Antitrust Laws Limit Corporate Aqusition

Topics: Mergers and acquisitions, Sherman Antitrust Act, Cartel Pages: 13 (4735 words) Published: July 8, 2008
Since the late nineteenth century, the federal government has challenged business practices and mergers that create or may create a monopoly in a particular market. Federal legislation has varied in effectiveness in terms of preventing anti-competitive mergers. Antitrust law is enacted by the federal and various state governments to (1) regulate trade and commerce by preventing unlawful restraints, price-fixing, and monopolies; (2) promote competition; and (3) encourage the production of quality goods and services with the primary goal of safeguarding public welfare by ensuring that consumer demands will be met by the manufacture and sale of goods at reasonable prices. Antitrust law seeks to make enterprises compete fairly. It has had a serious effect on business practices and the organization of U.S. industry. Premised on the belief that free trade benefits the economy, businesses, and consumers alike, the law forbids several types of restraint of trade and monopolization. These restraints can be classified into four main areas: agreements between or among competitors, contractual arrangements between sellers and buyers, the pursuit or maintenance of monopoly power, and mergers. Enforcement of antitrust law depends largely on two agencies: the Federal Trade Commission (FTC), which may issue cease-and-desist orders to violators, and the Antitrust Division of the U.S. Department of Justice (DOJ), which can litigate. Private parties may also bring civil suits. Violations of the Sherman Act are felonies carrying fines of up to $10 million for corporations, and fines of up to $350,000 and prison sentences of up to three years for persons. The federal government, states, and individuals may collect treble the amount of damages that they have suffered as a result of injuries. MERGERS & ACQUISITIONS

An acquisition, also known as a takeover, is the buying of one company (the ‘target’) by another. Acquisition usually refers to a purchase of a smaller firm by a larger one. From a legal point of view, the target company ceases to exist, the buyer "swallows" the business and the buyer's stock continues to be traded. A merger is a combination of two companies, often of about the same size, into one larger company. This kind of actions is more precisely referred to as a "merger of equals" and is commonly voluntary. Both companies' stocks are surrendered and new company stock is issued in its place. A merger can resemble a takeover but result in a new company name (often combining the names of the original companies) and in new branding; in some cases, terming the combination a "merger" rather than an acquisition is done purely for political or marketing reasons. “Whether a purchase is considered a merger or an acquisition really depends on whether the purchase is friendly or hostile and how it is announced. In other words, the real difference lies in how the purchase is communicated to and received by the target company's board of directors, employees and shareholders (Harwood, 2006). In general, acquisitions or mergers are methods by which corporations legally unify ownership of assets formerly subject to separate controls. A merger or acquisition is a combination of two companies where one corporation is completely absorbed by another corporation. The less important company loses its identity and becomes part of the more important corporation, which retains its identity. A merger extinguishes the merged corporation, and the surviving corporation assumes all the rights, privileges, and liabilities of the merged corporation. A merger is not the same as a consolidation, in which two corporations lose their separate identities and unite to form a completely new corporation. Mergers appear in three forms, based on the competitive relationships between the merging parties. •Horizontal merger, the union of two firms that had been selling the same product in the same geographic market. •Vertical merger , one firm acquires...

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