Week 9, Fadhil's Blog #6 - Merge & Acquire (M&A), Why Not!?

"Another one" as the famous rapper DJ Khaled often says, well today is another Fadhil's blog and we goin' to talk about merge & acquisition which nowadays it is quite a popular topic for financial people to talks about. So, what is the purpose of merger and acquisitions? Why do companies do this? Is it that beneficial for the companies and shareholders?! Does it makes the business stronger, widen customers and increase their revenue? First of all we need to know what this really is, M&A is the area of corporate finances, management and strategy dealing with purchasing and/or joining with other companies. In a merger, two companies join forces to become a new business, usually with a new name or in some cases with the same name. Because the companies involved are typically of similar size, industry and stature, the term "merger of equals" is sometimes used. There are some common beneficial of M&A such as Control over the market, Employees and management system, Tax and Risk diversification.

Based on above, M&A seems very appealing and beneficial for the company right? But I'm pretty sure if every companies do this, there will be no competition and surely regulators will not think this is good. The regulators exists to make sure that there is competition, since anti competition might lead to the low quality of products and services or even unfair towards customer. Furthermore, it is the regulators' job as well to help and solve companies with system problems in order to avoid bankruptcy. Hence, in certain cases, M&A is necessary for companies to do in order to save them from disaster.

The most proper example of successful and popular M&A that was occurred in 2017 is the Banco Popular that is acquired by its competitor Banco Santander, this was the first trial of the new framework for handling troubled bank. From that, it can be seen that regulation or deregulation by regulators/authorities can be classified as one of the motives of doing M&A when necessary. However, not every companies can do and welcome M&A as it affect cultural of the business. There are several cases where the management of a company believes that they can perform better as an independent company. In the relation to Santander, what should the firm feel about the M&A? Welcome or wary?

With Banco Popular having a 37 billion toxic loans, with the M&A it means that Santander decrease its main competitor in the industry. For sure there will be less competition for Banco Santander, but can Santander fix and manage the troubled Popular into better bank? According to the Financial Times, there top underwriters and financial experts that Santander hired to count and calculate everything including how to fund the 7 billion deal. In my opinion, I think this deal might change or decrease shareholders' value and also their capital structure which needed to be organise to maximize the performance. In the most unlikely event of failure, who will be responsible? Directors? Shareholders!? In knowledge of M&A, the duty of the director is to make judgement and decision that creates best interest for the shareholders and also have to put their main purpose aside as risks needed to be consider as well. 

Based on that example, the only thing that I imagine is how big and powerful this major companies when they are compete in the same industry? Surely the value of shareholder will affected? I thought this could be connected to one of the oligopoly theories, which is defined as a market shared by small numbers of companies. Obviously, with this move, it is getting harder to compete or even involves in the market as everyone knows that Banco Santander might be able to control prices and overpower most of them since the competition is being reduced. At the end, I see this type of merger and acquisition will be beneficial the shareholders, but not the customers in terms of choices. 

By this famous example of merger and acquisitions, I can concluded that the factors of driving M&A include the deregulation and regulation, efficiency of operation, and shareholders' value. On the other hand, mergers and acquisitions have the possibility to benefit the shareholders, customers, and employees, which are the companies' stakeholders.