigation occurs in the Delaware Court of Chancery because many large American companies are organized under Delaware law.