Tutorial 8: MA And Innovation

Question 1

Typical pitfalls characterising unsuccessful acquisitions

Answer 1

1- selecting an incorrect target firm
2- overbidding for the target firm
3- failing the post-acquisition integration process

Question 2

5 motivations for acquisitions

Answer 2

1- efficiency related reasons that involve economies of scale and other synergies
2- creation of market power
3- market discipline
4- self-driving attempts by acquired management to over expand
5- diversification

Question 3

Desperation index

Answer 3

Determine the current level of internal productivity

Question 4

The outsourcing of RnD through acquisitions in the pharmaceutical industry hypothesis

Answer 4

1- the higher the level of desperation the higher the probability for acquisition
2- the higher the stock information accumulated before the acquisition the higher the CAR
3- the higher the level of desperation before the acquisition the lower the CAR
4- the higher pre acquisitions information gathering activities the higher improvements in RnD productivity or product pipeline
5- the more desperate before the acquisition the better the improvements in pipeline health

Question 5

Antitrust authorities

Answer 5

Decide whether to approve a merger based on its predicted outcome for the business and society as a whole.

Question 6

MA in pharmaceutical impact on innovation and competition

Answer 6

Negative.
Acquirers target firm with a relatively similar patent portfolio which reduced competition for discovering and developing new therapies. The rivals experience the same reduction in competition.

Question 7

Benefits of competition

Answer 7

• low price
• high quality
• wide range of choice
• innovative products and services

Question 8

MA adverse effect

Answer 8

Lower innovation.

• increase market power
• lower competition
• harm consumers

Question 9

MA countervailing effect

Answer 9

Increase innovation.
- greater appropriability and efficient use of knowledge.
- spillover effect
- synergies in the combination of complementary R&D assets
- greater economies of scale.
- cost efficiencies
=> lower price, higher quality and more innovation

Question 10

A remedy

Answer 10

Must entirely remove the competition concerns raised by the merger, be comprehensive and effective from all points of view and be capable of being implemented effectively within a short period of time. Structural remedies like divestment are preferred to behavioural ones.

Question 11

Eu framework

Answer 11

• market features and structure
• importance of merging parties as innovators
• close innovation competitors
• likely effect on innovation