Category: Acquisition

Introduction

In the UAE, the legal aspects of the mergers and acquisitions focus on fairness to shareholders, disclosure of relevant information, timely filing of M&A documents with the ministry, enhancing a dominant position and restrictive agreements, and free zones, among others. The main laws that regulate the formation of M&A are the Competition Law of 2012 and the Commercial Companies Law of 1984, which was amended in 1988. The Competition Law requires firms to seek approval from the Ministry of Economy. Competition Law has measures to prevent firms’ actions that may affect competition. Initially, the Commercial Companies Law (CCL) was the main law that guided the formation of M&A. The CCL prohibits foreigners from owning more than 49 percent of shares in firms that operate outside the free zones. The Competition Law, with its restraint on enhancing a dominant position and restrictive agreements, has increased the requirements of forming an M&A.

The penalty for violating the Competition Law has been set proportionate to a firm’s revenue. The fine may range from 2 percent to 5 percent of a firm’s recent annual revenue. Other penalties may also be imposed by the courts, which may include closing the business for a few months. The Commercial Companies Law had very few requirements for preventing anti-competitive formations. Other laws that have a minor implication on M&A include the Consumer Protection Law, the Labour Law, and the Market Law. The Consumer Protection Law focuses on firms’ actions that may result in abnormally higher prices. The Labour Law recommends that firms notify their employees of the M&A as a good practice. The Market Law has clauses on the takeover of firms that affect entities operating in the financial free zones. Of these laws, the Competition Law sets higher standards for M&A than the previous laws.

The Competition Law

Mergers and acquisitions are defined as an economic concentration in the Competition Law (Gillespie, Milligan, and Stevens par. 5). Under the Companies Law, it is recognized as an amalgamation, which can happen in two ways. In an acquisition, the firms being acquired are dissolved, and their assets and liabilities are transferred to another firm. In a merger, the merging firms are dissolved, and a new firm is created, which takes over the assets and liabilities of the dissolved firms (Oufi par. 8). The main objectives of M&A include increasing the market share, expanding the geographic coverage, enlarging the product mix, and increasing the economies of scale (Zaplatinskaia par. 5). All the objectives aim at improving the financial position of the firms under M&A. The Ministry may approve firms with a higher market share of Economy if their due diligence report indicates benefits to the consumer, which matches the ministry’s assessment.

Competition Law is one of the laws that have a large impact on M&A. The Competition Law (Federal Law No. 4 of 2012) was published in the official gazette on 23^rd October 2012 (Gillespie, Milligan, and Stevens par. 1). Its implementation started on 23^rd February 2013 (Bowden and Samad par. 1). The law forbids actions that prevent competition, which results in higher prices or lower quality products for UAE nationals. The law affects all firms in the UAE and those located outside the UAE that may engage in business in the UAE (Gillespie, Milligan, and Stevens par. 4). The main consideration is that the result of the M&A affects UAE consumers negatively. The law does not provide descriptions about how the law may be enforced on companies located outside the UAE.

The Competition Law exempts business entities owned by the government at the Federal and Emirate level. It leaves out small and medium-sized businesses because they are unlikely to be dominant (Gillespie, Milligan, and Stevens par. 4). The financial free zone is also exempted from the Competition Law. Several sectors are exempted from the Competition Law because the large size of firms in these sectors is considered to increase efficiency that benefits UAE nationals. The sectors that are exempted include “telecommunications, financial services, cultural activities, pharmaceutical, utilities, waste disposal, transportation, oil and gas, and postal services” (Shah et al. 2). Firms wanting to form M&A under these categories do not need to seek approval from the ministry.

In Competition Law, a concentration that results in the reduced competition is prohibited. M&A needs approval from the Ministry of Economy when they are perceived to be enhancing a dominant position (Gillespie, Milligan, and Stevens par. 5). Enhancing a dominant position occurs when firms merge to form a larger firm with a larger market share, which increases the capability to control the market prices of their products. In such a case, the M&A firms should apply to the Ministry of Economy. The filing should occur at least 30 days before the completion of the M&A process. The Ministry of Economy is supposed to provide the outcome of the assessment within 90 days after the application. The ministry is allowed to extend the assessment process by an additional 45 days. If the ministry fails to decide within 135 days and does not issue a notification within the period, the M&A will be considered to have been approved. However, the ministry may recommend a second phase of an investigation that may last a maximum of 6 months (Gillespie, Milligan, and Stevens par. 14). A penalty may be imposed for going on with the M&A during the approval period.

The Competition Law prohibits restrictive agreements. Restrictive agreements are methods such as those that “fix prices, rig bids, divide markets, allocate customers, preclude or hinder entry into a business, and refuse to purchase from a supplier among others” (Shah et al. 3). The Competition Law disallows the use of a dominant position to exploit UAE nationals. A firm may be considered to have abused dominance when it “imposes resale pricing terms, predatory pricing, discriminatory pricing, and disseminating false information about products among others” (Shah et al. 3). The Ministry should approve M&A of Economy concerning its dominant position, which assesses the market share. It may be approved if the dominant position results in enhanced economic development and benefits to the consumer (Shah et al. 4). An M&A may result in higher consumer benefits, despite enhancing dominance.

The restrictive agreements and dominance violations are based on the relevant market. The relevant market is described as one that allows a product or service to be substituted by another based on price, characteristics, and use (King & Spalding 5). There were expectations that the ministry would outline the upper limit of the market share in the implementing regulation, which failed to occur as expected (Bowden and Samad par. 2). The assessment of a dominant position remains under the discretion of the Ministry of Economy.

The Commercial Companies Law

Commercial Companies provide less stringent requirements for the formation of M&A. Chapter 9, Part II, of the UAE Commercial Company Law covers M&A from Article 276 to Article 280 under the amalgamation of companies (Zaplatinskaia par. 6). In clauses (1) and (2) of Article 276, it defines a merger and a consolidation (“Federal Law No. (8) of 1984 as Amended” 78). Consolidation involves forming a new business entity when a merger involves the transfer of other firms’ obligations into an existing entity. Article 277 requires the resolution to be passed by the shareholders, evaluation of net assets, proportionate distribution of new shares, and a resolution to increase capital by the amalgamation (“Federal Law No. (8) of 1984 as Amended” 79). Article 280 states that the M&A formation shall be considered effective if three months elapse from the time the notification reached the Register of Commerce. If creditors file a complaint within the three months, the M&A process shall be suspended. The suspension may be removed by a court’s decision, settling of the debt or issuing a sufficient guarantee of payment to the creditors. If the M&A’s application occurs without complaints within the three months, the M&A shall remain as formed, despite complaints being raised afterward (“Federal Law No. (8) of 1984 as Amended” 79).

Under the Companies Law, M&A requires the approval of the Securities and Commodities Authority (SCA) when the M&A involves a publicly listed company (Oufi par. 9). The Companies Law allows companies to continue operating as separate entities after the merger (Oufi par. 9). The M&A of a publicly listed company can be obtained with the approval of shareholders. Shareholders have to approve the increase in capital. New shares or cash can be issued to the shareholders of the company being acquired. In the case of a public company owned by the government, the M&A will be approved through legislation (Oufi par. 10). The legislation will outline the legal position of the parties involved in the M&A of a government-owned company. There is a need for the disclosure of information that may affect the stock price of the firms undergoing M&A. An evaluation will be carried out to ascertain the value of the firms’ net assets, which is used to determine what shareholders should get (Al Tamimi & Company 46).

There should be a resolution through voting for a publicly listed company. Robinson (665) explains that the first condition of the Commercial Companies Law requires the resolution by voters to merge or be acquired. The approval vote must reach 75 percent of available shareholders, and the quorum for those present should be at least 75 percent of the shares. The second condition is the valuation of the net assets of the company being acquired. The third condition states a similar threshold of voters must be considered when resolving to increase capital. The fourth condition allows for an exchange of shares or cash from the acquiring company to shareholders of the acquired company.

Some restrictions affect foreigners who want to obtain ownership of shares that exceed 49 percent if the firms are not operating in the free zones. The law affects M&A that occurs outside the free zones. Firms undergoing an M&A must consider that they do not violate the law regarding 51 percent ownership of firms under M&A (Al Tamimi & Company 48). The result of an M&A should be that the UAE nationals own not less than 51percent of the newly formed company. An exception is made concerning regional agreements that allow GCC nationals to own at least 51 percentage of the resulting company. In the free zones, foreign firms undergoing M&A do not need to adhere to the 49-percent ownership limit.

The Labour Law

Another law that may need consideration in the UAE Labour Law, which requires that employees are notified about the takeover (Oufi par. 26). It is necessary, as a good practice, to notify employees that another business entity will adopt their employment contracts.

The Dubai International Financial Centre (DIFC)

The DIFC is the financial free zone. It operates under a new set of laws different from the general laws of the UAE. Largely, it follows the takeover laws found in the UK (Oufi par. 15). It is regulated by the Dubai Financial Services Authority (DSFA). In the UK, a firm needs to apply for approval concerning anti-competition when the result of the M&A results in a market share of 25 percent or the annual revenues exceed £70 million (Gillespie, Milligan, and Stevens par. 11). There is a need for disclosure of information that may influence making decisions, such as the sale or purchase of an asset by one of the firms (Oufi par. 17).

The Markets Law mainly targets disclosure of information to parties involved in M&A and the fair treatment of shareholders. The takeover rules that guide the DIFC are written in Part 7 of the Markets Law (DIFC Law No. 12 of 2004), as part of the DFSA regulations. It also requires the takeover to be conducted in the spirit of competition and disclosure of information, which will help shareholders and firm directors make informed decisions (DFSA 13). Shareholders should be treated fairly and reasonably. Section 34 (8) requires directors of an entity to seek independent advice regarding an offer that has been made regarding their firm. Clause (12) requires the parties involved in an M&A to provide all relevant information to the DFSA and to co-operate fully (DFSA 15). Section 35 (1) of Part 7 requires that an entity should not acquire 25% or more of the voting shares. If there is an entity that holds 25% or more of the voting shares, the entity shall not be allowed to increase its shareholding (DFSA 15). It may be allowed only if it was approved through notification of the takeover rules and when the 25% or more shareholding occurred as a result of acquiring a 5% share within the last 12 months (DFSA 15).

