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-KK Sharma -Chairman ,KK Sharma Law Offices - ex DG, CCI 31.10.2014WS for PS Reps Yangon, Myanmar
Mergers & Acquisitions-GOs
Session V
Anticompetitive effects of mergers Effect on businesses of
anticompetitive mergers Implications of Global Mergers
What are M & As
CompanyA
CompanyB
CompanyC
Company X
CompanyY
CompanyX
Merger Acquisition
Diversification of trade and service activities
Achieving optimum size of business Enhance profitability Widening Customer base Economies of scale Pooling resources Dynamic efficiency Escaping Gestation Period
Incentives for M & A
Merger
Horizontal Vertical
Backward Integration
Forward Integration
Conglomerate
Types of M&As
Most likely to raise competition
concerns
Reduction in Number of Players
Concentration of Economic Power
Growth of monopoly power/
Dominance
Horizontal Mergers-I
Horizontal Mergers-II
Factors for Anti-competitive effects’ Assessment: Homogeneity/ Heterogeneity of
products/services Co-ordinated Effects : Ability/ Inability to co-
ordinate pricing/output decisions Unilateral Effects: Ability/ Inability to raise
prices post transaction Ease of entry/ expansion in the Relevant Market Whether either party is a potential failing
enterprise Likely Pro-competitive effects of the Merger
No reduction in Number of players Efficiency enhancing- Unlikely to result in
competitive injury. Likely to produce injurious effects where
either party is dominant in the relevant market:
1. Market Foreclosure
2. Facilitating co-ordinated behaviour in upstream/downstream markets
‘Vertical Mergers’
Most unlikely to result in any competitive injury.
Potential Competition concerns:
1. “Deep Pockets” Theory.
2. Entrenchment
3. Reciprocity
4. Bundling and Portfolio Effects
5. Multiple Market Strategies
‘Conglomerate Mergers’
IMPACT ON BUSINESSES
• MERGERS EXEMPT FROM NOTIFICATION
• Negligible Impact - Where mergers Are Between
Small Enterprises- Small Mergers Not Subject to
Review and Approval
• SMALL MERGERS SUBJECT TO NOTIFICATION
• No effect on market unless mergers cause AAEC
Anti-Competitive merger have a lasting and
permanent change than anticompetitive agreements
Horizontal Mergers may have an intent of reducing
direct competitors and, hence, competition
Price Increase- Increased market power may result in
price increase of product or services.
Anti-Competitive Effect of Mergers
Before Merger Control was applicable in U.S.
U.S. Standard Oil Co. sought to restrict
competition by consolidating refineries
throughout the U.S. Into a mammoth
enterprise.
Prosecuted and divided into several distinct
companies in 1911.
U.S. Standard Oil Co.
Competitors provide competitive restraint. Horizontal
merger leads to elimination of competitors and
concentration of market power in a few hands
Deustche Borse/NYSE Euronext- Within the exchange
traded derivative market, the of the two major competitors
would enjoy 90% market share. Declared incompatible.
Elimination of Competitors
Primary fear is that where the vertically
integrated entity has market power, it may
foreclose the market or a source of supply
to its competitors.
GE/Honeywell- Vertical foreclosure concerns
arose since- among others- Honeywell was
the sole supplier to Rolls Royce
VERTICAL EFFECTS
Multi-National Mergers can bring
efficiencies and investment in an
economy
Global mergers will also bring in new
technologies to an economy
GLOBAL MERGER- ADVANTAGES
Multi-National mergers can also take away
profits to a foreign country
Ownership of the acquired enterprise will flow
out of the country
Perceived National Symbols may be considered
as valuable by foreign owners
GLOBAL MERGER- DISADVANTAGES
KK SHARMA LAW OFFICES, NEW DELHICONTACT
+91-11-26491137E: [email protected]