Aggregate Concentration:   Top 200 firms own 50% of assets and 35%
of value added.

Market Concentration:
A)Competitive markets will become more concentrated.
     -    Utilities (Public utility holding company act)

B)The concentrated markets will deconcentrate.
- Every new product (patents); rapid deconcentration
     - Economies of scale===> new products. (Electric utilities)
- Technological change.


Mergers Increase Concentration===> Busts (The business cycles)
which eliminate small guys:
Railroads- combination tactics (market extension mergers)
1873, 1883 Depressions.
=============> 1890 Sherman Antitrust Act
     1895-1904 Horizontal merger wave (US Steel, Std. Oil). 157
business consolidations. 75% involved 40% or more of their
Due to: Capital intensive, large scale pdcn.
                       Falling transport cost, Tech change,
                       Managerial improvements,
-Limited liability
                    -Liberalization of state incorporation laws
         1904 crash
            1911 Antitrust case (Standard Oil, US Steel)
               1914 Federal Trade Commission established.
                    Clayton Act.
                    -Auto industry, rail, shipping rates
     1920-1929 Vertical Merger wave(AT&T, Utilities, Weyerhauser)
          1929 crash
             1930- investigations, scandals, prosecutions
               1936-Clayton act heavily amended to eliminate
               1940- High water mark of antitrust.
     1960-1968 Conglomerate Merger wave (LTV, ITT (Geneen))
          1968Recession/Stagflation/off    gold   standard.     Oil
              1970+    -AT&T, Xerox, IBM
    -Investigations cut off by Nixon administration.
 Deregulation Binge
1982-1989 Predator's Ball LBO (RJ Reynolds,S&Ls).
-Bonds become stocks.
-Selling off units.
1989-1992 Recession
     1988+- Milken, Boesky convictions.
1992+ IPOs-somehow investment bankers make it on both ends. IPOS.
2002+-LBOs and IPOs

Motives for Merger
-Market power
-Investment bargains
-Stock market
-Debt/equity switching.
-Accounting confusion

                          Mergers, Concentration, and
                          the Erosion of Democracy
                          by Richard B. Du Boff and Edward S.

    Home                                          2 OF 2   | << PREVIOUS | 1| 2 |

     Notes from                                   Concentration: The More Things
   the Editors                                    Change...

     What Happened to                             From 1939 to 1980, overall market
   the Women’s Movement?                          competition increased in the United
   by Barbara Epstein                             States, according to University of
     The Queer/Gay Assimilationist Split: The     Massachusetts economist William
   Suits vs. the Sluts                            Shepherd, although the trend was not
   by Benjamin H. Shepard                         uniform in all sectors of the
                                                  economy.15 The causes were growing
                                                  competition from imports, antitrust
                                                  actions by the federal government, and
                                                  deregulation in banking, telephone
                                                  service and equipment, railroads,
                                                  airlines and trucking. Over the past
                                                  two decades, however, a reversal has
                                                  taken place, with concentration on the
                                                  rise across most sectors. The major
                                                  reason is the cumulative effects of
                                                  back-to-back merger waves—the
                                                  fourth and fifth in U.S. history.

                                                  The latest data available show that in
                                                  the manufacturing sector the four
largest companies in a given industry
controlled an average of 40 percent of
the industry’s output in 1992, and the
top eight had 52 percent. These shares
were practically unchanged from
1972, but they are two percentage
points higher than in 1982. Retail
trade (department stores, food stores,
apparel, furniture, building materials
and home supplies, eating and
drinking places, and other retail
industries) also showed a jump in
market concentration since the early
1980s. The top four firms accounted
for an average of 16 percent of the
retail industry’s sales in 1982 and 20
percent in 1992; for the eight largest,
the average industry share rose from
22 to 28 percent.16 Some figures now
available for 1997 suggest that
concentration continued to increase
during the 1990s; of total sales
receipts in the overall economy,
companies with 2,500 employees or
more took in 47 percent in 1997,
compared with 42 percent in 1992.17

In the financial sector, the number of
commercial banks fell 30 percent
between 1990 and 1999, while the ten
largest were increasing their share of
loans and other industry assets from
26 to 45 percent.18 It is well
established that other sectors,
including agriculture and
telecommunications, have also
become more concentrated in the
1980s and 1990s. The overall rise in
concentration has not been great—
although the new wave may yet make
a major mark—but the upward drift
has taken place from a starting point
of highly concentrated economic
power across the economy.
It is also remarkable that concentration
keeps increasing, given three powerful
forces that have had the opposite
effect over time.

