Should large corporations (i.E. Google) be stopped from buying up small ones?

Asked by: ramramgeorge
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  • That is in Violation of Capitalism and Based on Misunderstandings

    People who do not understand capitalism and business may think that large businesses that buy up smaller businesses sounds mean and unfair. It paints the picture of a bully picking on a smaller, defenseless kid. However, this is not the case. While there is such thing as a "hostile takeover" in business it is actually not as bad as it sounds. A hostile takeover is as the term implies that it is a takeover of a company that its directors/managers disapprove of. In a hostile takeover the acquiring company can go about it in a few different ways:

    1. The acquirer may give a tender offer meaning that the acquirer will offer a price for stock including a premium over the current market price to entice shareholders to sell their stock to the acquirer. The acquiring company will usually try to acquire at least 51% of the target company's stock. This method is essentially a bribe to the shareholders.

    2. The acquirer may also try a proxy fight to basically overthrow the current corporate management of the target company. This is generally done through activism among the target company's shareholders to appoint new directors that will accept the acquirer's takeover offer. You generally need simple majority of shareholders to make this successful. However, since the incumbent corporate management are often able to find ways to postpone events and eventually develop strategies to stay in power this method is often unsuccessful.

    3. A lengthy but potentially effective method is called a "creeping tender offer". This is basically purchasing stock of a company slowly as it becomes available until you have enough pull in the corporate management to wage a hostile takeover effectively.

    As you can see none of these methods are really that cruel. The incumbent executives of the target company often still end up very well-off from the offer that they were formerly protesting simply because they thought it was simply "not good enough". When companies get taken over they are usually either made a subsidiary of the acquiring company or absorbed completely in a merger. Most mergers and acquisitions in the business world are actually voluntary with both parties as the acquiring party brings forward a reasonable and attractive offer to the target company. Even in hostile takeovers the acquirer's offer is generally quite reasonable, but the target company is simply unwilling to take it often because they are hoping for a better offer or they believe it is not in the best interest of their company. So there isn't really anything bad about this concept. It is vital for a capitalist private sector and is a positive influence in an economy for companies to be allowed to do this.

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