Under the DIFC, an entity that obtains shares that enables it to gain control of a firm should make a bid for the remaining shares to determine its value. It is a means of ensuring that the remaining shares will be bought at a fair price in case the entity decides to “squeeze out” the other shareholders (Oufi par. 27). Robinson (667) discusses that an entity that acquires 90% of another firm has the right to buy the remaining shares. The right to “squeeze out” other shareholders lasts four months after the takeover. However, the law does not clearly state the procedure for initiating the process.

The Consumer Protection Law

The Consumer Protection Law No. 24 of 2006 allows authorities to determine whether the action of a business entity has resulted in an abnormal increase in prices. It also prohibits the unlawful formation of a monopoly (Robinson, 673). The implementing regulations of the Consumer Protection Law are clearer on the business actions that increase prices.

Penalties for noncompliance

Two clauses describe penalties for noncompliance under the Competition Law. In one case, the firms that engage in an M&A without the approval from the Ministry of Economy will be charged from 2 percent to 5 percent of their most recent annual revenues (Shah et al. 4). If the courts cannot ascertain the revenue level, the firms in an M&A will be charged between AED 500,000 and AED 5 million (Shah et al. 4). The main weakness is that the law does not describe how the penalty will be shared where the M&A involves multiple firms.

Firms under M&A may also be considered to have abused dominance and restrictive agreements. Violation of any of these two categories will result in a fine amounting from AED 500,000 to AED 5 million (Shah et al. 4). The courts are also allowed to shut down businesses that break the law for periods between 3 months and six months (Gillespie, Milligan, and Stevens par. 17). The penalties may be doubled for separate offenses within the Competition Law.

Conclusion

Firms considering mergers and acquisitions should first investigate the scope of the Competition Law and the Commercial Companies Law because they have a large impact on M&A formation. Under the Competition Law, some sectors are exempted from filing M&A requirements with the Ministry of Economy. Small and medium-sized firms may go ahead with M&A without seeking approval from the Ministry of Economy because they lack a dominant position. There are many aspects of restrictive agreements, which require firms to be more cautious in their consideration of M&A. Forming a merger that results in a monopoly is unlikely to be approved. The UAE is considered to follow UK laws. In the UK, a concentration ratio of 25 percent of the market share needs approval before M&A.

Other GCC countries consider a concentration of not more than 40 percent as dominant. Firms considering an M&A should evaluate the combined market share of their firms. Firms that do not operate in the free zones should consider that 51 percent of the owner needs to remain with UAE or GCC nationals before the merger is approved. Under the Commercial Companies Law, the main consideration is the fairness of the process to shareholders. Several clauses require complete disclosure of information to the board of directors and shareholders. It should be relevant information, which may affect the stock price of the firms under M&A. There is a 75 percent voter threshold for approval from shareholders, which requires the quorum to be 75 percent of shares of the publicly listed companies. The shareholders’ approval allows the M&A process to increase the capital of the firm. There is a need to evaluate the firm’s net assets as part of the M&A process. The takeover rules of the DIFC target disclosure of relevant information and fairness to shareholders. It recommends that M&A should not target to reduce competition.

Works Cited

Al Tamimi & Company, n.d., Doing Business in the UAE. Web.

Bowden, James and Abdus Samad. UAE Competition Law – All Bark No Bite? 2014. Web.

DFSA 2004, Markets Law: DIFC Law No. 2004. Web.

Federal Law No. (8) of 1984 as Amended. n.d. Web.

Gillespie, Ben, John Milligan and Oliver Stevens. The New UAE Competition Law: Merger and Acquisition Control: Stay ahead of the Competition. 2013. Web.

King & Spalding 2013, New Competition Regulation in the United Arab Emirates: Considerations for Commercial Practices and Transactions. Web.

Oufi, Patrick. Public Mergers and Acquisitions in the United Arab Emirates: Overview. Web.

Robinson, Simon 2012, The Mergers & Acquisitions Review. Web.

Shah, Omar, Adeola Adeyemi, Will Seivewright and Alia Dajani 2013, The Impact of the New UAE Competition Law on Business. Web.

Zaplatinskaia, Larissa. Merger and Acquisition in the United Arab Emirates. Web.

Introduction

A 100-hectare farm of Bill Buckley and Nan Capri located in New South Wales near West Wyalong consists of paddocks for a herd of goats, machinery sheds and a house, and milking machinery. At the same time, the latter is situated at the farm’s opposite end, approximately 1 km from the farmers’ dwelling, along with goat manure ponds, hoses, and a storage vat. However, 35 hectares of the farm’s central section are supposed to be acquired on the basis of the West Wyalong Space Landing Station Bill 2021 in favor of Green Rex Inc, interested in the establishment of an emergency landing site in Australia. The company’s CEO contacted Buckley and Capri earlier to discuss with them the possibility of purchasing this section. The farmers rejected this proposal as the selling of the farm’s central part will be less cost-beneficial in comparison with the whole farm’s selling. In turn, it will destroy their business as two ends that both have an essential infrastructure will not be connected.

Main body

Later, Buckley and Capri received a proposed acquisition notice from the West Wyalong Space Landing Station Authority. They were asked to complete and sign the form lodging any claim for compensation under the Land Acquisition (Just Terms Compensation) Act 1991 in relation to the acquisition of their farm’s land. However, the farmers have realized that in the case of compensation, they will lose both money and business. Disappointed, Bill Buckley made an appointment with Kim Pham, West Wyalong’s lawyer. In order to help the farmers, Kim should give them appropriate advice related to communication on the basis of the following question: Will it be possible to keep the farm’s land or avoid money loss?

As New South Wales experienced a lack of infrastructure and investments contrasted with a growing population, the Land Acquisition (Just Terms Compensation) Act 1991 enabled the State’s authority to acquire private land compulsory in order to reconcile the interests of private and public companies. At the same time, although the farm’s territory may be officially taken, according to section 5(2), “this Act does not apply to any such acquisition if the land is available for public sale and the land is acquired by agreement” (Act, p 1 5(2)). However, selling the farm, the territory of which is proposed for a private company, may be regarded as highly challenging. Thus, it will be more reasonable to concentrate on the possibility of gaining adequate compensation that may cover the loss of the whole business.

In this case, it is highly recommended that the farmers answer the authority’s notice following its requirements. When a proposed acquisition notice is sent, the first step in the acquisition process is the negotiation between landowners and the state authorities in order to reach an agreement concerning compensation. Thus, Buckley and Capri should estimate the amount of compensation according to the Act, in Division 4 55, of which the following is stated:

“In determining the amount of compensation to which a person is entitled, regard must be had to the following matters only…the market value of the land on the date of its acquisition…any special value of the land to the person on the date of its acquisition…any loss attributable to severance…any loss attributable to disturbance…the disadvantage resulting from relocation…any increase or decrease in the value of any other land of the person at the date of acquisition which adjoins or is severed from the acquired land by reason of the carrying out of, or the proposal to carry out, the public purpose for which the land was acquired” (Act, d 4 55).

Kim Pham or another West Wyalong lawyer may consult the farmers and help them to determine the amount of compensation on the basis of mentioned criteria. However, Bill was not right, expecting $75,000 to be the total sum. According to the Act’s Division 4 60(2), “the maximum amount of compensation in respect of the disadvantage resulting from relocation is $75,000” (Act, d 4 60(2)). However, Division 4 60(1) states that this disadvantage is a “non-financial disadvantage resulting from the necessity of the person entitled to compensation to relocate the person’s principal place of residence as a result of the acquisition” (Act, d 4 60(1)). It also considers the owner’s interest in the land for acquisition, his duration of stay in this land, any inconveniences connected with his removal, and the period of stay allowed after the acquisition.

In general, Buckley and Capri deserve the full amount of compensation in respect of the disadvantage resulting from relocation as the acquisition of their farm’s central part will inevitably lead to the loss of their business as they will not be able to travel between the farm’s parts. In addition, along with their business, the farmers will also lose their house situated on the farm and will be in need to search and buy a new one. However, this amount does not include the land’s market value, the loss attributable to severance, and other disturbances.

At the same time, the farmers may propose the West Wyalong Space Landing Station Authority acquire the whole land with fair compensation or request the compensation of the whole land’s value. In general, there are no particular legislative provisions that prescribe an authority to acquire more land than required. On the basis of the Act’s Division 3 23(4), “an authority of the State is not required to acquire…more land than it requires for the public purpose for which the land was designated or more interests in the land than it requires for that purpose” (Act, 3 23(4)). However, regardless of the absence of related legislation, the amount of compensation may be equal or close to the whole land’s value if the land’s primary use cannot be continued or it is strongly affected by its part’s acquisition. In the case of Buckley and Capri, the farmers will lose their business and home if the central part of their farm is acquired. In addition, their opportunities to sell the eastern and western parts after the acquisition are considerably disputable as well.

At the same time, the farmers may accept the meeting with Æthel Pi Rex, CEO of Green Rex Inc, dedicated to the land’s purchase after the desired amount of compensation is determined. Buckley and Capri may propose their own price that will be close to the value of the whole land with facilities as if they sell the farm by themselves. In addition, they should explain that this amount is justified by highly negative consequences for their business in the case of the central part’s acquisition. If Æthel Pi Rex agrees, the land will be sold, and the Land Acquisition (Just Terms Compensation) Act 1991 cannot be applicable anymore.

Conclusion

To conclude, it is necessary to admit that the situation of Bill Buckley and Nan Capri cannot be regarded as highly positive due to the acquisition of their land’s part, due to which their business will be destroyed. The major challenges are connected with the possibility of fair compensation in respect of the loss of the farmers’ property and business. In general, they should primarily estimate the value of the whole farm as if they sell it by themselves. On the basis of it, the farmers may either set the price for Green Rex Inc or offer the amount of compensation on the basis of the Act.

Introduction

Unlike commercial contracts, governed by the Uniform Commercial Code and the common law, several statutes and regulations govern the Federal government. The role of the Federal Acquisition Regulations System is codification and publication of standardized policies and measures for procurement by all agencies. The Federal Acquisition Regulation (FAR) outlines various contract types and their general applicability based on the procurement situation and complexity of the supplies or services. They range from Firm-Fixed-Price, which places the greatest cost risk on the contractor, to Cost-Plus Fixed-Fee, which places the greatest risk on the Government.

