By Jonathan McQuarrie
Recently, Monsanto received a $66 billion purchase offer from the even mightier German pharmaceutical company Bayer. It would be hard to find a more disliked firm than Monsanto, and the fact that a major pharmaceutical company is the potential buyer has created even more alarm. But should we disentangle our moral concerns from our economic understanding?
The Bayer offer is a massive one, even during a spike in of mergers and acquisitions (M&A), measured by value, in North America. Globally, the total value of M&A in 2015 set a new record as measured by total value. In Canada, the proposed merger of two major potash companies, Potash Corp. and Agrium Inc. and Enbridge’s proposal to acquire Spectra Energy Corp. have prompted concern over a “mega-merger mania.”
Financial news discussions tend to focus on two key points. Firstly, we see the typical business and financial questions that animate much of the business papers. How much will the merger or acquisition contribute to creating value, both for shareholders and the new entity? What sort of shared competencies, expertise, and efficiencies do the two firms have, and how will the larger entry generate profit from them? Might the M&A lead to some sort of bust—an unwieldy conglomeration whose brand identities fail to work together? (The Quaker Oats’ acquisition of Snapple in 1994—remember Snapple? —is used as a case study in this regard).
The second key point are any legal questions. In the United States, M&As are subject to the Federal Trade Commission’s Antitrust laws, whose origins stretch back to the Sherman Act of 1890. In Canada, M&As are subject to oversite from the Competition Bureau. The Bureau is governed by the Competition Act, which was passed in 1985, but whose origins stretch back to a Combinations in Trade Prevention Bill discussed in the House of Commons in 1888. In both the United States and Canada, M&As are subject to legal reviews that are designed to prioritize consumer rights. For instance, the FTC quashed a potential Staples-Office Depot merger because the firms failed to convince a court that their merger would lead to anything but a reduction in the number of stores, and thereby, competition and customer service.