The
Reasons why Government might support or intervene in Takeovers and Mergers
Takeovers and
mergers are when a company hope to achieve growth through buying out another
company, sometimes this occurs through merging the businesses together but
other times through taking over the company completely, which can result in the
situation becoming rather hostile. All recent governments in the UK mainly
support takeovers and mergers if it were to benefit both companies and the
economy as a whole, therefore this would normally rule out any reason for the
government to intervene or block a takeover or merger.
One of the
reasons why the Government may support Takeovers and mergers is to prevent a
business failure that could possibly damage the UK economy and society through
the stock market and public’s savings lowering, consequently causing people to
spend less and save more. Preventing a business failure and obviously wanting
to increase market share is apparent in the case of Lloyds TSB taking over
HBOS. The circumstances in 2008 for HBOS looked particularly unstable after the
bank shares started falling and liquidity was evaporating due to the collapse
of Lehman Brothers in September. However, a saviour for HBOS appeared when
Lloyds TSB wanted to take them over, just after this nevertheless the economy
came to recession and the Bank of England openly pumped £37 billion into the
three banks and then had to lend a further £36.6 billion to RBS and £25.4
billion to HBOS. Even though this was the case neither markets nor shareholders
were told about this therefore leading to them to not being particularly
pleased once they did find out as their shareholder stocks were devalued
causing them to lose out.
The central
bank clearly kept the support they gave a secret as it would have only caused
panic within the shareholders as Lloyds may have been discouraged to takeover
HBOS in such circumstances. Furthermore, the owners of the bank certainly would
not have voted so overwhelmingly in favour to take over the troubled bank if
they really knew the capacity of their troubles. Additionally, the rival decision
by Lloyds TSB to takeover HBOS was clearly a rushed one in order to acquire a as
they failed to carry out due diligence at the time of the banking crisis. Lloyds
went ahead with this without referring to the ‘Competition Commission’ which
could have helped Lloyds thoroughly with their decision to takeover HBOS, as
this particular business conducts in depth inquiries into mergers and the
market.
However, the
government may intervene in takeovers and mergers as they believe that the
Economy works better when companies are competitive and obviously mergers and
takeovers reduce competition within the market to produce a monopoly. When a
takeover or merger is beginning to take place the companies are usually
investigated into which can be damaging to the firms as it may unsettle
shareholders. An example of this is the company News Corporation wanting to buy
the remaining shares of BSkyB. However, News Corporation didn’t actually buy BSkyB’s
remaining shares due to the phone hacking scandal arising therefore making it
“too difficult to progress in this climate” and drawing too much attention to
both of the companies as in this case the investigation was very public due to
the media and it being discussed in parliament. This was the case as the
scandal had already led to the closing of the newspaper News of the World.
If the
government were not to intervene they would have been concerned with the
dangers of the company having monopolistic power as with no competition firms
can raise prices and through doing this exploit suppliers as well as customers,
which could possibly cause backlash and damage the economy further. However,
News Corporation not taking over BSkyB means more competition which forces
businesses to lower prices for customers, meaning they spend more than they
normally would without probably realising allowing businesses to take in more
revenue. Competition increases efficiency within employees as the level of
quality within work may rise due to them wanting to be better than another
business. However, this assumes that the benefits of increased efficiency will
be passed onto the customer which may not be the case as quality may be
affected therefore increasing customer complaints leading to the business brand
being damaged.
In conclusion,
these examples show that it can be a good thing that the government intervene
as it helps to protect the consumer from the companies raising their prices and
therefore exploiting them. However, it conveys the question as to why the
government intervene more within different companies for example in News
Corporation and BskyB. It could possibly be because they are bigger companies
and were in the limelight at the time due to the phone hacking scandal at the
time. In the short term the government intervention may be damaging to the
company as the value of their shares may reduce for a short while, however in
the long term the intervention could be seen as beneficial as the same
circumstances as Lloyds TSB and HBOS may arise causing the company more trouble
than the takeover company was worth. Therefore, the government can be justified
in their intervening as the powers of intervention can be effective especially
when the media gets involved like the case of News Corporation and BskyB. However,
this creates the question is it better for the government to intervene and
therefore miss out on potentially reducing prices and innovation within
companies rather than the alternative of abusing power?
http://www.economist.com/node/14972910 http://www.economist.com/blogs/schumpeter/2012/04/james-murdoch-resigns-bskyb http://www.independent.co.uk/news/media/tv-radio/newscorps-bskyb-bid-is-snubbed-2000810.html?origin=internalSearch
No comments:
Post a Comment