• Join over 1.2 million students every month
  • Accelerate your learning by 29%
  • Unlimited access from just £6.99 per month
  1. 1
  2. 2
  3. 3
  4. 4
  5. 5
  6. 6
  7. 7
  8. 8
  9. 9
  10. 10
  11. 11

Announcing mergers or acquisitions generally receive positive combined stock market revaluations.

Extracts from this document...


Introduction Firms announcing mergers or acquisitions generally receive positive combined stock market revaluations. Additionally, horizontal mergers elicit larger revaluations than do conglomerate mergers on average. Although it seems likely that the significant average gains to horizontal mergers represent, at least in part, anticipated improvements in production efficiency, empirical evidence to this effect is mixed. It has also been posited that horizontal mergers might allow the merging firms to gain at the expense of other parties including suppliers and/or customers by exercising their increased market power. For example, merging firms may be able to increase their bargaining power over suppliers by pooling their purchasing. Also, merging firms may more easily collude with rival firms to coordinate production rates and prices at the expense of their customers. While these types of gains are not necessarily mutually exclusive of improved production efficiency, they are distinct in that they may arise even if no real improvements in production efficiency are realized as a result of a merger. Further, these types of gains are expected to not only affect the post-merger performance of the merging firms but also the performance of other firms that share a product market relationship with the merging firms. In this paper, we will investigate the issues that have to be considered by the regulators in a horizontal merger in the British food retailing market. 1. Description of the British food retailing industry Britain's food retailing is the most concentrated in Europe, with the top five supermarket chains-Asda, Morrison, Safeway, Sainsbury and Tesco-controlling 70 percent of all food purchased. This trade was valued at �76.78 billion in 2000, an increase of 4.5 percent over the previous year. The UK also enjoys a pre-eminent position in European food manufacturing, with 13 of the top 20 continental food manufacturers being British-based. The purchasing power of these supermarket chains is such that it has forced margins down at many food suppliers. ...read more.


So, they will look at market share and market capitalisation. Besides, regulators should look at such business policies as pricing and make certain that no discrimination is taking place. They would also look at evidence to stop any predatory pricing, vertical price squeezing (where a vertically integrated firm controls the supply of a good and charges a higher price for that input to rivals) and tie in sales (where a firm controlling the supply of a first product insists that its customers buy a second product from it rather that its rivals). 4. Where to look? Hence, there are several issues that have to be examined by the regulators before approving a merger. The first problem confronting a competition authority is determining the appropriate definition of the market, and specifically how narrowly or broadly this is defined. There are two key dimensions which need consideration: the geographic extent of the market and the substitutability between products offering similar services. In fact, regulators have especially to investigate the supermarkets' drive into the non-food market and the impact any acquisition would have on small and convenience stores. For instance, Tesco and Asda generate substantial sales from home wares and clothing and have been developing that side very significantly. Tesco and Asda have been pouring investment into non-food merchandise, which generates much higher margins than the traditional food lines. Also, Sainsbury is following their lead and plans a big non-food launch in September. It's therefore essential to ask whether there are any impacts that relate to the non-grocery offering. The regulators may look at all parts of the market, including c-stores and taking in the impact of non-food sales, petrol sales and Internet home shopping Another issue related to market definition is whether to consider one-stop superstore shopping and convenience store shopping as two separate markets or not. Regulators have to look for any adverse impacts a grocery merger would have on small and convenience stores. ...read more.


