Foundations of Financial Management
16th Edition
ISBN: 9781259277160
Author: Stanley B. Block, Geoffrey A. Hirt, Bartley Danielsen
Publisher: McGraw-Hill Education
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Question
Chapter 20, Problem 1DQ
Summary Introduction
To name: The three industries in which mergers are prominent.
Introduction:
Merger:
An agreement between two already existing companies that combines them to form one single company is termed as a merger. This is done for the expansion of business, its share in the market and value of shareholders.
Expert Solution & Answer
Answer to Problem 1DQ
The three industries in which mergers are prominent are –
Telecommunications
Pharmaceuticals and Health care
Public Utilities
Explanation of Solution
Mergers are common in many industries such as, computer, technology, telecommunications, public utilities, medicines, healthcare and energy. It helps expand businesses and competition in the markets.
In telecommunications industry, the growth is so rapid that a lot of funds are required for the growth of the business. Mergers help companies to acquire more funds and procure and use resources mutually.
In healthcare and pharmaceuticals industries, many firms of small and medium size merge to meet the competition in the markets and industry.
In retail sector and public utility industries, mergers and acquisitions seem attractive for capturing and increasing market share.
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Students have asked these similar questions
Under what conditions might the Justice Department approve a merger between two companies that operate in an industry with a post-merger Herfindahl-Hirschman index of 2,900 if the increase in the Herfindahl-Hirschman index from the merger is 225?
Four economic classifications of mergers are (1) horizontal, (2) vertical, (3) conglomerate,and (4) congeneric. Explain the significance of these terms in merger analysis with regard to(a) the likelihood of governmental intervention and (b) possibilities for operating synergy.
There are 7 firms in an industry. Firms 1 and 2 each have a 20% share and the other 6 firms each have a 7.5% share. Firms 7 and 8 decide to merge.
(i) Calculate the pre-merger and post-merger Herfindahl-Hirschman Index (HHI).
(ii) Use the table below to evaluate the likelihood of an antitrust challenge.
HHI Concentration Level and Possible Government Action
Post-Merger HHI
Concentration
Change in HHI
Government Action
Less than 1,000
Not concentrated
Any amount
No action
Between 1,000 and 1,800
Moderately concentrated
100 or more
Possible challenge
More than 1,800
Highly concentrated
50 or more
Challenge
Knowledge Booster
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