Implication of Mergers and Acquisition

Implication of Mergers and Acquisition

Introduction

Main objective of this assignment is to evaluate and discuss the role of government as a regulatory authority, and to explore the reasons which cause governmental authorities to introduce regulations that are required to keep small scale companies away from the threats of acquisitions and mergers. The selected industry in assignment 1 was the Cigarette industry. To answer the questions raised in the assignment 2, I am using a false scenario in which Phillip Morris USA wants to get involve in a merger with Zippo Company (Lighter manufacturers) to introduce a new product line of cigarette lighters. Due to governmental guidelines and regulations, to get involve in a merger would be the better alternative for the Phillip Morris US.

In this assignment, I am going to elaborate why there is a need of authoritative ordinance and why the role of government is very significant in the proper functioning of the economic system. Furthermore, I will also discuss the rationale behind government intervention In the United State market. In addition to this, complexities occur due to mergers will be discussed. Finally, situations that maximize the shareholders wealth and profitability will be discussed.

Discussion

Why Government Regulation is needed

Government plays a vital role in the development of the economic system of a country. Government and its influence are present almost everywhere, from a small village to the commerce hubs of urban cities. Therefore, it is essential for all organizations to follow the legal requirement or consult regulatory authorities before involving in any merger and acquisition. Law has provided a number of comprehensive situations in which a company can intervene or can go for merger or acquisition (Viscusi, 2005). To ensure the fair practices in market, government could take some corrective measures to protect the benefits of all organizations. In case of international merger, companies are supposed to follow different kind of legal requirements (trade policies, tax policies).

A merger and acquisition is a mishmash of two or more entities in which one company is entirely absorbed by the other company, and company which is being acquired loses its identity. Mergers take place in order to increase the market share and to gain the competitive environment. Federal laws regulate all transactions involving mergers and acquisition. In United States FTC (Federal Trade Commission) and DOJ (Department of Justice) approves all transactions involving mergers between companies. These authorities evaluate the potential impact of mergers on the competition.

Rationale of Government Involvement in US Economy

In the olden times of American history, government representatives and politicians were keen to involve themselves in the affairs of private sector. Now, they are in favor of Laissez-faire kind of management and leadership style. This shift of attitude or perception started to change in the late nineties, when farmers, small business owners and labor movements demanded from government for their supportive interventions (Hood, 2000). Government intervention in the economy increased rapidly by 1930s to tackle the catastrophic damages of 1929's stock exchange ...