One force, probably the most
important, is the continual rise of new
industries and new markets, and the
decline of older ones, stemming from
technological changes. Giants like
Microsoft and WorldCom barely
existed, if at all, 20 years ago; nor did
firms like Wal-Mart and Home Depot
in ―older‖ industries. New industries
are born, but they soon follow the
same cycle: headlong expansion with
scores of new companies rushing to
get in on the ground floor, an ensuing
round of shakeouts featured by
failures, mergers, and takeovers, and
eventually an era of relative stability
and uneasy coexistence among
oligopolistic rivals. The automobile,
aircraft, oil, chemical, and electronic
industries—the core of today’s ―old
economy‖—all went through this
cycle. At present telecommunications
and e-commerce are evolving along
the same lines, with biotech not far
The two other forces that have tended
to curb concentration are imports and
antitrust action. But in the age of
globalization, imports do not always
work this way, and antitrust may be
losing its effectiveness.

If imports into the United States come
from foreign affiliates of U.S.
multinational corporations, or from
foreign contractors doing
―outsourced‖ work for U.S.
multinationals which sell the finished
product at home under their own
brand names (Nike, K-Mart, Compaq
Computer), these imports lead to less
competition, not more. At present
such imports account for a quarter of
all U.S. merchandise imports. Another
23 percent comes at the behest of U.S.
affiliates of foreign multinationals
(Toyota, Michelin Tire, Unilever),
which also dampens competition or
limits it to that prevailing among
international oligopolies pursuing
similar strategies.19

Antitrust action, already limited in its
effectiveness, is likely to be less so in
a globalizing economy. The case can
be made that firms must be larger to
compete with their counterparts both
abroad and at home, since foreign
competition in domestic markets must
be taken into account. The basic
problem in dealing with giant
multinationals on any grounds,
however, is that the economic and
political force of capital is becoming
global, while regulatory authority
remains national. Only cooperative
enforcement among nations would
appear to hold out any hope for
effective regulation of a variety of
business practices and initiatives.
There are some signs of this, with the
U.S. Justice Department and the
European Union’s Competition
Commission (EUCC) cooperating in
the U.S. antitrust action against
Microsoft, and in the review of the
AOL-Time Warner merger. The
EUCC also blocked WorldCom’s
planned $116 billion combination
with Sprint in June 2000, shortly after
it forced Sweden’s two big truck
manufacturers, Volvo and Scania, to
drop their merger plans.20 But
multinationals are continuing to
acquire companies everywhere,
including developing countries where
privatization (especially in Latin
America and Eastern Europe) and
financial crisis (in Asia) have
encouraged them to swoop in and buy
up assets at fire sale prices. It is
doubtful that national or global
antitrust actions will have much effect
on this kind of aggressive M&A

The New Concentration: Early
Neither the goals of the new merger
makers nor the early performance
returns of their creations bode well for
workers, consumers, and the large
majority of people with minimal or no
stock ownership.

