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Mergers and Acquisitions (M&A) are accorded as some of the most important activities of business operations, as it provides concerned business organizations with an opportunity to improve their working and be able to achieve goals and objectives (Grigoroudis, Orfanoudaki and Zopounidis, 2012). The present report sheds light over advantages and disadvantages of M&A along with different laws and regulations in UK that govern these activities. Additionally, this research report also discuss about ways Shell, a world renowned oil and gas company can practice CSR that may help in enhancing quality of life in region that the company operates in.
Today M&A are considered to be some of the most vital activities for business organizations, as success as well as existence of concerned companies are dependent on this aspect (Devlen, 2009). Marketplaces have become so competitive that they need to improve their operations so that organizational targets can be fulfilled. There are various benefits and drawbacks of M&A activities.
There are various benefits of mergers and acquisitions, that may help in improving overall working of concerned enterprises and making the task of accomplishing its aims and objectives a lot simpler yet effective. One of the biggest benefits of such an activity is that it helps in generating greater value. Through M&A activities, value of concerned companies increases by manifolds (Aspinwall and Greenwood, 2013). This can prove to be of great use in enhancing longevity of organization in the market. It would essentially mean that the firm can sustain in the related industry for a longer period of time and achieve its goals with ease and comfort. Through M&As it can be expected that shareholder value of the firm would be much greater than its value than before the same activities. Mergers and acquisitions are beneficial from viewpoint that they generate cost efficiency through way of implementing economies of scale. Similarly, another major benefit of M&As is that it helps in increasing market share of the organization by substantial margins (Price, Pitt and Tucker, 2011). This way, the concerned entity can enhance its customer base and cater to demands of increased number of people. In this sense, it may not be wrong to say that mergers and acquisitions can be particularly helpful in improving market image of the firm(s).
There are some downsides to mergers and acquisitions as well, due to which these activities can prove to be very dangerous not only for companies involved in it, but for the market in general as well. Sometimes, M&As are carried out with an objective to eliminate competition from the industry. If activities with intentions are conducted, then it can be very bad for the market, as it would create a situation of monopoly, enabling related organization to charge higher prices from customers (Jensen, 2011). Buyer will have to accept the price, because there would be no other supplier of similar products and/or services in the market. In essence it can be said that if M&As are done with an intention of 'monopolizing' the market, then they can be devastating to the market. Some mergers and acquisitions can decrease competition prevalent in the industry. This situation can have unique but highly dangerous consequences for the market as well as society eventually. Decline in competition would lead to increase in prices for goods, misallocation of industry resources, lower quality products, lack of innovation (Wheelen and Hunger, 2011). These can create a condition of stagnation in the market, where neither the customers and community in general would be satisfied nor the concerned organization(s). Another primary disadvantage of M&As is that it might result in duplication and over capability when two companies operating in the same industry merge; or one of them acquires the other. This is because the concerned enterprises function in pretty much similar manner, meaning that their employees would also possess similar skill sets and abilities.
For governing bodies as well as the government in UK, it is imperative to monitor and control the activities of mergers and acquisitions, as when left uncontrolled, there are chances that they may damage the market more than doing any good to it. Bearing this fact in mind, UK government has developed and implemented a number of regulations to control these activities and ensure that they are carried out in a right and effective manner (Smallbone, Xiao and Xu, 2008). One of them is the competition commission. It was earlier known by the name of Monopolies and Mergers Commission. It is responsible to conduct investigation into merger and acquisition activities and to ensure that they are proper and in accordance with the law. It was formulated with a main purpose of ensuring healthy competition in major markets across the UK; and also that they are beneficial for market in general as well as for customers.
Another such legislation which governs the working of merger and acquisition activities is that of the Takeover Panel. It follows guidelines as stated in City Code on Takeovers and Mergers (Zerdin, 2014). Herein, it is one of the primary and leading bodies that govern M&A activities very closely and can seek enforcement by courts under section 955 of the Companies Act 2006. Therefore, it may not be wrong to say that companies involved in activities of mergers and acquisitions need to ensure that they follow the guidelines stated by different legislations and regulations developed by government, so as to complete them effectively and in a smooth manner (Companies Act, 2006).