A recent survey found that supermarkets are the most expensive place to buy apples, with market stalls and greengrocers beating the supermarkets, including Tesco, on price. A survey for Sustain in 2000 found that fruit and vegetables were around 30 per cent cheaper at market stalls than supermarkets. The Competition Commission found that supermarkets put prices up in areas where they don't have strong competition. Therefore, the proposed takeover of Safeway might reduce competition among supermarkets but is also likely to lead to further closure of local shops which better serve local communities. 5. The break-up option In our opinion, putting Morrisons and Safeway together is the dream solution for the watchdogs. In fact, it would create a new fourth force in UK supermarkets - and give Tesco, Sainsbury and Asda a stronger run for their money. Nevertheless, in some parts of the country, putting them together wouldn't create a fourth force - it would create a giant. According to retail experts, Morrisons and Safeway between them capture 29% of grocery shopping in Yorkshire and 31% of the market in the north east of England. In both parts of the country, a merged group would be the biggest supermarket chain by far. By contrast, the Tesco and Safeway combination would only have 24% in both regions - well below that 25% threshold. Therefore, if we look look beyond the simple UK-wide figures, we can find a reason to block all these bids - from Asda, Sainsbury, Tesco and Morrison. That increases the chances of a full-blown enquiry, and an eventual break up of Safeway. And if any of the supermarkets wins the battle - and that's a big if - the chances are high that it will have to sell off some stores. So, the competition authorities should accept all the bids but have to tell each bidder how many Safeway stores it could be allowed to buy - and where. Mergers and Acquisitions MBA ENPC The battle for Safeway Question 2: The Main issues for the regulator to consider & Recommendations 1/11 ...read more.

The above preview is unformatted text

This student written piece of work is one of many that can be found in our GCSE Economy & Economics section.

Found what you're looking for?

  • Start learning 29% faster today
  • 150,000+ documents available
  • Just £6.99 a month

Not the one? Search for your essay title...
  • Join over 1.2 million students every month
  • Accelerate your learning by 29%
  • Unlimited access from just £6.99 per month

See related essaysSee related essays

Related GCSE Economy & Economics essays

  1. An Empirical Investigation into the Causes and Effects of Liquidity in Emerging

    and S&P 500 returns (measure of economic activity). This led the authors to the conclusion that large abnormal returns on junk bonds are related to changes in their liquidity. The sensitivity of junk bonds to these variables is also considered, this is because junk bonds are considered to be complex securities that exhibit characteristics of both equity and debt.

  2. Case Study: The Home Depot

    The fourth factor, which helped to stimulate the growth of the home improvement industry, was the changing needs of customers. The customer needs changed from spending, spending, spending to a more quality value. This quality could be offered, home improvement became (more)

  1. Chinese car market overview. Citroen case study

    China's accession was a historic leap for the WTO, enlarging its reach by 1.3 billion people in one step and making it a truly global organisation. Membership will bring benefits both to China and to its trading partners, cementing China's place in the global economy and ensuring a greater degree of certainty for traders in China and world-wide.

  2. Use game theory to analyze an oligopoly competition of two great rivals, Wal-Mart and ...

    The sales ran up to 80 billion that made Carrefour become the largest retailer in Europe and the second largest in the world. Asia conflict These two giant retailers were rarely faced with each other in direct competition. Wal-Mart prefers not to enter Carrefour force regions in Europe - Germany and the UK.

  1. Bellway Plc is a holding company with subsidiaries; its main subsidiary company is Bellway ...

    New dwelling attract a price premium over second hand dwellings of the same type. This will encourage consumers to substitute buying a new house for a second hand house in a rising market making new house price unaffordable. In rising markets, consumers may substitute buying a house with the option

  2. "If real world markets can be made to resemble more closely the model of ...

    Put another way, the firm cannot choose to raise its price and expect to sell more of its product. It can lower its price there is no advantage to this since it can sell its entire output at the higher market price.

  1. mergers and acquisition

    He argues the increased value comes about because of an increase to revenue and/or a reduction in costs. He goes on to say that occasionally it is the ability to share sources of supply or production activities that helps to improve the corporate position of the company.

  2. Critically evaluate the perceived competitive starategies of the five clothing retail outlets, namely Edgars, ...

    Operating margins in the clothing retail sector are better at between 4% and 16% in 2002. Nevertheless they have shown noticeable declines over the last five years, reflecting the high increase in discounting and increased low-end competition. The recent decline in interest rates, increased urbanization and the emerging black middle

  • Over 160,000 pieces
    of student written work
  • Annotated by
    experienced teachers
  • Ideas and feedback to
    improve your own work