[Harshita Sharma and Tanisha Taneja are third year law students at Maharashtra National Law University, Mumbai]
Introduction
In the complex landscape of corporate manoeuvring, the term "killer acquisitions" stirs controversy and intrigue, embodying a clash between innovation, competition, and corporate governance. While often seen as a ruthless strategy to eliminate rivals, a closer examination unveils a nuanced narrative where such mergers could fuel innovation and shareholder value while navigating ethical considerations. Delve into this thought-provoking discourse as we explore the dynamic interplay between strategic growth, ethical conduct, and the principles of corporate governance.
While there is no formal definition of killer acquisitions it can simply be explained as certain acquisitions arising from an incumbent company's intention to suppress future competition, by getting rid of a prospective rival or a new product or technology that would have threatened its market share. Most definitions capture the fatalistic expression that the term killer acquisition holds. However, on the contrary to what is depicted, elimination of competition does not necessarily hamper the growth of innovation.
An industry is affected by several factors: political, environmental, social and economic. These considerations immensely influence the various business strategies and tactics used by a company. The negative publicity surrounding killer acquisitions, due to allegations of anti-competitive behaviour, stifling innovation, and ultimately challenging principles of Corporate Governance, the pragmatic approach of building a healthy industry remains ineffective.
To reap the benefits of such mergers it is extremely crucial to understand how they boost innovation while operating within the realm of principles of governance. Businesses often face backlash for such practices, but it is important to know if these mergers prove unfavourable or rather fruitful. This article will demonstrate the constructive development that these mergers bring in while highlighting the omnipresence of governance principles.
Killing the Killer Acquisitions
The progression from a lawless state to the one administered by the rules of the higher authority, has made us understand one thing that a society cannot function without principles and regulations. Hence every spectrum is governed by its own well-defined body of rules to promote a cooperative existence. Similarly, a company is governed by principles of corporate governance which are kept at the pinnacle of every transaction. These principles are often violated in cases of Killer Acquisitions, but companies through tactical methods can always keep them at the centre of their activity, which will be elaborated further.
‘Every coin has two sides,’ rightly captures the saga of Killer Acquisitions, but hardly has the economy given credence to mergers alleged to be killer acquisitions. Understanding market dynamics and formulating appropriate business strategy can aid businesses protect their image from crusading into unethical practices. Long term strategic vision, can benefit a company in making a way to control and direct innovation in a manner that aligns with the company’s goals. This was suitably the case in Microsoft’s acquisition of Hotmail, where Hotmail was acquired by Microsoft and integrated into the MSN Platform. In a scenario where Hotmail had faced limited success and Microsoft was facing fierce competition from Netscape, by the end of 2007, the coin had flipped and Hotmail had grown to having 250 million accounts. It continued to increase its user base and won various accolades. The acquisition by Microsoft helped Hotmail in terms of both, scope and popularity, hence proving that an appropriate plan of action can help shape the trajectory of the company.
In order to remain a going-concern, it is indispensable for a company to play on its strength and confront its weakness. In a competition inducing market economy, survival through acquisitions can help solidify market share and enable a company to maintain a competitive edge. Before 2016, none of the players viewed LinkedIn as a threat to its consumer base, whereas Microsoft was a dominant player in the market, whose threat was consistently present. It is only after 2017, when LinkedIn was acquired by Microsoft that Adobe, Oracle and Salesforce started treating it as a competitor. Just 5 years after its acquisition, LinkedIn had surpassed $10 billion in annual revenue. Therefore, it is extremely crucial from a governance standpoint that directorial boards must assess potential threats to the company’s position in the market and play the right cards for its progress.
The acquisition of LinkedIn by Microsoft exemplifies a strategic manoeuvre guided by principles of corporate governance. In facing the competitive landscape, a company's board must meticulously assess market dynamics to safeguard its interests. By recognizing LinkedIn's potential threat and seizing the opportunity for acquisition, Microsoft's board demonstrated astute governance, ensuring the company's sustained relevance and competitiveness. This proactive approach aligns with governance principles, emphasizing the duty of directors to steer the company towards long-term viability and shareholder value while adeptly navigating industry challenges.
The success of a business isn’t just about the bottom line, it’s about enriching portfolios of its shareholders. Corporate boards have a fiduciary duty to maximise shareholder value. A company should act in the best interests of its shareholder by making decisions and implementing strategies that enhance the value of their investments. To achieve this goal, it is important to study market conditions to evaluate potential risks, considering long term consequences and prioritising sustainable growth. When in 2014, Amazon acquired Kiva Systems, it invested substantial resources to further develop Kiva’s technology and there was hardly any replacement available for Kiva deployments in the industry. Till 2017, it remained one of its kind technologies which helped Amazon’s share of USAs online sales increase from 30 percent to 40 percent. This merger not helped Kiva Technology upgrade its product but rather made it a resounding success. The prominent reason for this was the first-mover advantage that Amazon received by investing in a firm that boosted the trajectory of its growth and immensely satisfied its diversified shareholder base.
A pivotal aspect of corporate governance involves making decisions that ensure the long-term viability of both the companies involved in the transaction. It is often alleged that acquisitions are primarily done to kill the invention of a budding company and eliminate new players from the market in order to protect its market share. Another aspect of looking at these acquisitions can be a proactive measure to mitigate business turbulence in terms of competition. In the year 2020, when Google acquired Fitbit, Gramin already identified Fitbit as one of its principal competitors and it continued to do so after the acquisitions. The brand, its identity and its product were never ‘killed’ by Google. This deal did not only help spur innovation which was beneficial for FitBit but also helped Google dive into various allied industries such as healthcare. Embracing the opportunities that FitBit acquisition holds will help Google prepare itself for the next fight in the field of healthcare. This acquisition was mutually beneficial for both the companies thus cornering the allegations of Killer Acquisitions.
Having looked at several cases of killer acquisitions, the authors have paved the way for navigating the way for killer acquisitions to unveil itself to be beneficial for company’s when gauged upon through the lens of corporate governance.
Conclusion and Way Forward
In conclusion, corporate governance frameworks might offer a rationale for such moves, even though the concept of killer mergers which are characterized by aggressive measures are meant to eliminate competition may pose ethical questions. Creating wealth for shareholders and ensuring long-term sustainability are the main objectives of corporate governance. Under some circumstances, mergers that are viewed as aggressive or "killer" could actually be in line with this goal as long as they are carefully thought out and ethical standards are followed. This is the major argument that we wanted to highlight with the help of four distinct upsides to a killer acquisition, as elucidated above. Transparency coupled with accountability within the corporate sphere can join ends and actually bring out the positive impacts of killer mergers on smaller companies. The same was the case with the acquisition of LinkedIn and Hotmail as illustrated above.
The authors want to suggest that in order to further reduce any unfavourable effects, the framework for making decisions should include thorough risk assessment and due diligence procedures. Effective merger strategies and moral corporate governance can work together, but only if a comprehensive strategy that puts an emphasis on open communication, fair competition, responsible business practices, and thorough risk assessment is implemented. Corporations may rationalize aggressive mergers and emerge as responsible industry stewards, promoting sustainable growth and shareholder profit, by skilfully balancing strategic imperatives and ethical issues. Corporate governance is manifested through the very essence of the management of a company, therefore ensuring a stronger base will always advantage a company in expansion and enrichment.
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