Furthermore, the government also has developed an Anti-Trust Regulation which focuses on investigating the mergers and ensuring that they are fair and as per the law. Such activities are carried out by the Office of Fair Trade (OFT). Herein, one of the prime responsibilities of the given body is to report for any merger transaction to Competition Commission, that may be aimed at lessening competition in the market (Jenkins, 2009). This means that OFT is required to investigate and report any M&A activity that may being conducted for purposes of eliminating competition from a particular industry in the country to competition commission. There are certain aspects which would have to be considered in this regard by the OFT. For instance, the governing body will have to pay attention to ensuring that even after the concerned companies merge, their combined market share must not be more than 25% or else it can be considered that the firms are trying to monopolize the market (Al-Hemyari, 2012).
Section 110 of UK Insolvency Act 1986 states that if an organization winds up voluntarily, then it may either transfer or sell whole or a part of its business to another company. Moreover the act provides that a company under the situation of liquidation can empower its liquidator to provide concerned firms' assets or activities to another organization, in return for shares or other such interests (Al-Hemyari, 2012). On basis of the act, it can be said that shares or payment in cash can be used as a source for making necessary payments related to the activities of mergers and acquisitions.
Corporate Social Responsibilities (CSR) has emerged to become a primary aspect of operations of firms, regardless of market that they may be operating in. Considering current trends prevailing in oil and gas industry, it can be said that Shell, a leading oil company has to pay lot of attention towards its CSR activities (Grimshaw and Rubery, 2012). These activities are very important for the organization, mainly because of reason that oil and gas firms are some of the major contributors towards rising pollution and global warming levels. For the cited oil company, it is crucial to pay attention towards improving its CSR activities, so that it can attain corporate goals and targets with ease along with developing a strong and positive image among customers as well as other stakeholders. There are various aspects which need to be paid attention towards in this regard (Leopoulos and et. al, 2010).
One such approach is to concentrate the firms' CSR activities. It essentially means that management at Shell will have to identify an area of social responsibility which the company can excel at easily and effectively. It would allow the organization to develop an area of CSR that it is good in and keep on focusing on the same. This way, company can make significant attempts to improving its CSR activities (Wilson, 2009). It is a well known fact that specialization can prove to be very helpful and effective to organizations, as it would enable them to develop and improve their working in a significant manner and thus be able to improve quality of life in the region that it functions in. At present the company is conducting various kinds of activities and functions in terms of its CSR activities due to which it can be said that the firm needs to develop a specialisation. This would help in making these activities far more efficient and effective (Daly and Walsh, 2010). This step is all the more important from view point that company's resources such as time, money, etc. are extremely vital, due to which the firm cannot expend them unnecessarily. Therefore, its management needs to develop a specialization, as it would help in making CSR activities highly efficient and effective.
Once the company selects the are that it wants to work in terms of CSR, another aspect that would have to be paid attention to is to understanding benefits that may be derived from related activities. After gaining thorough comprehension of advantages from selected CSR activities, the company would be able to bring about a substantial improvement in this regard (Pickernell and et. al, 2013). This is mainly because of reason that it will be helpful to organization and enable it to enhance quality of social responsibilities.
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Another way that might be useful to the given oil and gas company is to interact with locals in the region and motivate them to contribute towards betterment of the society. In this regard, it may not be wrong to say that company's CSR activities can be made even more effective that may enable Shell to enhance quality of life in the region (Aspinwall and Greenwood, 2013). By interacting with locals, management can aware the people about activities that it may be looking to undertake and together determine the best way, they can be made even more helpful improving quality of life that these individuals may be leading. In essence, this would allow the company to contribute in significant manner towards improvement of living standards in the region. In addition to it, by undertaking the given step, company can gain confidence and loyalty from community members, as they would be provided with complete and thorough information about CSR activities of the organization, and take steps to make it helpful for the community (Price, Pitt and Tucker, 2011).
Mergers and Acquisitions have emerged to be some of the most important aspects of working of companies, to which management of an enterprise needs to pay a lot of attention to. During the present research investigation it was observed that M&A activities have both positive and downsides to them. On one hand, it helps in increasing market share of concerned organizations and improving their brand image in the market by substantial margins. Furthermore, the study also revealed that there are various laws and legislations which govern working of M&A activities. For companies involved in these activities, it is imperative to comply with such regulations or the activity can be hampered in a significant manner.
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