Posted: August 20th, 2015

Entering a Merger.

QUESTION#1
“Entering a Merger” Please respond to the following:
From the scenario for Katrina’s Candies, examine the major implications for firms entering into a merger. Explain the criteria the U.S. Department of Justice and the Federal Trade Commission would follow when deciding on whether or not to approve a proposed merger.

QUESTION#2 AGREE OR DISAGREE WITH STUDENT AND WHY?

From the scenario for Katrina’s Candies, examine the major implications for firms entering into a merger. Explain the criteria the U.S. Department of Justice and the Federal Trade Commission would follow when deciding on whether or not to approve a proposed merger.
There are many reasons that companies decide to merge.  The most obvious is for growth but there are many more that are not always stated but are implied.  Some of these implied reasons are to increase performance and lower costs at the same time.  It may be for diversification.  A company may want to expand into a completely different type of business just to reduce its impact on them such as transportation or logistics for a clothing retailer.  Companies will frequently buy out different aspects of their business like a food producer may purchase a refrigerated warehouse or shipping company to lower their total costs by removing some of the “middleman” charges.  Many times a large company will buy a small company in the same field not only to acquire their capabilities but also to eliminate future competition. If that small company looked like it had a promising future the large may buy it just to keep from having to compete with it later on.  Another reason companies choose to merge is to expand their reach into areas that were previously unreachable.  Some regions are not open to outsiders even in this day and age.  To work around this a large retailer or distributor may purchase a local company so they can begin selling their products in that area.  It’s an easy work around that lets a large company move into an area under the name of a trusted local retailer.  The overall implications of mergers are to grow, cut costs, expand reach, and to become a true end to end provider especially if they are in the service industry like logistics.
The Department of Justice (DoJ) and the Federal Trade Commission (FTC) will not approve a merger if the intention is to“substantially to lessen competition or to tend to create a monopoly” as stated on the FTC’s website at https://www.ftc.gov/tips-advice/competition-guidance/guide-antitrust-laws/mergers/competitive-effects .  This may happen if the merger is a horizontal merger, vertical merger, or a potential competition merger.  A horizontal merger occurs between two competitors, a vertical merger involves a buyer-seller relationship, and a potential competitor merger is when the buyer is likely to enter the market and become a competitor of the seller according to the FTC.

QUESTION#3 AGREE OR DISAGREE WITH STUDENT AND WHY?

•    From the scenario for Katrina’s Candies, examine the major implications for firms entering into a merger. Explain the criteria th U.S. Department of Justice and the Federal Trade Commission would follow when deciding on whether or not to approve a proposed merger.
According to Peavler (2015), a merger happens when two companies are combined and the resulting company takes the form of the company who bought the other company (para.1). Companies merge because they think it is a good investment and they will earn a positive return on the investment (Peavler, 2015). The goal of any business in a capitalist society is to maximize shareholder wealth and buying a company that helps accomplish the goal  seen as a good thing (Peavler, 2015). Additionally, mergers sometimes happen because firms wants diversification. If a large conglomerates firm  thinks that it is too much exposure  to risk because it has too much of its business invested in one particular industry, it may buy a business in another industry ( Peavler, 2015). In our  diverse economic  and political  climate, they may be able to reduce risk by merging with firms in other countries (Peavler, 2015). This gives the benefit of reducing foreign exchange risk and localized recessions (Peavler, 2015). Improved financing is another  motive for merger. If a company is in trouble financially, it may look for another company to acquire it. The alternative may be to go out of business or take bankruptcy (Peavler, 2015).
According to FTC (2015), among the key provisions in the U.S. antitrust low is one designed to prevent anticompetitive mergers and acquisitions. The FTC and The Department of Justice review most of the proposed transactions that affect commerce in the United States and are over a certain size, and either agency can take legal action to block deals that it believes would “substantially lessen competition” (FTC, 2015).
After companies report a proposed deal, the agencies will do a preliminary review to determine whether it raises any antitrust concerns that warrant closer examination (FTC, 2015). Because the FTC and the Department of Justice share jurisdiction over requiring further review are assigned to one agency on a case-by-case basis depending on which agency has more expertise with the industry involved (FTC, 2015). Based on what the agency finds, it can 1.) terminate the waiting period and allow the parties to consummate their transaction (this action often is referred to as an “early termination”) 2.) Let the waiting period to expire, which allows the parties to consummate the transaction; or 3.) if the initial review has raised competition issues, the agency may extend the review and ask the parties to turn over more information so it can take a closer look at how the transaction will affect competition (this action often is referred to as a “second request”) (FTC, 2015).

QUESTION#4

“Organizational Form” Please respond to the following:
Examine two (2) organizational forms of business (e.g., functional, product, etc.). Predict the possible implications of the principal agent relationship for each of these organizational forms of business. Determine which of the organization forms would have more of an economic impact on the operations of the firm and its ability to maximize profits. Provide a rationale for your response.

