• Choose and Respond to 3 posts listed below. Make sure to advance the conversation (add something new); provide a real-world application and experiential examples;
• Conceptually discuss your key [most significant] learning insight or take-away from the selected forum topic comments.
• Responses should be a minimum of 150-250 words, supported by at least one reference outside of the textbook (use academic journals), either supporting or refuting the position of the author of the forum topic response or peer response.
Topic #1
Week #7 Prompt: Find an example of a merger that has been in the news within the past 6 months. What is the economic justification for the merger? Are there any antitrust concerns with the merger? Is there a role for government in regulating this merger?
DIRECTV's decision to sell and merge with AT&T was the most important decision for DIRECTV's future success from an economic standpoint (Hodel, 2015). It was successful with a huge payday for shareholders along with the creation of a "well-rounded communications firm" (Hodel, 2015). Failure to close the deal would have left DIRECTV in the same precarious position they found themselves in last year with their delicate dependence on third party Internet service providers (Hodel, 2015). In all likelihood, due to the FCC's forward approach on the now extinct merger of Comcast and Time Warner Cable, the merger between DIRECTV and AT&T was assumed to succeed (Hodel, 2015).
The FCC was very vocal about its concerns regarding the impending mergers of various television programming providers (Morran, 2015). The major issue dealt with the growing concern in the media that these mergers would result in a monopoly of the market place at a time when one acquisition creates panic in the industry and many providers try to merge as well in order to maintain their market share and competitive edge (Morran, 2015).
The role of the government's regulatory body in this instance is geared towards assuring that competition is fair in the market, and all providers should be price competitive. The late 19th century provided many examples of monopolistic practices that had to be abolished by legislation and ever-growing agency supervision. DIRECTV, in partnership with AT&T, carefully navigated these hearings and commissions because this merger was an absolute necessity for DIRECTV to able to free themselves from dependence upon third-party service providers for Internet services (Morran, 2015).
The merger with AT&T was definitely a boon to the future prospects of DIRECTV (Hodel, 2015). Earlier in the year, with other impending mergers on the horizon in the television programming industry, this merger had become a necessity for the company (Hodel, 2015). The need for its success was only shared by DIRECTV, a company that was trying to compete with full service providers like Comcast, therefore, this merger was also a liability in case it fell through due to antitrust issues and legal difficulties with the Federal Trade Commission (Hodel, 2015).
Topic #2
Anheuser-Busch InBev has agreed to buy SABMiller in the biggest beer merger ever. The two largest beer companies in the world have decided to merge. This particular merger will create a beer empire like never before (Kim, 2015). But it could affect how much consumers pay for this product world the world. The merger cost Anheuser-Busch InBev a reported $104 billion, giving the combined company nearly 30 percent of the market share. Like most major mergers, this merger is no different, they wanted to eliminate their competitors in order to gain market share. This could lead to consumers paying higher prices for the product. Antitrust regulators are putting the merger under the microscope. They want to make sure the combined company won't have too much power in key markets, resulting in higher beer prices for consumers (Riley, 2015). The Department of Justice is looking into this acquisition as well to make sure this merger will not limit competition (Kim, 2015). The Department of Justice could also call for SABMiller Coors to sells its stake in the Miller Coors joint venture, and for AB InBev to sell its shares of some U.S. ventures gained through the acquisition of Grupo Modelo in 2013 (Kim, 2015). The justice department is also looking into the fact that this merger could limit competition. These major beer companies have been facing growing competition from smaller craft brewers in the last several years.