Fixed-price contracts

Fixed price contracts depend on the supply and acceptance of a product or service. Normally, they have a firm price but, at times, the price can be adjusted. With an adjustable price, the fixed price contract could include a target price, a ceiling price, or both (Office of the Secretary of Defense, 2004). Unless specified in the contract, the ceiling price or target price is subject to adjustment only by operation of clauses in the contract providing for revision or adjustment of the contract price under circumstances stated (Office of the Secretary of Defense, 2004). A fixed-price contract is preferable when acquiring goods and services of a reasonable, definite and detailed specification and when the contracting officer ascertains reasonable prices at the outset (Office of the Secretary of Defense 2004).

Cost reimbursement contracts

This contract provides for compensation of acceptable incurred costs, to the degree set in the contract. Research and development work get such contracts. If the work is not satisfactory, termination of the contract takes place. Risks involving banks are usually negligible. There are three types of cost-reimbursable contracts.

1. Cost plus award fee: This contract provides the Government with a method of incorporating incentives into contracts for goods or services characterized by subjective performance criteria. No measurements are necessary for structuring incentive contracts.
2. Cost plus fixed fee: In this contract, the fee negotiation happens at the start of the contract. The fixed fee does not differ from the actual cost, but it can be amended in case of changes in the contracted work. This contract allows contracting for efforts that could have presented a significant risk to contractors, but provides the contractor only a minimum incentive to control costs (Office of the Secretary of Defense 2004).
3. Cost plus incentive fee: Incorporates a fee that can be adjusted through a formula based on the relationship between total allowable cost and target cost. It is similar to the FPI contract but, since it is cost reimbursable, there is no price ceiling. The intention of the CPIF contract is to offer an incentive to the contractor to manage contract costs effectively and thereby achieve the maximum allowable fee. The CPIF contract applies to research and development contracts where cost unknowns are common (Feldman, 2007).

Time and Materials Contracts

The contractor’s payment is on the basis of

1. The actual cost of labor. It is usually at specified hourly rates,
2. Actual cost of materials and equipment used in the contracted work and
3. Fixed add-on agreed on to cover the contractor’s overheads and profit.

These contracts apply to services such as developing systems or managing facilities and combine elements of cost-reimbursable and fixed-price contracts.

Importance of Contract Choice in Acquisition Planning

Choosing the appropriate contract is one of the most crucial decisions a contracting officer must make, to ensure that the Government obtains the desired end item at a reasonable cost. If chosen correctly, the contract type can also motivate the contractor to perform as desired, specifically influencing cost control, delivery, and quality of the end item (Tomanelli, 2012). The contracting officer must determine which contract type will best serve the Government’s interest, and also make available incentives for the contractor to perform in an acceptable manner. The FAR provides the contracting officer with several points to consider when making this choice.

1. Price Competition. Whenever possible, procurement actions should have competed. Competition normally facilitates the achievement of reasonable prices, especially if a fixed-price contract can be used.
2. Price Analysis. Price analysis is the process by which the contracting officer analyzes proposed prices to determine whether the price offered is reasonable. It includes comparing proposed prices with such things as historical prices, market prices, and other competitive quotes.
3. Cost Analysis. Cost analysis involves the evaluation of the cost of an offer or pricing data. The data require an analysis to determine the allowance and allocation of costs and the basis of the cost estimates.
4. Type and Complexity of the Requirement. Here, the contracting officer assesses the degree of risk assumed by both parties. The more complex and uncertain the requirement, the greater the risk that will probably be accepted by the Government.
5. Urgency of the Requirement. If the item or service has an accelerated basis, the Government may need to give the contractor incentives to meet the desired delivery schedule or assume a greater portion of the cost risk of the contract.
6. Period of Performance or Length of Production Run. The contracting officer should consider economic conditions, possibly allowing for periodic reviews, to assess possible economic fluctuations during contract performance.
7. Contractor’s Technical Capability and Financial Responsibility. The technical performance capability and financial health of the organizations competing for the contract must be established by the contracting officer before the contract award.
8. Concurrent Contracts. If the contractor holds other Government contracts, the contracting officer must determine what impact these contracts will have on the proposed contract.

References

Feldman, S. W. (2007) Government Contract Guidebook, 4^th Edition. Minnesota: Thomson Reuters. WestLaw.

Office of the Secretary of Defense. (2004). Defense federal acquisition regulation supplement (DFARS): Agency acquisition regulations. Web.

Tomanelli, N. S. (2012). Federal Acquisition Regulation Desk Reference. Minnesota: Thomson Reuters. WestLaw.

Introduction

International mergers and acquisitions entail mergers and acquisitions at the international level involving different countries across the globe. They are also known as global mergers and acquisitions or cross-border mergers and acquisitions. These types of mergers and acquisitions are becoming a common feature at the global scene especially due to globalization, extensive international financial reforms, innovation and development in the information technology industry, and other developments that are opening up in the global markets. In 1999, more than $3.4 trillion was spent on mergers and acquisitions worldwide. In the financial industry, Travelers’ Group and Citicorp formed a merger, which was priced at $ 35 billion, and the one between NationsBank and Bank of America, priced at $62 billion. In the telecommunications industry, Vodafone Airtouch plc and Mannesmann AG merged at $ 140 billion and in 2003, Olivetti SpA merged with Telcom Italia SpA at $35 billion; in addition, there have been mergers and acquisitions in the food manufacturing and distribution industry, defense industry, airlines, and pharmaceutical companies among others (Hamner 2002, p. 386). Mergers and acquisitions occur when a certain strategic interest is recognized at a particular market and the related firms seize the opportunity to join and become one. In the process, they are likely to profit in terms of economies of scale as well as obtain market dominance. However, this could have negative effects on the consumer population as the attaining of a dominant position means that the possibility of being a monopoly is real and with that possibility attaches several risks including anticompetitive practices such as restricting output, setting high barriers to entry, and high pricing of goods and services at the expense and detriment of consumers. Therefore, the competition law seeks to redress and prevent these economic malpractices to ensure fairness and protect consumers from exploitation that comes with monopoly. The major causes for mergers and acquisitions include:

1. Tariff drops-in the past two decades alone, tariffs have dropped from 40 percent to 6 percent and with the continuing trend of free trade agreements regionally and internationally, the tariffs are likely to become negligible. Additionally, reduced national trade and reduction of investment barriers have seen to the globalization of trade and with that, a shift from multi-domestic markets to global markets.
2. A drop in transportation costs as well as in the cost of transacting information has resulted in the opening up of international channels for trade. For instance, railway transportation has recorded a 30 percent drop in travel charges within the last decade and truck transportation recorded a 23 percent drop between 1991 and 2001. Airline transportation has consistently registered a three percent drop each year for the past three decades and with the advancement of the Panama Canal that is underway, shipping charges shall plunge downward by 2014. The result of all these developments is cost savings. Consequently, investors have increased capital that they use to increase their market reach through various ways including market expansion through mergers and acquisitions.
3. Innovations in the information technology industry (IT) have led to the shortening of supply chains and made international access a lot easier. By 2002, the net Internet commerce sales (or e-commerce) tipped $600 billion. All these factors have resulted in the global industry and markets acquiring a more attractive look than that of the domestic markets.

As far as mergers and acquisitions are concerned, the relevant law is competition law or antitrust law, depending on the relevant jurisdiction. The main task cast on legislators and administrators is the prevention of monopolization of trade, which is a real possibility when a merger or acquisition occurs. This assertion holds because the risk of the surviving firms taking over the market and ousting the weaker firms is real. In such a case, the consumers are at a disadvantage because the survivor firms increase monopoly profits that take the form of increased costs of products. Additionally, the firm is likely to restrict outputs in order to force consumers to purchase theirs at exorbitant prices. Consequently, “anti trusts legislators need to determine beforehand whether the merger or acquisition is likely to have anticompetitive effects that outweigh the advantages of economies of scale or scope” (Hamner 2002, p.388). After such determination, it is safer to allow or disallow an imminent merger and acquisition. Such pricing is the opposite of what can be termed as normal pricing, which subsists at equilibrium in a competitive market. Mergers and acquisitions are normal occurrences in the business arena with each case featuring unique circumstances that could affect stockholders’ wealth reserve. They are an efficient tool of market entry in the international arena and they benefit the country by stimulating Foreign Direct Investment (FDI). Several varied factors affect mergers and acquisitions including corporate governance, company acts, the legal structure of the country, capacity of average workers, consumer expectations, the political climate of a country, and traditions and cultures of a country. All these should be taken into account before finalizing a merger agreement (Economy Watch 2012).

International Business laws regarding mergers and acquisitions

It would be ideal if there were a uniform convention in charge of the administration of international antitrust laws, which is the jurisprudence that covers acquisitions and mergers. However, such a body of laws is non-existent and so the various nations of the world are left to their own systems. In this case, it means that each nation may or may not have antitrust laws that guide its practices and beyond this assumption, there are regional bodies, such as the European Union, which have successfully made an umbrella of antitrust laws to govern their member states and those states involved in trade with EU nation. Beyond that umbrella, each nation operates with its laws and in case of a dispute, the only established international body that hears disputes on antitrust is the European Court of Justice (ECJ) although non-members of the EU each have to consent to its jurisdiction over the matter. Consequently, international law on mergers and acquisitions is best studied jurisdictionally.

Michael Porter defines a global market as “an industry in which a firm’s competitive position in one country is significantly affected by its position in other countries and vice versa” (Porter 1986, p. 3). This scenario is opposed to multi-domestic markets in which competition in markets in one country is significantly removed, hence independent of other markets in other countries. Therefore, international markets are more favorable. As noted above, in this context, “mergers and acquisitions come in handy as tools for market penetration, achieving greater economies of scale, and scope, and serving global consumers more efficiently” (Hamner 2002, p.388). It is noteworthy that the globalization of industries further complicates the definition of geographic and product markets. An example of this conundrum comes out clearly in the financial industry where deregulation has culminated in substantial consolidation; that is, the formation of mergers and acquisitions. However, other players or competitors have also joined the banking industry in the form of insurers, brokers, and members of the security industry. As such, it becomes difficult to assess the financial industry from a one-dimensional perspective due to such an oligopoly market structure that is not unique to the financial industry. Additionally, such a structure raises the risk of the creation of cartels by threatened firms to restrict outputs and regulate pricing, which are contrary acts to fair trading. This problem of analysis befalls antitrust legislators and administrators, who are faced with the uncertainties that are commonplace in the analysis of international economies. Moreover, various nations have various antitrust laws that differ in subject matter and provisions and at an international level, there is a need to reach a uniform application that will be acceptable to all parties.

