Expansion and Merger
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The health care industry wants to expand and that its only option is a merger. Now the industry is confronted with government regulations to oversee the merger.
1. Why is government regulation is needed, what major reasons for government involvement in a market economy?
2. What would be the rationale for the intervention of government in the market process in the U.S.?
3. What would be the complexities if the industry decided not to merge?
4. How would the different forces come together to create a convergence between the interests of stockholders and managers?
5. What would be the implications for the goals of the industry as to whether to maximize the industry's profits or to create more value for the shareholders?
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Solution Summary
The solution discussion the rationale and purpose of expansion and merger and the government's role.
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Expansion and Merger
1. Why is government regulation is needed, what major reasons for government involvement in a market economy.
Without regulations, society might well slip back to feudalism, where the very few thrive on the hardship and sweat of the many who live in squalor (Blackwell, 2011).
This only shows that the government has a mandate to see to it that mergers and acquisitions are done within the bounds of the law. Having said that, the government must assure that all the stakeholders in any corporate mergers must be protected and their rights respected.
Because according to Federal Trade Commission Chairman Jon Leibowitz "some mergers can lock up local markets, leading to higher prices for patients and insurance companies with few other places to turn" (Kendall, 2012).
The government can be the first line of defense to protect the consumers from deceitful merger.
A case in point is the case of AT&T. "The Justice Department took the unusual step to try to block AT&T's $39 billion purchase of T-Mobile USA, arguing that the proposed merger would lead to higher wireless prices, less innovation and fewer choices for consumers. In its civil antitrust lawsuit, the Justice Department said the merger would stifle competition in the wireless industry" (Tessler, 2011).
2. What would be the rationale for the intervention of government in the market process in the U.S. Government can affect markets either through direct participation or through indirect participation in private markets (Office of Fair Trading, n.d.).
Government intervene because "even with a market framework, markets can fail or may not deliver the 'right' outcome' (Office of Fair Trading, n.d.).
3. What would be the complexities if the industry decided not to merge
Studies have shown that the decision not to merge will result to any of the following:
- Lost savings
- Cost reduction
- Dissolution of one or both of the health business
A typical example of this is the case of Novartis and Bayer aborted merger.
Serafino (2011) reported that "Novartis and Bayer were among potential bidders for the assets that Sanofi and Merck planned to sell to satisfy antitrust requirements for the joint venture. Now that those sales won't ...
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