Classification of Bond Indexing StrategiesThere are various kinds of bonds strategies which a person could adopt to get returns out of the bon...
Lessons
- Overview of Mergers & Acquisitions
- M&A: Earnings Per Share & The “Bootsrap” Effect
- Industry Lifecycle Phase and M&A
- Pre-Offer Defense Takeover Mechanisms
- Post-Offer Defense Takeover Mechanisms
- Herfindahl-Hirschman Index (HHI)
- Valuing Target Companies
- Merger Gains to Shareholders & Post Merger Valuation
- Types of Restructuring
Herfindahl-Hirschman Index (HHI)
- HHI measures market concentration and is a metric used by government oversight bodies in the U.S. to determine if a merger should be allowed or blocked.
- HHI calculates the sum of squared market shares for competing companies.
HHI = ∑ ((Sales firm i / Sales Market) * 100)) 2
- For an individual firm, HHI is calculated once; for a merger of two companies the HHI of the combined entity will be the sum of their individual market share HHI values.
- When HHI crosses a certain threshold, the government may legally challenge the proposed merger.
| COMBINED ENTITY HHI | HHI CHANGE | GOVERNMENT RESPONSE |
|---|---|---|
| < 1,000 | Irrelevant | None. |
| 1,000 - 1,800 | ≥ 100 | Potential legal challenge to merger. |
| 1,800+ | ≥ 50 | Definite government challenge to merger. |
- Note that a small change to HHI in a heavily concentrated industry may be more scrutinized than a large change to HHI in a highly competitive industry.
- In the U.S., the Justice Department will consider other factors that just the HHI, when determining whether or not to attempt to block a merger.
You may find these interesting
Pure Bond Indexing StrategyIt is a passive strategy, which tries to follows the weight age of index on a day to day basis. It i...
Enhanced Indexing Strategy - Primary RisksIn this kind of a strategy, the smaller funds/ individuals try to replicate a relatively fewer numbe...
Enhanced Indexing Strategy - Small RisksThis strategy allows leverage for minor mismatches in the risk factors except [duration](https://fin...
Single Index ModelThe Single Index Model (SIM) is an asset pricing model, according to which the returns on a security...
Omega IndexThe Omega Index (or Omega ratio) was developed by Keating and Shadwick in 2002. It is a ratio of the...
Inflation-Indexed BondsAs the name suggests, in inflation-indexed bonds, the interest and principal payments are indexed to...
What is Relative Strength Index – RSI?Relative Strength Index is a technical indicator used to chart the strength or weakness of a stock b...
Herfindahl-Hirschman Index (HHI)- HHI measures market concentration and is a metric used by government oversight bodies in the U.S...
Pricing Stock Index FuturesEquity Index Futures are a type of futures contracts that try to replicate the performance of an equ...
Finance Train Premium
Accelerate your finance career with cutting-edge data skills.
Join Finance Train Premium for unlimited access to a growing library of ebooks, projects and code examples covering financial modeling, data analysis, data science, machine learning, algorithmic trading strategies, and more applied to real-world finance scenarios.
I WANT TO JOINJOIN 30,000 DATA PROFESSIONALS
Free Guides - Getting Started with R and Python
Enter your name and email address below and we will email you the guides for R programming and Python.