However, these legislators find respite in the fact that although jurisprudence may differ, most nations seek to address certain standard objectives that revolve around:

1. Protecting consumer interests in an open and free trade market
2. Preventing anti-competitive practices that lead to unjust enrichment
3. Prevention and regulation of monopolies.

However, the problem that arises at an international level is that it is not usually the consumers that put pressure on legislators for instance to increase imports. Instead, domestic producers, who are constantly dissatisfied with the measures in place regarding foreign competitors’ products in the local market, always pressurize legislators to take the necessary measures.

The USA

Initially, “antitrust legislation aimed at controlling the concentration of economic and industrial power” (Hamner 2002, p.390). This aspect meant that the emphasis was on the protection of competitors rather than the competition, and thus it did not matter even if to obtain this desired equilibrium consumers had to pay through their noses. The objective was to ensure equality among businesses in order to enhance competition. The key focus was on equalizing small businesses to larger corporations and the core values used as the basis for this belief were freedom of individual choice, distributive justice, and pluralism.

Later, this objective changed and the new goal envisaged by antitrust law legislators was the achieving of economic efficiency. This change came in the late 1980sand the distinct feature of this new wave was the total disregard of smaller firms’ inability to compete with the efficiency of larger competitors. The new antitrust laws left it to market forces to determine the success of firms and in effect, it was concerned with the protection of “competition” as opposed to competitors. The industry was left to find its equilibrium level of concentration through the maximization of the benefits accruing from the economies of scale. Judging by this background, it becomes clear that such a legal framework’s antitrust laws are less likely to perceive mergers and acquisitions as anticompetitive because their main objective is the protection of competition and not competitors.

The statutory provisions for antitrust are contained in section 7 of the Clayton Act, 15 U.S.C. § 18 (1994) and in the Sherman Antitrust Act, 15 U.S.C. §§ 1-2 (1994). These acts state, “Every contract combination or combination that restrains trade or commerce among the states or with a foreign nation is illegal and every person who monopolizes or attempts to monopolize is guilty of a felony” (Snyder 2007, p. 123).

In the USA, the Department of Justice (DOJ) and the Federal Trade Commission (FTC) are the central authority bodies that are responsible for the enforcement of antitrust law in the country. They are constantly dealing with breach of competition law by foreign parties or firms and in such cases, “the applicable standard comprises a reasonableness test that considers the degree of conflict with foreign law or articulated foreign economic policies” (Hamner 2002, p.396). As shall be noted hereafter, this position is different from that of the common law, as the reasonableness test is not applied at the common law level.

Finally, US antitrust legislation enforcement measures feature pre-merger approval and notification requirements as per the Hart-Scott-Rodino Antitrust Improvement Act of 1976 (Porter 1986, p. 340). According to this Act, before a merger is completed, either DOJ or FTC should review the agreement on a lookout for anticompetitive effects. This move is probably necessary because it reduces costs that would otherwise be associated with reversing a contrary merger as well as the remedial damages associated with faulty mergers.

Europe

In Europe, competition law aims at preventing abuses of dominant market positions more than it is intended to prevent structural concentrations of economic power, as was initially the case in the US (Griffin 1999, p.159). The argument here is that market concentrations may grant an economy the obvious advantages of economies of scale yet fighting mergers in order to decentralize large business concerns, which at times results in more costs than anticipated, and this aspect could as well outrange the accrued benefits. However, this perspective is just a superficial argument given that by the time of conceptualizing this directive, “the Europeans were opposed to economic decentralization because of its similitude to the measures applied by the US troops (occupation forces) after the World War II when the Axis powers lost to the Allies” (Hamner 2002, p.392).

Competition law in Europe was first enacted in the Treaty of Rome in 1958. However, subsequent amendments resulted in the creation of the Treaty, which established the European Community and therein their antitrust legislations. Article 85 serves the same purpose as “the Sherman Act, which is to prohibit agreements and concerted practices affecting trade among European Union members or in any way distorting competition (Hamner 2002, p.393). On the other hand, Article 86 mirrors the “policy objectives contained in the Clayton Act and it prohibits the abuse of a dominant market position through the setting or establishment of unfair trading conditions pricing, limitation of production or restriction of output, tying, and dumping” (Hamner 2002, p. 396).

Latin America

Before 1990, antitrust was not an important matter for industrial policy within Latin America. However, in post-1990 after the collapse of the Soviet Union, most governments in this region had suffered economically and were now trying to turn from centrally planned economies, which were mostly state-controlled to market reforms and liberalization of economic policies (Bebchuk 2002, p.45). These nations felt that the measures would prove fruitful in the resuscitation of their fallen economies.

Enactment of Competition laws

The following is a list of various countries in Latin America and the years that they enacted their competition laws:

Argentina 1980, Brazil 1994, Colombia 1992, Chile 1979, Costa Rica 1994, México 1992, Panama 1996, Peru 1991, and Venezuela in 1991

Mexico, Panama, and Costa Rica modeled their antitrust legislation after the NAFTA model, which is close to the US and Canada versions. By statute, the Federal Competition Commission in the antitrust enforcement agency in Mexico and similar bodies enforce the competition laws within the rest of the Latin American Region. These laws assume the authority to challenge mergers ad acquisitions that have the effect of diminishing, impairing, or impeding competition and free market access. The rest of the Latin American nations have modeled their antitrust legislation after the European Union countries and the effect of this move is that they penalize the abuse of a dominant position rather than an attempt to monopolize (Scott & McConnell 1983, p. 378). Additionally, they predict this abuse on the degree of concentration of the market as well as gauging the level of barriers t entry.

Case law

United States v. Aluminum Company of America 148 F.2d 416 444 26 Cir 1945

Parties

The plaintiff instituted the suit against 63 defendants, and 10 were not served, one who had died by the time of the appeal, and one who was a corporate and had broken up by the time the suit was filed. In total, at appeal, there were 51 defendants and the judge divided them into four analogous groups as follows: 1) Alcoa, comprising of the Aluminum Company of America, directors, subsidiaries, officers, and shareholders. 2) Limited comprising of Aluminum Limited directors, officers, and shareholders; 3) Aluminum Manufacturers Inc., a subsidiary of Alcoa; and 4) Aluminum Goods Manufacturing Company, which is independent of Alcoa. It was an action by the United States against the Aluminum Company of America and others.

Issues

The plaintiffs were seeking:

1. Adjudication that the Aluminum Company of America was “monopolizing interstate and foreign commerce, and that it should be dissolved” (Snyder 2007, p.119), (the issue is whether Alcoa monopolized the market in Virgin Aluminum and (consequently whether Alcoa was guilty of the various unlawful practices ancillary to the monopoly allegedly created)
2. “To determine whether this defendant and the defendant of Aluminum Company, had entered into a conspiracy in restraint of commerce and for other relief under the Sherman Anti-Trust Act, Sec. 4, 15 U.S.C.A. 4” (Snyder 2007, p.119). (Moreover, the issues here were whether Alcoa and Limited were in an unlawful conspiracy and if not, whether Limited was guilty of conspiracy with foreign purchasers, and finally, what remedies were available in case of each defendant who was found to have violated the Act.)

The outcome of the District Court

The judge dismissed the complaint on July 23, 1942, after the claim having stayed in court since 1938 holding that no monopoly had been established and the respective companies had not entered into unlawful conspiracies and as such did not award damages.

Supreme Court decision

While reversing the lower court’s decision, the Supreme Court established what has come to be known as the “effects test”. Judge Learned Hand succinctly stated:

The United States has jurisdiction and can apply its antitrust laws where wholly foreign conduct had an intended effect in the US. This allows the court to balance US interests with interests of the foreign nation and foreign relations to determine where the effects are substantial enough to grant jurisdiction and application of US antitrust laws (Snyder 2007, p. 123).

By citing the decision in Strassheim v. Daily, 221 U.S. 280, 284, 285, 31 S.Ct. 558, 55 L.Ed.735, the court maintained, “…any state may impose liabilities, even upon persons not within its allegiance, for conduct outside its borders that has consequences within its borders which the state reprehends; and these liabilities other states will ordinarily recognize” (Jarrell 1985, p.167).

This line of thinking has been sustained in different jurisdictions even in the European Commission, which is the enforcer of European antitrust laws in making laws or interpreting its antitrust laws in a manner that directly affects another non-member state’s affairs even though the respondent or defendant does not hold branches and subsidiaries in the European Union. This aspect is possible because the European Union purchasers would be adversely affected by the unfair competition garnered by such parties.

Case NoCOMP/M.1741-MCI WorldCom/Sprint

Parties

MCI Worldcom and Sprint were both global telecommunications companies. MCI Worldcom is a global provider of facility-based local, long-distance free phones, debit cards, credit cards, and Internet services. Sprint on the other hand is based in the USA and it specializes in long-distance and wireless Internet services. This merger was an example of a company (MCI) breaking into or penetrating the USA market through a merger.

The European Commission Decision

This undertaking represented a merger between parties that were responsible for an aggregate worldwide turnover of more than EUR 5 billion. Both companies had “extensive networks and larger customer bases and a merger would likely push them into restricting the terms and conditions necessary to access Internet networks” (Hamner 2002, p.396). The EC held that this merger was incompatible with the capital market and thus disallowed it, as it would create a monopoly within the telecommunications industry (Cohen 2012, p. 3). It is noteworthy that the European Commission’s investigation of this case, in which both parties were American corporations, was carried out in close collaboration with the USA antitrust agencies, viz. FCT and DOJ. This aspect means that although at times the European Union and the US may appear to be at loggerheads over interpretation issues concerning antitrust laws, they have the same desired end and can work together for development in the international arena.

