The world experienced a large increase in merger activity from 2003 to 2007. The merger boom came to an end, however, in 2007/8 with the credit crunch and the ensuing recession. For example, the value of acqusitions of UK companies by overseas companies fell from £82.1 billion in 2007 to £52.6 billion in 2008, while the value of acquisitions of overseas companies by UK companies fell from £57.8 billion in 2007 to £29.7 billion in 2008 (see Mergers & Acquisitions data (National Statistics)). The decline continued in the first part of 2009.
Recent evidence, however, suggests that the beginnings of recovery in the world economy, a greater availability of credit and a substatial rise in share prices since March (see for example the FTSE 100 and Dow Jones indices) are leading to a new wave of mergers. Recent weeks have seen, amongst others, the takeover of Marvel Entertainment by Disney (see Disney is ‘Marvel’lous), the proposed merger of T-Mobile and Orange, and Kraft’s bid for Cadbury (see Cadbury: Chocolate All Change). So what has stimulated this new merger wave? How do mergers relate to the business cycle and to the stock market? Should they be welcomed? The following articles look at some recent mergers and at the issues they raise.
The return of the deal The Economist (10/9/09)
The revival of M&A is better than a poke in the eye Guardian (8/9/09)
Hovering Kraft The Economist (7/9/09)
Orange and T-Mobile to create UK’s largest mobile phone company Guardian (8/9/09)
Watchdog urged to investigate T-Mobile and Orange merger Guardian (8/9/09)
Questions
- Why has there been a recent rise in M&A activity? Discuss whether the revival in activity is likely to continue.
- Discuss whether an increase in M&A activity is ‘better than a poke in the eye’?
- To what extent will mobile phone users in the UK benefit or lose from a merger between Orange and T-Mobile?
- Will Cadbury’s consumers and workers benefit from a takeover by Kraft?
It’s probably one of the most recognisable names in the world – Disney. Well, as if the company wasn’t already established enough, it’s just got a bit bigger, with a $4bn deal with Marvel Entertainment, Inc. Characters such as Mickey Mouse, Cinderella and Donald Duck have now been joined by some more masculine characters including Spider-Man, Iron Man and the X-Men. Much of Disney’s recent success has come from films appealing to girls, but in-house Disney franchises appealing to boys are fewer and further between. “We would love to attract more boys, and Marvel skews more in the boys’ direction, although there is universal appeal to many of its characters” said Bob Iger, Disney chief executive. “Marvel’s is a treasure trove of characters and stories, and this gives us an opportunity to mine characters that are well known and characters that are not well known.”
This new deal is likely to have major repercussions for Warner Bros and all of the major Hollywood studios, as well as those with a vested interest in Marvel. It is also hoped that this deal will restore some of Disney’s profits, which have been reduced through the current economic downturn. The following articles consider this deal and the likely results.
Weaker sales dent Disney profits BBC News (30/7/09)
Disney to buy Marvel in $4bn deal BBC News (31/8/09)
Walt Disney buys Marvel Entertainment in £2.5billion deal Mirror News (1/9/09)
Disney take-over of Marvel Telegraph, Paul Gent (2/9/09)
Disney’s Marvel Deal Forces DC’s Hand Defamer, Andrew Belonskey (10/9/09)
Disney deal puts Marvel online slots at risk for Cryptologic Online Gambling News (9/9/09)
Disney’s picl-up of Marvel not so super: Citi FP, Trading Desk (4/9/09)
Disney to buy Marvel in $4bn deal (video) BBC News (1/9/09)
Of mouse and X-men Economist (3/9/09)
Disney buys Marvel, Now in Business with every studio in Hollywood Defamer, Brian Moylan (31/8/09)
For Disney’s announcement of the take-over, see:
Disney to acquire Marvel Entertainment Disney Corporate News Release
Questions
- Discuss the pros and cons for consumers of the take-over of Marvel Entertainment by Disney.
- Which factors will have had a significant impact on Disney’s profits in the current recession? Explain why.
- What do you think will be the likely impact of the take-over on Marvel’s shareholders?
- Discuss the main ways in which a business can grow and consider their advantages and disadvantages.
- How will Disney’s Marvel deal affect its competitors and those with whom it does business? Is Disney going to be able to control prices and other aspects of business deals?
