Mergers: the practicalitiesl a belief that there is a lack of commercial logic in the merger;
l a feeling that the price being offered to the target shareholders for their shares is too
low; and
l an understandable desire by the target business’s directors to protect their personal
futures – the immediate outcome of many mergers is the departure of some or all
of the target’s directors.Hostile mergers tend to capture the headlines, though ones involving major busi-
nesses seem increasingly rare. Recently many attempts at hostile mergers have
failed, with the target shareholders rejecting the offer for their shares and the bidder
withdrawing. A notable successful one was the 2006 hostile takeover of BAA plc,
which operated a number of airports, including London Heathrow, by Ferrovial, a
Spanish business.
An increasing number of mergers are ‘friendly’ rather than hostile. Here the dir-
ectors of both businesses negotiate the terms and conditions that will be offered to the
target’s shareholders. When the formal bid is made, it is recommended, by the target’s
directors, that it should be accepted. The weight of such a recommendation tends to
be sufficient to sway the shareholders to accept. Some examples of friendly mergers,
all of which took place in 2007, were:
l the takeover by the UK-based transport business First Group plcof the US bus
operator Laidlaw International Inc(including Greyhound buses);
l the takeover by the mining business Rio Tinto plcof the Canadian aluminium busi-
ness; Alcan Inc, and
l the satellite broadcaster British Sky Broadcasting Group plcpaying £135 million to
take over Amstrad plc, the electronic goods producer controlled by Sir Alan Sugar.Regulation of mergers in the UK
In the UK, mergers are regulated in two ways, each by a different agency. The way in
which this is done provides an interesting example of statutory regulation and self-
regulation working hand in hand.The Competition Commission (formerly the Monopolies and
Mergers Commission)
The Competition Commission is a statutory body that derives its power from the Fair
Trading Act 1973. It is concerned with the outcome of the merger, rather than with the
conduct of the merger operation itself.
The Competition Commission is empowered by statute to delay and to investigate
any merger referred to it by the Secretary of State for Industry. The Secretary of State
will refer a merger to the Commission on the advice of the Director General of
Fair Trading when it is considered that it may be against the public interest for it
to proceed. The Secretary of State will not usually refer a particular merger to the
Commission unless a monopoly is likely to result. The Commission publishes its
findings in reports that are sometimes long and detailed (see the section on relevant
websites at the end of this chapter).
In fact, relatively few of the many mergers that have taken place since the Commission
was established have been referred to it. Of those that have been investigated, few have
resulted in the Commission exercising its statutory power of veto in respect of them.