Case No COMP/M.1795 – Vodafone Airtouch / Mannesmann

The parties to this pre-merger notification request were Vodafone Airtouch Plc, a UK-based company that specializes in operating mobile telecommunication apparatus and offering related telecommunication services. At the time, “it had interests in 24 companies worldwide including in the US and it is listed in the London and New York stock exchanges” (Hamner 2002, p.397). At the EU level, it had interests in 10 EU-based mobile telecommunications companies. Country-wise, it had majority interests in the telecommunications industries of the Netherlands, Sweden, Portugal, Greece, and the United Kingdom. It had minority interests in the industries in France, Spain, Italy, Belgium, and Germany.

Mannesmann was German-based and it transacted in both engineering and telecommunications services (Scott & McConnell 1983, p.389). It had joint ventures in the UK, the US, and Austria and minority interests in Germany and Italy. At the time of this proposed concentration, Mannesmann had only just recently acquired Orange Plc after consenting to let go of the minority shares of Orange in Connect Austria. Orange specialized in Internet networking in the US and the UK.

The European Commission Decision

The commission consented to this merger, but it did so only to subjects to some strict conditions. For instance, the undertaking was limited to three years and the parties were to submit a written report to the commission every three months or within 28 days of the commission’s request of the report indicating the state of the undertaking in compliance with antitrust laws. Finally, “the commission mandated that Universal Mobile Telecommunication Systems licenses were to be awarded to the public in sufficient numbers to allow for sufficient competition build-up to replicate the Vodafone network” (Hamner 2002, p.396).

Case No COMP/M.1672 – Volvo/ Scania merger

Volvo is a Sweden-based company and it specializes in the manufacture and sale of trucks, buses, marine and industry engines, construction equipment, and airspace components. On the other hand, Scania is a Swedish company that is involved in the manufacture of heavy trucks and buses, marine, and industrial engines. Additionally, it holds 50 percent of Svenska Volkswagen AB, which is in charge of the importation, marketing, and distribution of private cars and light commercial vehicles in Sweden.

The EU commission’s decision

The concentration was “incompatible with the functioning of common markets and the EEA agreement” (Hamner 2002, p.397). The commission found that even if the succeeding company complied with the proposed undertakings for ensuring fair trade, it would still attain a dominant position in the heavy trucks markets in Ireland, Finland, Norway, and Sweden. Additionally, it would obtain a dominant market for intercity buses in Finland, Denmark, Ireland, and Norway. As such, the commission objected to the merger. Sweden is a European Union member and this was a manifestation of the application of the European Union authority within its membership (Bebchuk 2002, p.46). This element is noteworthy because in the past when the EU was busy fighting antitrust infringements in the US that threatened the open market for European purchasers, critics were fast to opine that the European Commission’s only interest was the US businesses. Moreover, the critics maintained that the European Union was seemingly threatened by the US success hence the preoccupation with competitive activities in the US. However, cases like this invalidate these sentiments and prove that the EC was merely dealing with resultant circumstances of attempted breaches of antitrust laws as they occurred. Additional cases within the EU include the Renault / Volvo Merger that was between French and Swedish Automobile Companies. The EC conditioned its approval of this merger upon the agreement of Volvo to sell its minority stake in Scania, which was its major competitor in Scandinavia. Another merger was between Nestle and Perrier, both French firms. The EC conditioned its approval on the merger on several intensive agreements whose effect was to decentralize the Sprig water market to ensure that it remained competitive.

The case of European Communities Wood Pulp OJ 1985 L 85L

Several “Finnish, American, Swedish, and Canadian wood pulp producers established outside the EC colluded as price cartels to hike prices on the wood pulp that they eventually sold to EC purchasers” (Jarrell 1985, p.174). The jurisdiction of the EC derived from the fact that these parties’ actions affected members of the EC as more than 60 percent of wood pulp distributors in the EC was affected.

One of the defendants, the US Export Association, argued that the EU competition laws “were in breach of the Public International Law duty of non-interference, citing that the US government’s policy was to exempt exporters from the US antitrust laws to further the policy goals of encouraging exports” (Hamner 2002, p.394). The European Commission Jurisdiction rejected the argument holding that the “Webb –Pormene Act in the US law merely exempted cartels within the US from the US antitrust laws and thus it did not provide for the US-exempted anticompetitive activities to be implemented in the European Union” (Griffin 1999, p.159).

The Boeing Company (“Boeing”) and McDonnell Douglas Corporation (“McDonnell Douglas”) merger

This case is a historical merger that provided a net worth of more than $48billion. The Douglas Company and Boeing are US-based civilian jets. The Douglas Corporation was the major competitor for Boeing in the US, but it was rather small and it was undergoing financial difficulties. A merger would enhance the efficiencies of the flight industry as well as prevent large-scale layoffs that were a guarantee of the corporation winding down. However, Airbus, an EU based airliner, was likely to suffer anticompetitive effects if this merger proceeded unchallenged because it was the world’s second-largest airliner after Boeing, and this merger was going to boost Boeing’s customer base from 60 percent to 84 percent of planes in worldwide services (Karpel 1998, p.1039). Consequently, the EU declined to approve the pre-merger request forms, and eventually Boeing had to consent to withdraw from several long-term contracts with the European Union-based airlines. In fact, “this move was just a pretense to improve the competitive landscape between Airbus and Boeing, but the EU accepted the deal and approved the merger” (Hamner 2002, p.395).

This case highlights the possible controversies that emerge in the international arena concerning the extraterritorial interpretation of the competition law and application of the same. Different enforcement agencies, for instance, the US-based DOJ and FCT versus the European Commission of the European Union are likely to 1) “define the markets differently. 2) Weigh the possible anti-competitive effects against the envisaged efficiency gains differently; 3) view the effects of the merger on the competitive landscape differently; and 4) disagree concerning the appropriate remedies” (Hamner 2002, p. 404).

In the Boeing / Airbus case, the merger favored the US because it would require the foreigners to cushion the adverse effects of anti-competitive measures in the form of customers outside the US paying more, whereas the US would reap all the efficiency gains. This aspect would be in the form of the benefits accruing to the national welfare such as increased tax revenues and high employment ratios within the US. The opposite was true for Airbus because they would miss employment opportunities and tax revenues.

Interestingly, the European Union’s move in this particular case was more of a preemptory regulation as it was conducted through the rejection of a pre-merger notification bid rather than being instituted as a penalty after the abuse of a dominant position after detection (Karpel 1998, p.1068). This reaction mirrored that of the US antitrust laws. However, this case is not the first time that the European Commission has acted in such away. In 1996, it blocked a merger proposal between the UK-based Lonrho PLC and the South African Based Gencor. The merger would have resulted in a duopoly in platinum and rhodium markets. This ruling is a shift in the EU’s antitrust law as initially, it took a behaviorist approach by punishing abusers of market dominance posthumously, but this case is a structuralist approach as it involves an intensive investigation of market structures and the potential post-merger effects before issuing merger approval.

Conclusion

This paper has analyzed the trend in antitrust laws internationally as far as they pertain to mergers and acquisitions. The development of global commerce has resulted in a multiplicity of these transactions and the need to regulate them has been satisfied by national and regional legal organs such as municipal courts in the US, and the European Court of Justice respectively. It is also interesting to note that states like China do not have any constructive legal framework to deal with competition law breaches. However, due to the rarity of industries in China, competition law is still not an essential requirement. Additionally, in the international arena, it is necessary to formulate a uniform body of laws that will regulate competition in a standardized format; a body of laws that resemble TRIPS (Intellectual Property), TRIMS (Investment), or GATT in a bid to coordinate antitrust laws in the global arena (Snyder 2007, p. 123).

References

Bebchuk, L 2002, ‘Mergers and acquisitions: The case for cacilitating competing tender offers’, Stanford Law Review , vol. 35 no. 1, pp. 23-49.

Cohen, B 2012, Great Wolf Resorts says KSL notifies company it does not intend to submit further acquisition proposals. Web.

Economy Watch: Follow the money 2012. Web.

Griffin, J 1999, ‘Extraterritoriality in U.S. and E.U. antitrust enforcement’, Antitrust Law Journal, vol. 67 no.1, pp.159-199.

Hamner, K 2002, ‘The globalization of law: International merger control and competition law in the United States, the European Union, Latin America and China’, Journal of Transnational Law & Policy, vol. 11 no. 2, pp. 385-406.

Jarrell, G 1985, ‘The wealth effects of litigating by targets: Do interests diverge in a merge’, Journal of Law and Economics, vol. 28 no.1, pp.151-77.

Karpel, A 1998, ‘The European Commission’s decision on the Boeing-Mcdonnell Douglas merger and the need for greater U.S – EU cooperation in the merger field’, The American University Law Review, vol. 47 no. 4, pp.1029-1071.

Porter, M 1986, Competition in global industries, Oxford University Press, London.

Scott, L & McConnell, J 1983, ‘An empirical investigation of the impact of takeover amendments on common stock prices’, Journal of Financial Economics, vol. 11 no.4, pp. 361 -99.

Snyder, D 2007, ‘Mergers and acquisitions in the European community and the United States: A movement toward a uniform enforcement body,’ Law & Policy in International Business, vol. 29 no. 1, pp. 115-123.

Introduction

In the contemporary world, the numbers of companies operating in different segments of the economy are increasing by the day. This has made many of them realize decreased revenue over a period of time. This is usually attributed to an increase in the number of such companies that are offering the same services to the consumers.

As a result of this increased competition, some of the companies have halted their operations while others are facing a possibility of shutting down their operations in the near future. This eventuality is what has led to many companies to seek a merger with others that are already doing well in the market. This move has been very instrumental in making sure that some companies remain competitive in the market today.

Acquisitions and why they are good during a recession

Acquisition refers to a move by one company to buy another company that may be struggling to cope with the market dynamics. It is worth noting that the acquisition can be one hundred percent or less. This may depend on the agreement signed by the two companies involved in this transaction.

During the recession period some of the companies without a strong financial background become the main victims. Therefore, finding a company that is willing to acquire such a company may be very useful to the company being acquired. This is because; there will be an increase in the amount of revenue realized.

