Are Mergers and Acquisitions Good for Business

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Part I - Mergers and Acquisitions
Johnson & Johnson’s business model was predicated upon expansion and dominance in the marketplace through the acquiring of other businesses, and thus the acquisition of the Swiss biotech firm aligns with the company’s strategy. However, there are good and bad aspects to the deal. For instance, Johnson & Johnson is paying a huge premium on a smaller company that is in competition with generic drug makers—so there is a real chance that Johnson & Johnson may never make its money back. Then why acquire the company? Actelion could help to boost Johnson & Johnson’s revenue growth rate by more than a percentage point. It is also a way for the company to use its overseas cash holdings in a way that is tax-effective. At the same time, it is important to note that Johnson & Johnson is not even really acquiring all of Actelion: the latter’s R&D division is to be spun off and Johnson & Johnson will own a minority stake in the new publicly-traded entity.
Misunderstandings that occurred in the past were related to the R&D spin-off, as Actelion was resistant to a takeover for fear the company would be broken up and its researchers and scientists laid off. The spin-off protects the workers in the R&D while still giving Johnson & Johnson a medium-sized stake in their work—just not enough to control them, at least for the present. By being more open about its intentions with the company, Johnson & Johnson might have mitigated the risk of misunderstanding associated with this merger—however, in the end the deal was worked out with both sides agreeing to a compromise that eventually allowed each firm to benefit from the merger and from the protectionist spin-off.
Part II - Vertical Integration
The Defense Industry (U.S. Military) is mainly horizontally integrated because it outsources a lot of its activities and productions to bidders—other firms that compete for projects or contracts. Thus, the Military is not really overseeing all of its productions of equipment, parts, etc. but rather relying on other firms to work on them.
However, the Military could benefit from a vertically integrated system because in such a structure, all activities and productions are sourced in-house which allows the firm to save on costs and time associated with outsourcing. It also allows for development and production to be conducted with more and better oversight from the parent company.
The problem for the Military is that it has been outsourcing contracts for so many decades that it is now well dug in on this practice and there is an entire industry that has grown up around this practice so that were it to end the practice of outsourcing, major companies would begin to see their net revenues drop substantially. The marketplace would react accordingly and, as this industry is very powerful with its lobbyists in DC and its major players who are well-entrenched within the State Department apparatus, it is unlikely that such a business-oriented revolution of sorts would actually come to pass. After all, the rise of the military-industrial complex was something that Eisenhower felt obligated to warn the nation against—yet he himself did little to prevent it; and that is because the interests at work within this industry are so many and diverse, with their main sustenance coming directly from government contracts, that for the government to end this type of relationship and seek vertical integration would be very disruptive for their business strategies—though it would certainly benefit the Military and reduce its costs overall.
Part III – Globalization
Globalization is not critical for the success of the U.S. Military, especially under the new Trump Administration, which promotes an America First business policy. This policy stipulates that all production return to America so that American companies and workers can benefit. The U.S. Military is not like a business that offers goods or services to the public like Microsoft or Apple. It is an organization is often used for geopolitical purposes which are very often felt to be antagonistic to the mandate provided to the Military. Globalization of the Military actually can lead to an overextension of the Military and a stretching of its budget beyond that which is provided by Congress. For that reason, the budget keeps getting increased and taxpayers are left to foot the difference.
For a company that is bringing in profits, globalization makes sense—but the Military does not obtain revenue like a company would. Thus, it does not compute for an organization like the Military to continually increase its budget and commit to long-term projects around the world when it simply does not have the income that is generated by a successful business to account for this type of expansion.
However, it could be argued that because other businesses have globalized, the Military must also be global in order to protect the business interests of the U.S. This argument could seemingly justify the globalization of the Military—but then the question must be asked: why don’t the businesses pay for the expansion and increased level of protection afforded by the Military? Why must it be up to the taxpayers to foot the bill? Whose interests are being protected—the businesses or the Americans at home who see their jobs outsourced and off-shored as a result of globalization?