Question

Suppose you are asked to assess the likely effects of a proposed horizontal merger in a particular industry. What are the things you would look at and how would each of these help you make your assessment?

Answer 1

A horizontal merger is a merger between two firms which belong to the same industry. The effects of a merger can be assessed in the following ways:

1. The acquiring company will have to assess the future earnings that they would earn after the merger goes through. The projected earnings per share after the meger can help determine the financial position of the company after the merger. If the earnings increase then the merger should be allowed.

2. The effects on employment has to be analysed. If there is a loss of jobs and a huge increase in the unemployment due to this activity, then it will harm the spirit of employees and affect their productivity. Which is why this is important for the firm to see. Also, the government will have to study it as they wouldn't want unemployment to increase in the economy.