This is partly informed by the nature of acquisition. If the company was acquired partly, such a company may be entitled to getting some of the money realized by doing business using the other company’s’ name. This means that the new company will be treated as a partner in the new business and thus entitled to all benefits that come by being in a partnership form of business.

The other benefit that comes with acquisition especially during the economic recession is reduction in expenses incurred by the company. We find that some of the small companies have more over heads compared to the well established ones because of the mode of their operations. Therefore with this kind of acquisition, the company is bound to experience some of these benefits.

In addition, the acquired company may bring in some additional and useful information to the new company that may help it move to greater heights of success. Some of the people managing the small companies are people with vast experiences and their only undoing has been the domination of the industry by the large companies. Therefore once they have been acquired by such companies, they can have a platform where they can showcase their expertness in that field.

In addition, the acquired company stands a good chance of making the penetration of its goods and services easier to the market. This is because they can use the company good reputation to market their goods using the brand name that is well known to the market.

For instance, when Swedish Company Erickson was acquired by SONY, its mobile phone sales have continued to grow every year because SONY is a household name all over the world. That is the reason why people would buy such a product because they have faith and trust in SONY.

In case the company was acquired partially, the issue of sharing losses comes as a benefit to the company that has been acquired. We find that if the company that has been acquired was left to shoulder all the losses incurred in a financial year, it may take several years to record any positive financial results. Therefore, acquisition helps such a company to realize fewer losses because they will be shared between both of them.

There is also the aspect of efficiency. It has been observed that acquisition has helped many companies create the economies of scale that has resulted to an increase in efficiency in their operations. This is because the two companies jointly form a new and a bigger company that is in a position to increase its output in terms of ensuring efficiency is observed.

The other benefit that comes with mergers and acquisition has been the issue of acquiring the knowledge to position oneself for days to come. Some of the people allowing their companies to be acquired by bigger companies have done that so they can study the essentials of operating such a huge company. Therefore, after a certain period of time such people may leave their companies and start their own companies as they seek to conquer the market.

The other reason why acquisition is good is promote profitability because a combination of two or more companies may result in more than average profitability due to cost reduction and efficient utilization of resources.

Conclusion

Acquisition of one company by another has been there for many years now. This is because each experience different reception of its goods and services by the customers. It should be upon the government to make sure that barriers that hinder the growth of small and medium enterprises are removed. This move would in itself make sure more people are employed hence minimizing any chances of people engaging in criminal activities because of lack of job opportunities.

The issues of control, merger and acquisition have been essential and challenging questions for the New York Stock Exchange (NYSE) for several years since 2010, as due to the global crisis the business was not looking very well. For example, in the period from January to September 2012, NYSE has made 32% less than in the same period of the previous year (Lopez par. 9). Merger and acquisition deals were not rare in the world of finance; however, for a major stock exchange market like NYSE, these deals may present severe difficulties and risks, in no small measure because of the company size and its responsibilities towards the global financial markets.

The last successful merger of NYSE was made with Euronext, a large European stock exchange in 2007, which resulted in the creation of the world’s largest stock exchange and the first transatlantic financial market (Raiborn and McGinnis 65). Later, since 2010, a few other merger and acquisition offers with total $32 billion worth were attempted; however, all of them failed (Lopez par. 3). Among them were the offers from Deutsche Börse, which was blocked by the European Commission (Fairless par. 1), and a consolidated offer by Intercontinental Exchange (ICE) and NASDAQ OMX Group, which was rejected and later terminated due to the interjection of the United States Department of Justice (Chapman and Gogoi, par. 1).

The New York Stock Exchange, a 220-year-old establishment with a long and proud history and a world’s largest stock exchange, in 2012 has received another $8,2 billion worth proposal from its younger rival from Atlanta, 8-year-old Intercontinental Exchange, a company specializing in futures exchange and more specifically, the energy futures; the deal was to be effected in a stock swap acquisition (Lopez par. 1-12). Both companies decided to keep the positions of chairmen and CEOs, expanding the ICE board of directors to fifteen members, as four members of NYSE board would be added; moreover, the shareholders were allowed to choose and receive $33.12 in cash for a NYSE share or $11.27 in cash and around one-sixth of a share of ICE, combined (Rothwell par. 21-24).

The exchange markets believed that this deal should be beneficial for both companies as the union of brands, infrastructure, expertise, and global position would allow the newly merged company to serve the clients better and distribute the efforts more equally. While some of the experts thought that the deal was not as beneficial, as it could have been for NYSE, as the Intercontinental Exchange could have paid more, it was still considered fairly generous and other experts also claimed that such merger and acquisition agreement could result in further similar deals in the exchange business thanks to a successful example of these companies as well as the declining fees pressure (Rothwell par. 20-30).

The acquisition of NYSE Euronext by ICE was planned for the end of 2012, and on December 20, 2012, the companies’ boards of directors had approved the final agreement and issued a press release with an announcement of the deal (De La Merced par. 1-13). Despite few doubts, the deal was not expected to be blocked by any regulation body, and the deal itself was expected to be closed within a reasonable time after signing the agreement; it was decided that the headquarters of the new company would remain both in Atlanta and New York, for the convenience of the clients (De La Merced par. 1-10).

Works Cited

Chapman, Michelle and Pallavi Gogoi. “Nasdaq drops bid for NYSE on DOJ’s antitrust move.” The Seattle Times. 2011. Web.

De La Merced, Michael J. “Upstart Market Operator Clinches $8.2 Billion Deal for N.Y.S.E.” The New York Times. 2012. Web.

Fairless, Tom. “EU Rejects Deutsche Börse Appeal Against Blocked Merger With NYSE-Euronext.” The Wall Street Journal. 2015. Web.

Lopez, Linette. “Sold: New York Stock Exchange Getting Acquired for $8.2 Billion.” The Business Insider. 2012. Web.

Raiborn, Cecily A. and Michael McGinnis. “NYSE Merger Creates First Transatlantic Financial Market.” Journal of Corporate Accounting & Finance. 3 (2007): 65-74. Readcube. Web.

Rothwell, Steve. “For the New York Stock Exchange, a sell order.” The Seattle Times. 2012. Web.

Introduction

The modern business environment is increasingly competitive. New technologies in the market mean that old technologies are growing obsolete far much faster. New start up companies are emerging which replicate the successes of established firms at a much lower overheads. Layoffs and cost cutting initiatives are increasing being countered by lawsuits and industrial strikes. However, in this competitive business environment the company executives are increasing under pressure to deliver value for their shareholders.

In this context, acquisitions and mergers are increasingly becoming viable options to business reengineering, value generation, value retention and business efficiency promotion. Metz (2001) notes that, “…acquisitions are strategic alternatives that can help companies promote a better way of doing business and maintain their competitive edge over the long run.

Acquisitions can help companies attain strategic goals more quickly, promote operational change, and attack markets where its technologies can produce higher levels of growth” (p.1). However, in the modern economic context an increasing number of acquisitions are failing for various reasons.

Reasons for acquisition failing

According to Metz (2001) some of the reasons resulting into acquisitions failing include “…flawed strategic vision, inadequate due diligence, poor integration, and clashing cultures” (p.1). In the context of flawed strategic vision, Metz (2001) blames a majority of the business executives concentrating on the financial outcome of the acquisition instead of the core capabilities embedded in the company that is visible in its products and services.

Such a focus may make the acquisition more interested in the financial outcomes without building the corresponding core capabilities in the acquisition needed to drive the financial growth and outcomes (Siegenthaler 2010; Ingram 2011).

Rankine (2012) further notes in the context of flawed strategic vision, that sometimes companies make acquisitions as quick fix solution to their struggling business performance. Such a solution further deteriorates the situation as was the case when the person computer Compaq Company acquired Digital Company (Rankine 2012). Both companies at the time were struggling in their respective markets thus aggrevating the situation.

Clashing cultures is also one of the reasons emerging as a major reason for acquisition failure. Metz (2001) notes that “…acquisition impact important elements of economic and psychic value such as job security, promotion, career opportunities, status and pride of association.” (p.1). Gome (2012) concurs with Metz noting that “…the biggest challenge in any acquisition is the people integration” (p.1).

Both Metz (2001) and Gome (2012) note that inadequate due diligence in the acquisition is another major reason for acquisition failure. In the context of due diligence, several dynamics ought to be examined including expenses, market niches, and management styles amongst other functions and aspects (Metz 2001; Still 2010).

On the other hand, Gome (2012) cites several documents that ought to be closely examined including tax filings, assessment of key employees and agreements with third parties amongst other factors. In the context of inadequate due diligence, Ferranti got into bankruptcy due to poor due diligence on acquisition of ISC. The firm had over lied on a flawed KPMG opinion (Rankine 2012).

Lack of proper integration is another factor that can make acquisitions fail

(Payling 2009; Evans, 2000).Management executives need to plan for the integration of the two companies into a new outfit with its distinct operations (Siegenthaler 2010; Still 2010). In this context, integration needs to consider aspects such as communication styles, sharing of responsibilities, and management of change amongst other factors (Salame 2006; Petkova & Do 2012)

Conclusion

It is no doubt that a majority of the reasons advanced on failure of the acquisitions can be avoided with proper planning and adequate experience around acquisitions.

References

Evans, M. (2000) Mergers & Acquisitions. Web.

Gome, A. (2012) Why acquisitions fail: Top 6 blunders. Web.

Ingram, M. (2011) Why most start up acquisitions fail-and always will. Web.

Metz, T. (2001) Why Acquisitions Fail. Web.

Payling, S. (2009) What makes Mergers and Acquisitions Succeed or Fail. Web.

Petkova, M. & Do, Q. (2012) Do acquirers fail to deliver value to their shareholders? Web.

Rankine, D. (2012) Why Acquisitions Fail-the 20 Key Reasons. Web.

Salame, R. (2006) Why Do Mergers Fail? What Can Be Done to Improve their Chances of Success? Web.

Siegenthaler, P. (2010) Ten reasons mergers and acquisitions fail. Web.

Still, J. (2010) Why acquisitions fail. Web.

Introduction

It is essential to determine each aspect to understand the difference between the processes. A merger unites two or more companies, connects the capitals of all organizations, and each company proceeds to exist. The acquisition is a full obtainment, which eliminates companies’ policies and autonomy; the power goes to the company that made an acquisition.

