M&S activity will cost the company a lot of money. But it costs fewer compare with the Greenfield investment. Most companies’ M&S activity will focus on their own or relevant industries to enhance their benefits and seldom will purchase companies of irrelative industries to diversify their business. The synergy of two companies can bring greater value than the sum of its parts (Arnold: 2008). They can share their financial resources, human resources and market, increase their bargain power, reduce the cost of the products due to their large scales of production, etc. However it may also affect employees of the companies and customer benefits due to the redundancies and reducing customers’ bargain power.
Recently, Rupert Murdoch, the chairman of News Corporation has made decision to take over BSkyB. In June 2010, News Corp. announces it bid of 700p offer to BSkyB desiring to take over the rest of BSkyB’s 60% shares which it did not own. This price was rejected and now the share price is above 800p. But just as one person who knows Murdoch’s family well said that Murdoch will not give up and he will have this at any price.
This action has irritated many medium companies and many people hold oppose attitudes towards the activity. However, this M&A activity has been approved by UK government.
Will this activity benefit shareholders’ wealth? Well, I think it does. Rupert Murdoch already has 39.1% shares of BSkyB. If News Corp. continues take over the rest shares of BSkyB, then Murdoch can fully control BSkyB.
Although News Corp offers to spin off Sky News and also it will have its independent board. According to BBC News, some commentators said that Murdoch’s takeover of the times newspapers and the Wall Street Journal also involve the independent boards, but it is worthless to protect editorial independence from Murdoch. Then News Corp. will have stronger negotiate power towards the advertisers, and even the governments. Also it will have strong competition among the large medium companies. Furthermore, BSkyB’s performance is really good, and it has a strong cash generating possibilities. This will also benefit New Corp.
Will this benefit the society? I think no. Many afraid this M&A activities will damage the freedom of speech since News Corp. already owns four UK newspapers. Also this is detrimental to other medium companies because the activities will weaken their negotiate power and increase their operating cost. Murdoch may influence the news publication and to let the news support what he want? That’s really awful.
Indeed, this merger has increased both the target and Bidding companies’ share prices.
BSkyB’s shares prices increase rapidly. Many BSkyB investors are optimistic about BSkyB’s share price and News Corp. is not easy to deal with these investors. There are long-term, short-term investors, and investors. News Corp. needs to win over these investors especially the large shareholders then it can clinch the deal.
Overall, M&A is a complex activity which will not only has great influence between the target and bidding companies, but also the society.
I do agree with your opinion regarding the negative impact that could happen because of the deal. It, in reality, occurs that M&A activities make a lot of peoples lossing their job due to costs reduction purpose. The increasing bargaining power over supplier and bigger chance to overpass the supplier are other trembling consideration of business combination. In my opinion, Murdoch's decision in this case is quite irrational attitude due to his big ambition of taking control over this industry. Negative reaction of BSkyB' parties could probably damage News Corp.'s market share price. Investors could start doubting the Murdoch's decision. Taking hostile acquisition approach is not a good way of combining two businesses. Unwillingness to join would create bad rather than good relationship between the two parties which results on incapability of creating synergy between the two. Finally, I think M&A activities would have more ethical problems int he future. What do you think about it?
ReplyDeleteThanks.
Hi sinta, I agree that takng hostile acquisition approach is not a good way of combining two businesses. Because one is unwillingness to join the other. However I still think this in some extent benefit at least one of them. Rupert Murdoch's wild ambition push him to make this decision. If this merger is achieve, then he takes full control of the company even he declare that he will let it as a seperate company. News corporate still can make use of BSkyB's resoures,isn't it?
ReplyDeleteEn, I also agree M&A activities would have more ethical problems in the future. When there are powerful company want to combine with another powerful one and this will damage other companies' benefit. This need the government to step forward and protect the industry form monopolism.