To merge is to combine several entities into one. In business terms, mergers occur when two companies come together to create a single entity. In most cases, a smaller investment is usually targeted by a large entity as part of the latter’s expansion strategies. The terms ‘merger and acquisition’ are, therefore, used interchangeably in microeconomics although they have a slight difference. It is sufficing to say then that mergers involve equal stock partners while acquisitions involve unequal organizations. Nevertheless, the objective of both economic processes is to create a more valuable company in terms of stock, competitiveness, revenue, cost-efficiency, company diversity, and higher shareholders value (Gans, Joshua, King, and Mankiw 12). It should be noted that mergers form part of a company’s strategic expansion plan by acquiring new investments, cutting logistic cost through outsourcing, and reducing risks. This assignment examines the economies of scales dynamics in during the merger of C.R. Bard and Becton Dickinson.
Economists argue that the U.S taxation regime is very punitive for smaller and middle sized businesses. Therefore, tax reprieves are major influencing factors when it comes to why companies merge. A tax loss carry forward allows a company which experiences net losses in past years to reduce tax expenses in the years where they incur profits. For example, the state of New Jersey, where C.R. Bard is headquartered, has experienced many large merger and acquisitions in the healthcare sector. The most notable is the plan by Cooper University Health to acquire three Catholic University Hospitals to create the 4th largest healthcare chain in the state. Ultimately, the most sought after advantage in mergers is economies of scale. Gregory Mankiv, an economist, describes economies of scale as “the property whereby long-run average total cost falls as the quantity of output increases” (Gans, Joshua, King, and Mankiw 7). Simply put, these are factors of productions which control outputs, inputs, and the revenue outcome in a business.
C.R. Bard Inc. is a healthcare provider headquartered in New Jersey. It was established by Charles Russell Bard in 1907. However, the organization offers products and services for the healthcare industry. The company has exhibited significant growth and transformation over the years. According to the company’s website, its business strategy is to be a leader in the provision of healthcare and related services. The design of the website employs an effective use of ethos in communicating to the clients. There are video interviews, testimonials, and other motifs that are intended to influence and persuade the customers. Bard describes itself as a global leader in groundbreaking innovations in therapies and medical devices.
The company’s core values are quality, integrity, service, and innovation. Its competiveness is derived from an effective communication leadership plan among all the stakeholders. Moreover, the company is oligopolistic. It competes with few other healthcare companies for the consumer markets in the State. These few pharmaceutical companies control a large share of the U.S consumer market. Some of the key players in the region include Abbott; Boston Scientific Corporation; Medtronic; B. Braun Melsungen AG; and Cook Medical. As of April 2017, the company announced that it will be acquired by Becton Dickinson.
C.R. Bard has a human resource workforce of more than 15,000 employees who are tasked with different revenues. The employees work towards meeting the company’s objectives in terms of income and revenue. Some of the duties of the staff include creating and marketing products as well as services for the company’s clients. More importantly, its revenues come from the manufacture and sales of products such as oncology, urology, vascular, and surgical specialty tools. From 2010, the company has acquired several entities to expand its economies of scale. The largest acquisition was in 2010 when it merged with SenoRx.Inc. The latter provides leadership products across all breast biopsy market segments. In 2011, it acquired Medivance Inc. who were the market leaders in therapeutics hypothermia.
During the same year, BARD acquired Lutonix.Inc, a company that develops a drug-coated percutaneous trans-luminal angioplasty balloon (C.R. Bard). The acquisition of these entities was in line with the company’s strategy of research and technological advancements. Following these acquisitions, the net income and revenue equal as of the first quarter of fiscal year 2017 was 3.71B (C.R. Bard). Currently, shareholders agreed on the merger with Becton Dickson. Since C.R. Bard offers developed medical products, this can be a beneficial factor to Becton Dickinson market. Furthermore, the merger will enhance sales and stock prices. Currently, the company’s stock trades favorably at $379. Despite the opportunities that comes with this acquisition, threats from few competitors persist. Some of the competing interest are Cook Group, Medtronic, and W.L. gore and associates.
Variable costs influence the cost structure for the company’s retail of products and services (Gans, Joshua, King, and Mankiw 37). It is apparent from the company’s website that they spend large amounts of money in research, marketing, transport, inventory and logistics. The variable cost of these compulsory services are controlled through outsourcing of various departments. Outsourcing shows a rather predictable cost mechanization structure which allows for the evaluation of risks and unexpected eventualities. The company’s demand is inelastic, because of the rarely developed product line that they offer to the consumer. The cost of healthcare products research is high and positive outcomes are not guaranteed. Furthermore, multiple stages are involved before medical products are approved for consumption by the users.
Therefore, there are limited companies with the capacity to invest in healthcare sectors. The low number of suppliers means that the demand for CR Bard products is high. The HR ensures the variable cost such as changing employee wages is in line with the company’s labor policies. These policies include promotions, demotions, salary increment, and benefits. C.R. Bard controls the economies of scale through outsourcing, acquisitions, and merger (Gans, Joshua, King, and Mankiw 45). As the company increases in size, it becomes easier to get inventory at cheaper rates. Additionally, infrastructure expansion promotes efficiency in purchasing, storage, and transport of inventory.
It is estimated that the merger of C.R. Bard and Becton Dickinson will increase the profitability margin by 0.3% in the coming quarter (C.R. Bard). The need to achieve such a level of profitability defines its mission. Like every business, it uses its resources to achieve that.
The business is influenced by external factors such as the socioeconomic and political influences. For instance, it operates in Germany, and the rest of Europe, due to the stable economy in the region. The cultural inclination of the people to quality healthcare services also endears it to the people. The firm also faces threats such as competition from established brands such as Pfizer, Roche and Sanofi. Unpredictable political conflicts in countries like Syria dictate its business strategies in the affected regions.
The company has expanded its operations in view of emerging trends such as globalization. Although the business is domiciled in New Jersey, its operations transcend the American continent. It has branches in South Africa, Australia, Europe, India, Taiwan, Russia, and Korea. Globalization has made it easier for the company to expand and go beyond traditional geographic boundaries.
With a market capitalization of $23.99 billion, the company’s stock is highly valued. At present, it stocks trade at $330. The value of the stock is calculated against 72.67 million shares which are outstanding and an equal number which are part of the public float. The average number of the company’s shares traded stands at 447000 per day.
The government plays an important role in setting the right business environment for organizations. In the case of mergers, or even acquisitions, the government facilitates the process by protecting the interests of both parties. Besides, the government acts in the interest of the public and other competitors by protecting the domination of the market through a monopoly. Even in the case of C.R. Bard and Becton Dickinson merger, the government plays the role of a regulator. It also creates an environment which is economically and politically stable through the formulation of policies which support such ventures. By offering incentives, and tax exemptions, the government also plays a role in mergers like the case of C.R. Bard and Becton Dickinson. Occasionally, the government can also offer bailouts to financially struggling firms.