Rationale

Companies striving to merge or run acquisitions are motivated by the company’s potential growth, multiplying efforts to raise revenue, and extending the organization (Tarigan et al., 2018). Additionally, merger and acquisition facilitates bigger profit and helps achieve a financial goal. Undergoing mergers will establish a stronger economic unit and increase profits. The rationale for merging with SABIC is its share in the market of Saudi Arabia, along with constant development and improvement.

The Nature of Merger in the Company

It is beneficial to prefer a merger rather than an acquisition, as merging companies do not stop their activity but are transferred to a new legal entity. SABIC acts as a supplier for the company, and it encourages lower costs of production and increased profit. The vertical merge was preferred to escape competition between the organizations, as a horizontal merger might provoke it between companies.

Opposing Merger to Acquisition

The merger might become a beneficial process for companies due to the list of benefits. For instance, there is no need to involve more human resources, as the extended organization unites all departments in one. Moreover, the organization will save most financial resources and have better credit conditions. If to oppose merging to the acquisition, a merger is a more careful method to expand the organization.

A merger has several drawbacks, which involve the potential suppliers’ refusal to lower prices and the need to renegotiate existing contracts. Indeed, acquisition involves multiple procedures to assess risks, analyze abilities, and other measures. In comparison to a merger, an acquisition might require more complex analysis and cause severe problems, such as complex procedures and huge losses.

Social implications

Indeed, it is essential to consider social implications such as human rights – some employees might be unhappy with new integration policies. Moreover, ethical aspects of social responsibility should consider the values and interests of all employees irrespectively of their origins. Additively, some supply difficulties might arise due to constant political changes in countries.

Conclusion

Overall, a merger and an acquisition were discussed, and there is a significant difference between these concepts. Moreover, the merger has softer conditions for businesses and draws fewer negative consequences. A vertical merger with SABIC might increase the company’s revenues and reduce the costs of production. Furthermore, some social implications might arise, and there is a need to negotiate them.

References

Bisin, A., & Federico, G. (2021). Merger or acquisition? An introduction to The Handbook of Historical Economics. The Handbook of Historical Economics, 1, 15-38. Web.

SABIC. Annual report 2021. Web.

Tarigan, J., Claresta, A., & Elsye Hatane, S. (2018). Analysis of merger & acquisition motives in Indonesian listed companies through financial performance perspective.KINERJA, 22(1), 95–112. Web.

Introduction

Mergers and acquisitions have become popular in the current market economies. This has seen many a researcher petitioning for a portion of knowledge to establish the reasons for their popularity. Points of interest are the reasons for their causes. Their causes have associated outcomes. The outcomes can be positive or negative. Despite their popularity, some mergers do not hold-they fail. Interest is directed towards strategic and operational management issues related to mergers and acquisitions. The question of interest has been to research the causes of mergers. While learning the causes, we shall not be limited to present-day case studies of mergers. Therefore, research must cover the history of mergers and acquisitions over a discernible period. The choice of the period, therefore, is critical to making comparisons in differences, if any, between the present-day mergers and early mergers. Comparisons will help to establish the trends in improvements of mergers and acquisitions. If there are improvements, some question to ask or answer is, are there lessons to learn from the mergers.

Literature review

Mergers and acquit ions are important strategies in a market. Early research has provided substantial information on mergers and acquisitions. Such writers are Weston and Weaver (2004) put forward the theory and practice of mergers and acquisitions. They argued that there are dimensions that considerations of mergers are put in place. One such consideration is, as put by the two authors’, puts in mind the benefits of small market players that practice on a market. Besides, postulates have been put forward concerning mergers and acquisitions concerning tax incentives. It is clear from the explanation of Auerbach (1991) that more tax benefits accrue at a corporate level for firms merging as opposed to a company operating alone. Operational and tax issues affect mergers to a substantial extent. There is a risk of combining companies of firms, observed by PricewaterHouseCoopers (2006), which must consider the benefits of increases in income of the merged firms with a critical analysis resulting tax changes. Some income increments that lead to doubling or near doubling in taxes render mergers unsuccessful. In the perspective of strategic issues, planning is usually viewed as a growth strategy for small companies. This is usually an option of a firm that views internal growth as having a slow pace (Rock, Rock, & Sikora, 1994). These authors extend their arguments by outlining the strategies that companies adopt for possible mergers. Operational management in acquisitions is handled concerning systems and data drawbacks. Difficulties always emerge when marketing and sales units call for combination (Cheverton, Foss, Hughes & Stone, 2005). Despite the difficulties put forward above, literature provides suggestions to ways of reducing them to make a merger successful. An acquiring company is advised to retain key staff from the acquired company. This has the benefit of retaining expertise within the merger (Daniel & Metcalf, 2001).

Research question

What are the causes, benefits and challenges of mergers and acquisitions in market economies?

Design and methodology

This research will employ qualitative research methods largely. The mention of qualitative methods does not disqualify incidences of quantitative means. A cross-section of companies that merged over a period will be investigated. A probe into the causes will also be looked into. This study targets big name brands of companies that were once small but became market giants due to mergers. The setting extends of the will not, therefore, be limited to a local scale. To gain more insight into the research question posed above, international companies’ information can be easily obtained via contacts available on the internet. The inclusion of international companies serves to widen the scope of the research. In the light of the population of the study, random sampling is the choice for obtaining the sample (Kumar, 2005). The study sample will be randomly selected from the population of companies based on the scope of the study as mentioned. Participants in the study will be varied according to the period of acquisitions. The intention for the variations in the period of acquisition is to fulfil suspicions that the reasons for mergers in earlier times may have been different from today. Secondly, there is a need to establish popularity differences in early mergers as opposed to mergers today. Having coined the study objectives of mergers concerning time, this study has mentioned variations in early mergers. Reference to early mergers takes the study mergers and acquisitions that happened from the period 1990 to the year 2001. Today’s time, therefore, covers the period from 2001 to date. It is evident that the study seeks to answer the question based on a period covering nearly 21 years. Embarking on participants in the study, Chief Executive officers (CEOs), Company presidents and possible members that were included in the mergers will be targeted for the research.

Since the two periods for the study covers two decades, sampling will be done randomly to obtain two study samples from the two periods of the study. For the period covering 1990 to 2001, archival information of companies that merged will be obtained from relevant sources such as the internet. This will also apply to present period merged companies. Through random sampling, 20 study companies will be selected for the research (10 companies apiece). It is appropriate that former and present employees of the target companies are included in the study as participants.

Appropriateness of the design and methodology

The research seeks to answer the question into the causes, benefits and challenges of acquisitions and mergers. The choice of qualitative research methodology is deemed appropriate since it is inclined closely to the needs of the study question than mixed or quantitative methods (Slugoski, 2008). Alternatives to this study methodology and design are mixed and quantitative techniques. However, they were not chosen because of a lack of full inclination to the study question.

Methods of data collection

Qualitative data will be used in the study. These include open-ended interviews, questionnaires and permanent records. Since only qualitative data is used in the study, the methods will be mono data (Johnson & Christensen, 2010). It was mentioned earlier in the course of this research that the sample would consist of 20 companies for the merger. Since the participants will be CEO, presidents and employees, the sample size to be selected will constitute the three participants. Sample selection will be done randomly for the two categories of periods of the study to come up with a sample size of 100 participants. The 100 participants would comprise an equal number of participants selected from the two periods. To ensure the success of the study, a pilot study will be done using our team members stationed locally and internationally. The pilot study would intend to determine the ease of data acquisition in the main research. The pilot research will also be helpful in the identification of possible bottlenecks before the main research (Russell & Purcell, 2009). Interviews will be conducted based on the convenience of the participants. Phone calls will be made to the participants, requesting them to participate in the interview process for research. After reaching an agreement with the participants, the venue will be set for the exercise. To enhance the better collection of data during interviews, voice recorders will be used as a backup for field notes that shall be written.

Questionnaires will be our second tool of data collection. In addition, it will also be the main method of data collection. Following the above example used for interviews, contacts of potential participants will be obtained. After contacting the participants, a request will be made explaining our study intentions and the reason their contribution is important to the establishment of knowledge. This helps to draw confidence from the interviewees leading to a collection of reliable data. The second phase of interviewees relates to the administration of the questionnaires. Two main means that will be employed are mailing and hand delivery. A mailing will target employees and other participants who are geographically dispersed; international participants. To get answer the research question, we expect response rates of higher than 55%. This is justified by considering that a pilot before the main exercise will precede the research. It is possible to obtain the information and intended data since there is the availability of participants that are reliable sources of information in the course of the research process. Furthermore, the design used to obtain information ensures that correct participants are selected. The selection of company presidents and CEOs will avail accurate information about the merger and acquisition process. In addition, participants have been profiled and stratified treatment so that relevant questioning. If the CEOs can volunteer technical information, there is no doubt that employees who have been in mergers will give their opinion of the merger and acquisition process. After issuing the questionnaires, a follow up will be made so that the filled questionnaires are returned. We shall enhance high response rates from questionnaires by covering the mailing expenses of the customers after the questionnaire is filled.

Ethical issues in the research

During the entire research process, there is an expectation of coming in contact with ethical issues. In the first place, participants will be giving information to the research team in direct contact. Consequently, participants may have information that is rated as classified yet they are willing to volunteer is due to the study. This brings in an issue of participants’ privacy (Padgett, 1998). To protect the privacy of the participants, no information of the participants will be singled out. This will be ensured by the lack of inclusion of the participants’ identification details in the research report. Secondly, the research may be conducted in regions, which hold on to some cultural and religious beliefs. If such is encountered during this study, strict observation will be put in place to bolster trust from the participants (Babbie, 2010).

