One example where the government have intervened to support a merger is in order to prevent business failure that could potentially harm the UK economy and society. Halifax Bank of Scotland (HBOS) was a bank that was accountable for up to four fifths of the national bad banks debts within the recent financial crisis. In order to rescue HBOS along with the investment and savings of over 22million customers, a takeover by Lloyds TSB was heavily imposed by customers, shareholders and the government. To support this take over, the government did not try to prevent it and additionally supplied Lloyds TSB with £5.5bn and HBOS with £11.5bn grant money with hope that it would alleviate some of the debts incurred by HBOS and relieve some of the integration costs. With this, share prices would increase thus pumping more capital back into the economy. Despite Lloyds and HBOS being two giants within the high street, the merging of both companies would create a ‘super bank’ which would dominate the market. Despite this, there is a danger for consumers that the loss of competition in the mortgage and savings market will ultimately lead to higher interest rates and less generous mortgage deals. HBOS was the market leader holding a third of UK mortgage and savings. This grant was important for the two banks and economy due to the implications that it would of caused. For example, employees would be affected as the banks would not be able to pay out wages thus introducing redundancies and contribute to the already rising unemployment. With this, redundancy payments need to be high, if they can afford to pay out any at all. This would lead to a lower amount of disposable income for people to spend on luxury items/non necessities, therefore businesses and local small businesses would experience lower sales thus lower profits and possibly go bust, consequently affecting the national economy, especially in areas of high HBOS employment.
Another
example where the government have intervened within a merger is to prevent two
merging companies becoming a monopoly. For example, there was an attempted
takeover of BskyB by Newscorp, owned by Rupert Murdoch. BskyB and Newscorp are
mass media corporations that distribute news through wesbites, TV channels and
newspapers. Rupert Murdoch already owned the majority of BskyB and wanted to
takeover/merge entirely however this was prevented by the government as there
were fears of Newscorp abusing their powers if they became a monopoly such as
price wars where the company could undercut any competitors through cost saving
through economies of scale or utilising joint capital to fund innovation or acquire,
integrate and use the best possible technology. As Newscorp wanted to purchase
the remaining shares of BskyB, an unusually strict investigation by competition
commission took place with referral from the government, this was due to the
potential abuse the integration could have undertook from lack of competition
as Newscorp and BskyB were already two giants in the media industry. During
this occurrence, a public scandal involving one of Rupert Murdoch’s media
companies eluded which imposed even more pressure on the investigation and the
government felt they needed to protect the public and represent their views as
media is a naturally sensitive sector and should be unbiased. Due to this
scandal, it was questionable whether this takeover should be followed through.
For example, the scandal triggered a public outrage and they would have been
dissatisfied if Murdoch was allowed to go through with this takeover. With this
public outcry, shares in Newscorp depleted which drove them to pull out of
their bid thus averting the takeover. A statement from the Newscorp deputy
chairman stated the bid was ‘too difficult to progress in this climate’,
suggesting that the only reason they pulled out of their bid was due to the
scandal.
Overall, government intervention was important during the HBOS takeover by Lloyds as at the time, the UK financial system was in a crisis therefore to keep the public interest in mind and to avoid further bank collapses which could harm the public and economy, they did not try to prevent the takeover but instead, supported it and helped by supplying grants. On the other hand, the government did slightly intervene with Newscorp’s attempt to takeover BskyB by referring the action over to the competition commission. This may have been due to the problems with competition to the market if the merger was to go ahead. There has to be particular reasons that determine whether the government do or do not intervene, for example, it may depend on the current economic position which affects everybody within the public. Therefore, the government have to weigh up the positives and negatives of a merger whether it was to happen. Despite this, even though the merge between Lloyds and HBOS will create a monopoly that could damage the competition for the overall market, they may employ certain strategies such as breaking up the company and selling it off in the long term to allow other small companies to become more competitive.
http://www.moneywise.co.uk/markets/corporate-news/will-you-benefit-hbos-and-lloyds-tsb-merger impacts on customers, shareholders, banking sector)
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