QUESTION#5 AGREE OR DISAGREE WITH STDUENT AND WHY?

According to Investopedia’s site the Principle Agent Relationship is defined as:
“An arrangement in which one entity legally appoints another to act on its behalf. In a principal-agent relationship, the agent acts on behalf of the principal and should not have a conflict of interest in carrying out the act.”
A functional example of this type of business arrangement may exist with a Third Party Logistics (3PL) provider. In this case a supplier of some type of item will hire a 3PL to perform all of its logistics functions.  This can be as little as transportation from the point of manufacture to the point of sale up to transportation, storage, point-of-sell advertising, set-up, and continual distribution.  In this case the item manufacturer has hired the logistics provider to represent them to the retailer and customer when they are responsible for advertising, stocking, distribution, etc.  We can use a clothing manufacturer for an example.  The clothing manufacturer focuses on what they know best which is designing and making clothes.  They will contract a 3PL to perform all of their logistics functions.  These include picking up the clothes from the point of manufacture, storing them until needed, delivering them to the point of sell, finding different local vendors to sell the items, setting up point of sell advertising, stocking of the vendor’s location with the items.  This allows the manufacturer to focus on their strong points and allows the 3PL to cover their weak points in a principle agent relationship.
A product example of this type of business arrangement happens very often between clothing designers and clothing manufacturers.  In this case the designer creates the style of the fashion and decides the types of material, the cuts, shapes, and overall design, but hey rely on the manufacturer to assemble the items.  A designer may conceive an idea for a line of clothes, create the specifications for them and even create examples.  They then take these specs and samples to a manufacturer who will be trusted with creating multiple copies of the design to be sold to the public.  This is a case where the designer must rely on the manufacturer to create a quality product that will either meet the original specifications or make changes based on functionality for the designer and still keep their best interest in the design.  The designer has established the principle agent relationship with the manufacturer to create their products for the wholesale market.
In these two examples I think the 3PL would have a much larger impact on the operations of the firm primarily due to the amount of services provided.  Each of the services are key steps for the clothing manufacturer to make money.  If any one of them is not performed correctly then the products will not make it to a retailer to be sold.  In the other example the manufacturer may at worst not create the design to the specifications provided.  There will still be a product and the consumer may or may not know the product is not made to the original specifications.

QUESTION#6 AGREE OR DISAGREE WITH STDUENT AND WHY?

“Organizational Form” Please respond to the following:
•        Examine two (2) organizational forms of business (e.g., functional, product, etc.). Predict the possible implications of the principal agent relationship for each of these organizational forms of business.  Determine which of the organization forms would have more of an economic impact on the operations of the firm and its ability to maximize profits.  Provide a rationale for your response.
In a functional organizational form of business, each part of the firm is group by the job function of each department.  This type of organizational form of business is good for small companies that are project-focused.  Each department reports to a specific person.  For example, the director would report directly to the CEO and the mangers would report directly to the director.  In a product organizational form of business, managers report to the President or CEO of the firm based by the product type.  This type of organizational structure is common in the retail industry.  For example, a retail store may have a vice president for each department such as housewares and sporting goods and the managers of these departments would report directly to that department’s vice president.  In both of the organizational forms of business, a problem in the principal agent relationship could exist.  In a functional organization, each department is focused on achieving its goal and poor communication between the managers could exist because of the boundaries of each department.  This creates a slow and inflexible decision making process because each department is not accountable to the other departments and may not be willing to cooperate with them.  Also, in a product organizational form, poor communication could exist between the vice president and managers because each division of the firm could be located in different areas.  Also, each department may only be concerned with its progress often competing and undermining the other departments.  Effective management of every department in the firm in both organizational forms of business could overcome these problems.  The functional organizational form of business would have more of an economic impact on the operations of the firm and its ability to maximize profits because people with similar knowledge are grouped together thus becoming specialists in that area which leads to increased operational efficiencies and productivity levels.

QUESTION#7
“Impact of Government Regulation” Please respond to the following:
From the scenario for Katrina’s Candies, take a position as to whether government regulation is constraining or enabling in this situation, as it relates to the operational efficiency of the company. Speculate on the fundamental manner in which government regulation could impact the shareholders’ wealth and profitability.

QUESTION#8

“Government Regulation” Please respond to the following:
From the e-Activity, take a position on whether the banking industry needs more or less government regulation. Support your position with two (2) examples of the impact of regulation.

QUESTION#9

“Long-Term Investment” Please respond to the following:
From the scenario for Katrina’s Candies, suggest one (1) method in which Herb could use a cost-benefit analysis to argue for or against an expansion. Create three (3) optimal decision rules for Katrina’s Candies (e.g., whether to hire more staff or hire temporary workers to meet production schedules).

QUESTION#10
“Cost-Benefit Analysis” Please respond to the following:
Assess both the short-term and the long-term costs and benefits of obtaining a graduate degree. Support your decision to obtain a graduate degree with a cost-benefit analysis of your particular s.

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