The Determinants of Mergers. Burcin Yurtoglu University of Vienna Department of Economics. Empirical Regularities. Mergers come in waves USA: Late 1890s, 1920s, 1960s, 1980s, 1990s Merger waves are correlated with increases in share prices and price/earnings ratios. Types of Mergers.
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University of Vienna
Department of Economics
USA: Late 1890s, 1920s, 1960s, 1980s, 1990s
There are a big number of hypothesis as to why mergers occur, these can be grouped into two broad categories:
that assume that managers maximize profits or shareholder wealth and thus that mergers increase either market power or efficiency
that posit some other motivation for mergers and/or other consequences.
After a 10 year contractual agreement was signed in 1919, GM's demand for closed-body cars increased to extent that it became unhappy with the contractual price provisions and "urged Fisher to locate its body plants adjacent to GM assembly plants, thereby to realize transportation and inventory economies." [Williamson, AJS, p.561]
Finally, Fisher Body was merged into GM in 1926 after Fisher had resisted GM's locational demands.
As Coase recalls:
"I was told [by GM officials] that the main reason for the acquisition was to make sure that the body plants were located next to General Motors assembly plants." [Coase, "The Nature of the Firm: Origin", in: Williamson & Winter, eds., The Nature of the Firm. 1993, p.43.]
C(x1, x2) < C(x1,0) + C(0, x2)
Gugler, Mueller, Yurtoglu, and Zulehner (2003)
Savings on Borrowing Costs
Three categories of hypotheses
G: Gain to the bidder in dollars over a 24-month period beginning with the month of the merger
P: Premium paid to the target‘s shareholders in dollars
VT: Market value of the target firm