The airline industry was a poster-boy
for deregulation in 1978; soon it
became a model for how free and
unregulated markets evolve toward
oligopolistic concentration. By 1987
the six largest carriers controlled 85
percent of the market compared with
73 percent in 1978 and were
increasing fares across the board. In
1998 the top six’s share was 86
percent, but effectively higher with
three code-sharing alliances now
linking all six in pairs.21 A new round
of mergers in 2001, with United
seeking to acquire US Airways and
American buying TWA, threatens to
reduce the number of dominant firms
to three (United, American, and
Delta). If United and American both
become larger, Delta warns that it
might take over Continental to avoid
being put at a competitive
disadvantage. Even before these
imminent mergers are carried out, the
airline industry is displaying less
competition, elevated prices, and
sharply deteriorated passenger service.
In measures of consumer
dissatisfaction over the past seven
years, no industry matches the airlines,
but banking comes close.22

Contrary to the expectation that
deregulation of banking markets and
new technologies in the industry
would increase competition and
benefit consumers, bank mergers have
tightened concentration levels in local
markets, raised interest rates for loan
customers, and lowered rates on local
deposit accounts. This is partly a
result of greater market power, but it
also reflects the fee rates of big
multistate banks (15 to 20 percent
higher than smaller banks) and their
disinterest in serving poor and middle-
class consumers, as opposed to
business and upscale customers. An
example is FleetBoston Financial,
which alone has 28 percent of the
retail market in New England but
derives only 18 percent of its profits
from retail banking. Focusing on
markets with greater profit potential,
its retail customers ―are forced to
accept higher prices and lower-quality
service.‖23 A New York Federal
Reserve study shows that the rapid
growth in the market share of major
banks is almost entirely due to M&As;
antitrust authorities simply looked the
other way, even though such mergers
produce no efficiency gains that might
offset some of the damage to
Paper industry mergers have been
openly designed ―to restore‖ fallen
prices to levels that provided ―a more
reasonable return to producers.…The
goal is getting to a certain level and
staying there,‖ states industry
executive Patrick Moore. And in the
corrugated-box industry, consolidation
has facilitated a 15 percent cut in
capacity and a 43 percent rise in
prices.25 Drug industry mergers have
been justified on the ground of
economies of scale, especially in the
research essential to the industry. But
Pfizer’s hostile takeover of Warner-
Lambert was based on strategic
market considerations—fear that a
rival takeover might end its co-
marketing arrangement with Warner-
Lambert in selling the high-flying
anti-cholesterol drug Lipitor, and
desire to maintain profit-generating
growth in the face of a dwindling
product lineup.26 Furthermore,
consolidating drug research reduces
the number of independent sources of
that research and conflicts with the
public’s interest in a high rate of
important drug innovations, which
have come disproportionately from
small labs. In all, these mergers will
reduce the number of active firms in
the industry and increase market
power with no offset that might
benefit consumers.

The merger wave has swept into
farming and food. In 1996 the
Clinton-Gore ―Freedom to Farm Act‖
liberated the sector from price
controls, but continued annual
subsidies, $28 billion in 2000, for a
seven-year term instead of the
traditional five years. It retained the
sugar, peanut, and dairy programs that
keep consumer prices high. Of the
$1.4 billion in sugar price supports, 40
percent goes to the largest 1 percent of
producers, a concentration ratio
typical of all government subsidies to
the farm sector.27 The Act furthered the
exodus of small farmers (who called it
―The Freedom to Fail Act‖), and set
the stage for a more capital-intensive
agriculture controlled by agribusiness
corporations like Archer Daniels
Midland, ConAgra, and
Cargill/Monsanto. Numerous mergers
and cross-ownership investments in
grain farming and processing, in
beefpacking and cattle feedlots, in hog
and chicken growing and processing,
and in biotech and seeds have also put
independent farmers at a bargaining
disadvantage and made many into
captive and contracted suppliers.
Spreads between prices paid for
livestock and wholesale prices of meat
have widened greatly in recent years.
And growing concentration of
supermarket chains (four firms control
over 70 percent of the market in 94
large cities) helps assure that
consumers will not be benefiting from
these developments.28

