An important part of the dynamics inherent to a change of strategy for a large firm is the fact that it can change the structure of the industry. The obvious changes that you will see quickly are reduced rivalry and reduced buyer power. Consolidating two major firms also reduces supplier power. What might be a bit more hidden is that anti-monopoly agencies, such as the FTC and the European Monopolies and Merger Commission, will often force structural changes to protect consumers that create opportunities for rivals. Like in chess or war, successful merger strategy involves envisioning the responses of rivals and governments in response to your actions. You need to determine which assets you might be forced to give up or sell to rivals, how that will weaken you, and how it will strengthen one or more rivals.
An example is AB InBev’s history of merger and acquisition. The Belgian-Brazilian multinational drink company and brewer AB merged with Interbrew in 2004. The resulting company then acquired Anheuser-Busch in 2008. Due to its large market share, regulators required AB InBev to reduce its holdings in the drink and brewery industry. The company divested itself of the American portion of Labatt’s beer. AB IN-Bev acquired SABMiller in 2015. The company subsequently sold their interest in MillerCoors to Molson and sold several of their European labels to a Japanese brewer In 2013, AB In-Dev net income was $16.518 billion, in 2020 it was $1.405 billion.
Respond to the following prompt:
If mergers and acquisitions quite often end up providing a competitive disadvantage, why do so many of them take place? Given the poor track record of such outings, is the continuing M&A activity a result of principal–agent problems and managerial hubris? What can be done to overcome principal–agent problems? Are there other reasons for poor performance?
Remember to provide correct citations for research supporting your assertions.