In October 2004, the USA brought a complaint to the WTO that Airbus had received illegal subsidies from the UK, French, German and Spanish governments. One of these subsidies was the so-called ‘launch aid’, which the US government argued was a form of export subsidy. In a counter-complaint to the WTO made on the same day, the EU maintained that the US government had provided illegal support to Boeing in the form of subsidies, legislation, regulations and other administrative measures.
On 4 September 2009, the EU and the USA were handed the confidential preliminary findings by the WTO panel in the first of the two disputes. This found that some of the support measures by the EU countries violated WTO rules. However, some two thirds of the complaints by the USA were dismissed.
Despite some progress in its deliberations, the WTO is unlikely to give a final judgment in the first case for several months and not even a preliminary report has been issued on the second case (the EU’s complaint against the USA). But can any conclusions be drawn at this interim stage? The following videos and articles look at the findings and their implications.
Videos
Airbus violated trade laws msnbc news (4/9/09)
WTO issues report on Airbus-Boeing dispute AlJazeera (4/9/09)
Update – Boeing vs. Airbus Bloomberg (4/9/09)
Articles
Airbus Loans Toward A380 Jumbo Faulted in WTO Ruling Bloomberg (4/9/09)
World trade body ruling reflects pre-crisis time Boston Globe (Associated Press report) (5/9/09)
WTO rules that Airbus benefited from E.U. subsidies MarketWatch (4/9/09)
Boeing wins first round in trade battle with Airbus Independent (5/9/09)
WTO rules on huge plane dispute BBC News (4/9/09)
Boeing and Airbus: Round one to Boeing The Economist (4/9/09)
Partial US victory on Airbus funds Financial Times (5/9/09)
Questions
- What sanctions does the WTO have to enforce its rulings? (see the WTO site.)
- What sanctions do individual governments have for ensuring that countries abide by the WTO rulings?
- How could strategic trade theory be used to justify support to aircraft manufacturers? Do such arguments apply to Airbus and Boeing?
- Do airlines and airline passengers gain or lose from the behaviour of Airbus and Boeing? Should the WTO take this into account?
Tea prices have soared in recent months. Explanations can be found on both the demand and supply side. But while this might be bad news for tea drinkers, the news is more mixed for tea growers. So just what are the causes and consequences of the price rises? The following linked articles look at the issues.
Tea prices hit record high as supplies tighten Financial Times (19/8/09)
No break for Britons as tea price set to soar Scotsman (19/5/09)
Tea prices hit record high (video) BBC News (21/8/09)
Price of cup of tea goes up (video) BBC news (17/8/09)
Africa Tea Prices Climb to a Record on Dry Weather Bloomberg (20/8/09)
Kenya Tea Prices Hit Record High Before Ramadan FlexNews (19/8/09)
African tea prices ‘to extend gains’ China People’s Daily Online (18/8/09)
Sri Lanka to revive all closed tea factories ColomboPage (24/8/09)
Land usage should be flexible: Tea panel The Economic Times of India (24/8/09)
For tea price data see:
Tea Monthly Price Index Mundi
Questions
- Identify the factors on the demand and supply sides that have led to the rise in tea prices. Draw a diagram to illustrate your answer.
- Under what circumstances will farmers benefit from a rise in tea prices? What is the relevance of the market price elasticity of demand to your explanation?
- If the price of tea in the shops rises, will this necessarily mean a rise in the price to tea growers and in the wages of workers on tea plantations? Explain using concepts of competition and market power.
- What will be the effect of using more land for growing tea on (a) the price of tea and (b) the incomes of tea growers?
This podcast is from Times Online and is an interview with Jonathan Waghorn, of Investec Global Energy Fund, who “says the price of oil is set to rise over the long term, as it becomes increasingly difficult to find. This spells bad news for motorists, but good news for investors.”
Podcast: The oil price Times Online (4/8/09)
Questions
- Why have oil prices fluctuated so much over the past year?
- What is likely to happen to the price of oil over the next few months and why?
- Why is the price of oil likely to rise faster than the rate of inflation over the long term?
- How are the price, income and cross elasticities of demand and the price elasticity of supply relevant to explaining the likely long-term trend in oil prices?
- If the price of crude oil goes up by x per cent, is the price of petrol at the pump likely to go up by x per cent or by more or less than x per cent? Explain your answer.