Data analysis

Data will be analyzed using various methods such as graphs, tables and pie charts. In the first place, proper data rerecording during the data collection process will ensure ease of analysis (Dey, 2003). The graphical method will be among the chosen methods. Raw data from the participants will be analyzed based on the numerical recording of the respondents’ answers. Former researchers to be appropriate for the analysis of qualitative data have praised this method. In the light of graphical methods, the research seeks to answer the question about causes, benefits and challenges of mergers. This presents three variables against which knowledge will be established. For each variable, the number of respondents will be plotted against a chosen scale for the data analysis (Miles & Huberman, 1999). Graphs have the benefit of enabling critics to visually observe the analyzed data and make conclusions. Gnanadesikan, (1983), confirms the fact that graphical methods help to improve the quality of the raw data from the field. He further supports graphical methods as important when transitioning the data analysis process from one stage to another. Because researchers support graphical methods of data analysis, it is not an exception therefore to be selected as a method of data analysis. To conclude, it is a justified means of data analysis. We, therefore, have to adopt these methods in the research of this topic. We expect the results to be of high significance in the making of the conclusions regarding

Tables will also be used to present and analyze the data. Although they are not far from graphs for data presentation, they play an important role in the presentation and interpretation of data.

Another method of data analysis is the use of statistical packages like the Statistical Package for Social Sciences (SPSS). Such packages are installable on personal computers so that they can be used in the analysis of data. They are the most preferred method because of their accuracy. Statistical packages offer many dimensions of analyzing data. Correlation relationships can be established quickly by the use of such statistical packages. In our example, we seek to answer the question related to the benefits causes and challenges of merging and acquiring firms in a market economy. Should we, therefore, establish that there are benefits in merging; it can be empirically proved and analyzed by employing correlation with SPSS (Field, 2000). Secondly, the data collected can be analyzed by regressing it using statistical packages. This will be an important method of analyzing the data. Because of the accuracy of the statistical packages, they will be employed extensively in the analysis of the data.

Limitations of research

There are limitations to this research that we expect to encounter during the entire research. In the first place, the research requires that participants be selected from a wide geographical coverage. This has a cost limitation to the conducting of the research. This will be overcome by using phone interviews with the participants from overseas companies that may contain valuable information for the conducting of the research. Secondly, due to the classification of information in the world of business, some companies are secretive with their most important information on mergers and acquisitions. As a result, the information collection process may be impeded by such characteristics. However, information collection will be based on an open approach of the administrations of concerned companies to establish knowledge. Furthermore, any doubts from the participants will be mitigated by assuring the participants of the limited user information they deem classified in the interest in our report.

In addition, the research shall have a limitation of tracing important personnel to be interviewed to obtain merger information for the period 1990 to 2000. This will be a big limitation particularly for mergers that took place in the early 1990s. There is a big threat to the comparative analysis of information related to the causes, benefits and challenges of mergers that took place in the 1990s as opposed to the period. One biggest threat is the expectation that participants of the older companies may not be alive. The ones that replaced them may have been modern-day ideas pertaining to mergers and acquisitions. This can be overcome by sourcing primary data from the archives of the concerned companies. Since we would have pilot research that proceeds, this limitation is weighed against the outcomes of the pilot research.

The above limitations are collectively mitigated through a review of other works of researchers done earlier. There is information through literature provided by other early studies on the topic. Such works can act as a good reference point to the limitations encountered when doing the same research work. The importance of such works enhances the internal and external validities of the research work on mergers and acquisitions (Gravetter & Forzano, 2009). Lastly, the research has only provided an insight into the causes and challenges of mergers and acquisitions. Consequently, it is limited to the current scope in which this research has been taken. However, this can be overcome through intensive research in this field. Besides, the limitation of this research is welcome external criticisms to the way the research was conducted. This will help reduce scope limitations

Conclusion

Mergers and acquisitions are important in market economies. This can be a good field for the choice of research in order to investigate the courses and benefits as well as challenges. However, a good research problem may be hindered if the researcher does not have good background information on the problem. The importance of literature review provides the readers or critics with the flow of the entire research. There is more to good research when the literature review is coined to reflect the research problem. As a result, the research question(s) can be easily formulated from the literature review.

Secondly, an appropriate research methodology must be decided to help reach the objective of the research. Caution must be taken when choosing the research design and methodology. The research design chosen must be outstanding so that it is appropriate concerning alternatives. For this study, the chosen research design is appropriate against the alternatives.

In addition, a good research methodology precedes successful data collection. As realized, one processor research step is an usher of another step. In the light of the above statement, this research will employ the most appropriate data type. The data type chosen is also appropriate since it is related to the research design selected for the study. Besides, it is also aligned with the research question. Its appropriateness makes it the choice. Overestimates of the success of research can be disastrous if the sample is not properly selected from the population. Nevertheless, most researchers conduct pilot research that helps to mitigate the effects problems associated with the main research. This research will also employ pilot research that will establish problems that may be inherent with the research of mergers and acquisitions in market economies.

Lastly, the research having been conducted requires the presentation and analysis of data. Consequently, we must give the results to interested parties so that criticism is made. Many ways of data analysis are present in form of software (statistical packages) or visual aids through graphs, tables and pie charts, just to name a few. Analysis forms the conclusion the climax of the research process. Ethical issues also play an important part in the research. These issues must be identified throughout the research process and mitigated. This research has put forward identified ethical issues that will be addressed in order to make the research a success. In conclusion, the research has adopted a relevant approach in the establishment of the missing knowledge gap about mergers and acquisitions.

Reference list

Auerbach, A.J. 1991. Mergers and acquisitions. Chicago: University of Chicago Press.

Babbie, E.R. 2010. The practice of social research. New York. Cengage Learning.

Cheverton, P., Foss, B., Hughes, T, & Stone, M. 2005. Key accounting management in financial services: tools and techniques. London: Kogan Page Publishers.

Daniel, T.A., & Metcalf, G.S., 2001. The Management of people in mergers and acquisitions. Westport: Greenwood Publishing Group.

Dey, I. 2003. Qualitative data analysis: A user friendly Guide for social Scientists. London, Routledge.

Field, A. 2000. Discovering statistics using SPSS for Windows. London: SAGE Publications.

Gravetter, F.J., & Forzano, L.B. 2009. Research methods for the Behavioral sciences. Belmont: Cengage Learning.

Gnanadesikan, R. 1983. Statistical data analysis. Ontario: AMS.

Johnson, B. & Christensen, L. 2010. Education Research: qualitative, quantitative and mixed approaches. California: SAGE Publications, Inc.

Kimel, A.J. 2007. Ethical issues in behavioral research: basic and applied perspectives. Victoria: Blackwell Publishing.

Kumar, R. 2005. Research methodology: a step-by-step guide for beginners. London: SAGE Publications Ltd.

Miles, M.B. Huberman, A.M. 1999. Qualitative data analysis. London: SAGE Publications.

Padgett, D. 1998. Qualitatitive methods in social work research. Challenges and rewards. London: SAGE Publications.

PricewaterhouseCoopers LLP. 2006. Mergers and Acquisitions. New Jersey: John Wiley & Sons, Icn.

Rock, M.L., Rock, R. H., & Sikora, M.J. 1994. Mergers and acquisitions handbook. New York: McGraw-Hill.

Russell, B. & Purcell, J. 2009. Online research essentials: implementing and designing research studies. New Jersey: John Wiley & Sons, Icn.

Slugoski, E.V. (2008). Employee retention: Demographic comparisons of job embeddednes, job alternatives, job satisfaction and organizational commitment. Parker: ProQuest LLC.

Weston, J. F., & Weaver, S.C. 2004. Mergers and acquisitions. New York: McGraw-Hill.

Introduction

ACME should use a technical approach to acquire a company and manage its resources. This strategy involves analysis of the past behavior of exchange rates to identify the pattern and generate a forecast (Picasso et al., 2019). Making a chart of the patterns makes it possible to figure out what will happen. In addition, this method uses data from positioning surveys, trade rules based on moving averages that look for trends, and the customer flow of Forex dealers (Picasso et al., 2019). Due to the fluctuations of countries’ exchange rates, using the history of the rates becomes the most appropriate option. Therefore, a technical approach will enable ACME to understand the previous performance of the country regarding exchange rates and decide.

The Principles of Valuation for Financial Assets and Securities

The first principle is that the current value of the predicted cash flows determines the value of any financial asset. In most cases, a company’s value is based on how much money it will make in the future (Tastulekova et al., 2018). This means the company’s past earnings before the valuation date. Using this principle, one can use the existing financial asset of the organization to be valued to determine its worth (Tastulekova et al., 2018). As a result, ACME will use it to estimate the value of financial securities like stocks and bonds.

The second principle is that value is influenced by the transferability of future cash flow. The company’s value will depend on how easy it is for a potential buyer to take over its cash flows (Tastulekova et al., 2018). Most valuable businesses run without the owner being in charge. If a business owner has a lot of power over how services are delivered, how sales grow, and how customer relationships are kept up, then the owner will keep the goodwill but not the business. Therefore, this kind of individual goodwill has little or no market value, and it is hard to be given to someone else.

The third principle is that the value is influenced by liquidity. The approach is based on the theory of demand and supply (Tastulekova et al., 2018). If there are a lot of possible buyers in the market but only a few good acquisition targets, valuation multiples will rise. In both open market and notional valuation situations, the value of a business interest increases when it is easier to purchase and sell. To get the best price, owners of a business need to bring the best possible buyers to the table. Thus, an organization is considered valuable when it can run its daily operations.

The Best Country as a Site for an Acquisition

Based on the popularity of the pound in the foreign exchange market, I would recommend the UK as the best country for acquisition. It has minimal price volatility and a strong market in the ACME sector. The sterling pound, the oldest actively traded currency on the foreign exchange market, has a long and illustrious history (Djemo et al., 2021). The fact that London is one of the most important financial centers in the world further contributes to the city’s widespread appeal. Therefore, it would be a good decision for ACME to consider acquiring a company that operates in the UK. The country provides a conducive environment for ACME to function effectively.

References

Djemo, C. R. T., Eita, J. H., & Mwamba, J. W. M. (2021). Predicting foreign exchange rate movements: An Application of the Ensemble Method.Review of Development Finance, 11(2), 58-70.

Picasso, A., Merello, S., Ma, Y., Oneto, L., & Cambria, E. (2019). Technical analysis and sentiment embeddings for market trend prediction.Expert Systems with Applications, 135, 60-70.

Tastulekova, A. B., Satova, R. K., & Shalbolova, U. Z. (2018). Business valuation and equity management when entering the IPO market.European Research Studies, 21(4), 875-886.