Interestingly, I was thinking to blog about this since a couple of days and incidentally, today, the EU has approved the merge of Oracle and Sun which it had previously put on hold citing Antitrust regulations.
Well, I just understand this entire concept. They say that if a (stronger) company acquires another (weaker) company, then they are doing away with competition. If there are a very few players in the market and the stronger companies acquire the weaker ones, then it will lead to a monopoly. This is believe is the understanding of EU and the other regulatory boards. However, I think that this should be the case when a hostile takeover is happening and not during a merger or an acquisition that is approved by the shareholders.
When there is one company that is running into a loss, then what options does it have? Do the board of directors have to pump in all their money and savings into the company and ensure that it keeps running and making losses year on year just so that the other companies in that segment are having competition – which they clearly aren’t judging the way they have put this company out of business. Plus if the stronger company takes over the weaker one, at least you are giving the customers a change to be served by one who knows how it should be done.
Then again, talking about competition, when there is a company clearly pulling away leaving two other companies in the dust, and these two companies decide a merger so that they can take a fight to this leading company, various boards oppose the move saying it is antitrust and that it will cut down competition. Only when they merge will there be competition mateys and not with the two companies are just sitting on their bottoms and watching the third company make hay. I am talking here about Microsoft’s and Yahoo’s planned merger to work together on the advertisement space and take the fight to Google’s Adwords.
It really gets my goat on why there is so much fuss about takeovers and mergers? Say I was running a company and I am not doing that great and a company wants to buy me out, then I would want to sell my company, else I will fold and tell the opposition to go to hell. If I can’t do good with my company, then I’d rather not have it at all.
I don’t know how this works with listed or public limited companies. What happens when a company is sick and is not making profit. Should the company necessarily go to such a stage so as to declare bankruptcy? Can they not fold before either the company or the shareholder lose all their money?