An investigation of the causes of withdrawn MandA deals : antitrust in innovation markets.

Abstract

The MandA process is complex and lengthy, and several of the announced deals fail to materialize. While the factors that lead to deal failure are numerous, antitrust is of particular interest mainly because it falls completely outside the control of the merging firms. In order to preserve consumer welfare, regulatory authorities block the mergers which may potentially affect the level of competition. The authorities publish merger guidelines that help firms in predicting the fate of their deal. Those rules were designed based on the free competition model. However, MandAs in innovation driven markets, governed by Schumpeterian economics, expose many deficiencies within those rules. In such situations, consumer welfare is better measured by the degree of innovation rather than price level. This project tries to analyze the applicability of the current rules in innovation markets by evaluating the case of Oracle-PeopleSoft with particular emphasis on the areas of market definition and concentration, competitive effects, and efficiency defense. The proceedings of the case expose many gaps with respect to those variables, and confirm the need for amending the rules in the case of innovation. Having clearer guidelines would contribute to reducing the regulatory risk leading to a smoother MandA process.