References
Kim, S. (2015). How Merger of World's 2 Largest Beer Companies May Affect Beer Lovers. ABC News. Retrieved from https://abcnews.go.com/Business/merger-worlds-largest-beer-companies-affect-us-beer/story.html
Riley, C. (2015). Anheuser-Busch InBev agrees to buy SABMiller in biggest beer deal ever. CNN News. Retrieved from https://money.cnn.com/2015/10/13/investing/ab-inbev-sbmiller-beer-merger/index.html
Topic #3
A merger that has affected healthcare services and is being done by the largest retail pharmacy chain in the United States is by CVS acquiring Omnicare. This merger is done by CVS Health to buy out Omnicare for $10 billion, this will achieve profits and revenues and operating efficiency will be achieved. Omnicare acquisition will strengthen CVS's hold on the healthcare market, where it already had strong presence. Economically this greatly impacts CVS for the better. If we look at the senior citizens that receive long term care and services as well as products and prescriptions; CVS can use Omnicare's division to expand its ability to dispense prescriptions in facilities to more senior citizens. As the population over the age of 65 increases every year, more senior citizens are spending on healthcare and prescriptions (Trefis, 2015). This is great way for CVS to get a hold of the billions of dollars on profit for these drugs.
If we need to look at the anti-trust concerns with this merger, CVS and Omnicare do not overlap with each other, meaning they don't compete directly. So because CVS is just trying to expand its product line, they can get away with this. It is however looked at with scrutiny by some because it increases the buying power that CVS obtains and the customers they will also gain access to (McLaughlin, 2015).
References:
McLaughlin, D. (2015, May 26). Bloomberg Business. CVS Deal for Omnicare Seen Avoiding PharMerica Antitrust Stumble. Retrieved October 15, 2015, from https://www.bloomberg.com/news/articles/2015-05-26/cvs-deal-for-omnicare-seen-avoiding-pharmerica-antitrust-stumble
Trefis, T. (2015, June 1). Forbes. How Will CVS Health Benefit From its Acquisition of Omnicare?. Retrieved October 15, 2015, from https://www.forbes.com/sites/greatspeculations/2015/06/01/how-will-cvs-health-benefit-from-its-acquisition-of-omnicare/
Topic #4
In 2013, financial guru Warren Buffet formed an alliance with a private equity firm from Brazil (3G Capital) to acquire H.J. Heinz Company. In 2015, the two parties again formed an alliance in early 2015 and acquired Kraft Foods Group Inc. The $40 billion dollar merger created the third largest food and beverage partnership across the globe (Burrows, 2015). This merger is anticipated to save the combined company approximately $1.7 billion in annual expenses through various cost reduction plans and increased organizational efficiency.
The economic justification for this merger stems from the ability to promote growth on both a domestic and an international level. By merging the two companies together, a strong platform was created to support both U.S. and foreign growth (Yan, 2015). In fact, prior to the merger Heinz derived approximately 60% of its sales dollars from countries geographic areas outside of North America. On the flipside, Kraft received almost 98% of their sales from North American outlets (Trefis Team, 2015). This data provided the necessary information for the two companies to merge together with adequate economic justification, with the hopes of expanding both their overall sales in various markets, as well as to increase the various economies where they sell.
Though there have been some small antitrust concerns with this merger, the majority of the concerns lie with the retail stores, and not with the manufacturing companies themselves. The grocery retail market is extremely competitive today, and there is a concern that the elimination of "fair" competition will come at the expense of smaller, less competitive companies (Mereand-Sinha, 2015). However, this concern does not apply to the food companies' merger, as the two firms were not obsoleted, but rather joined together into a larger firm.
There are two specific roles that the government plays in terms of regulating this merger. First, the government is responsible for ensuring that the merger protects the investors, keeping them from blindly taking a risk without having proper information provided to them. This is accomplished through the government mandating that all companies release their financial statements for public review, in order to better protect the investors. As it pertains to this merger specifically, many foreign investors were taking a chance due to one company having large domestic sales whilst the other one had slight-majority international sales. Secondly, the government is the authority that enforces business contracts. When two organization's merge, they form a contract with one another, and the government is tasked with the upholding of the legal ramifications of one party failing to uphold their end of the contract (Greechie, 2015). In any merger, it is the government's obligation to review and enforce all sections of the business deal to ensure the most ethical results are achieved for all parties involved (the two companies, shareholders, and consumers).