In the 1983 edition of his book The
Media Monopoly, Ben Bagdikian
estimated that fifty firms dominated
the mass media; in his 2000 edition,
the number had fallen below ten. The
jumbo deals of the 1990s have
centralized the media in nine
transnational conglomerates—Disney,
Time Warner, Viacom, News
Corporation, Bertelsmann, General
Electric (owner of NBC), Sony,
AT&T–Liberty Media, and Vivendi
Universal. These giants own all major
                                                       film studios, TV networks, and
                                                       recorded music companies, most cable
                                                       channels, cable systems, magazines,
                                                       major market TV stations, and book
                                                       publishers; and they have joint
                                                       ventures and other strategic alliances
                                                       among themselves and with other
                                                       media entities. Here too lines between
                                                       industries—communications and
                                                       media—are breaking down, blurring
                                                       any conglomerate or vertical tinge that
                                                       mergers may appear to have. These
                                                       giant companies not only have market
                                                       power; their focus on entertainment
                                                       rather than on serious news reporting
                                                       and discussion of public issues, and
                                                       their unified cultural and political
                                                       values, raise dire questions about their
                                                       role in a democracy.

                                                       Even the much-proclaimed ―efficiency
                                                       enhancement‖ goal of the mergers has
                                                       not been realized. Many of them have
                                                       been hastily cobbled together by firms
                                                       fearing they would be passed by in a
                                                       consolidation process or frozen
June 3, 2010

Merger is a tool used by companies for the purpose of expanding their operations often aiming at
an increase of their long term profitability. Evidence on the success of M&A however is mixed:
50-75% of all M&A deals are found to fail adding value.

Usually mergers occur in a consensual setting where executives from the target company help
those from the purchaser in a due diligence process to ensure that the deal is beneficial to both
parties. Acquisitions can also happen through a hostile takeover by purchasing the majority of
outstanding shares of a company in the open market against the wishes of the target's board. In
the United States, business laws vary from state to state whereby some companies have limited
protection against hostile takeovers. One form of protection against a hostile takeover is the
shareholder rights plan, otherwise known as the "poison pill". See Delaware corporations.

Historically, mergers have often failed to add significantly to the value of the acquiring firm's
shares (King, et al., 2004). Corporate mergers may be aimed at reducing market competition,
cutting costs (for example, laying off employees), reducing taxes, removing management,
"empire building" by the acquiring managers, or other purposes which may not be consistent with
public policy or public welfare. Thus they can be heavily regulated, requiring, for example,
approval in the U.S. by both the Federal Trade Commission and the Department of Justice.

The U.S. began their regulation on mergers in 1890 with the implementation of the Sherman Act.
It was meant to prevent any attempt to monopolize or to conspire to restrict trade. However,
based on the loose interpretation of the standard "Rule of Reason", it was up to the judges in the
U.S. Supreme Court to rule either lenient (as with U.S. Steel in 1920) or strict (as with Alcoa in

[edit] Types of acquisition
An acquisition can take the form of a purchase of the stock or other equity interests of the target
entity, or the acquisition of all or a substantial amount of its assets.

                                      Share purchases - in a share purchase the buyer buys the
                                       shares of the target company from the shareholders of the
                                       target company. The buyer will take on the company with
                                       all its assets and liabilities.

                                      Asset purchases - in an asset purchase the buyer buys the
                                       assets of the target company from the target company. In
                                       simplest form this leaves the target company as an empty
                                       shell, and the cash it receives from the acquisition is then
                                       paid back to its shareholders by dividend or through
                                       liquidation. However, one of the advantages of an asset
                                       purchase for the buyer is that it can "cherry-pick" the assets
                                       that it wants and leave the assets - and liabilities - that it
                                       does not. This leaves the target in a different position after
                                       the purchase, but liquidation is nevertheless usually the end

The terms "demerger", "spin-off" or "spin-out" are sometimes used to indicate the effective
opposite of a merger, where one company splits into two, the 2nd often being a separately listed
stock company if the parent was a stock company.

[edit] Financing M&A
Mergers are generally differentiated from acquisitions partly by the way in which they are
financed and partly by the relative size of the companies. Various methods of financing an M&A
deal exist:

[edit] Cash
A company acquiring another will frequently pay for the other company by cash. Such
transactions are usually termed acquisitions rather than mergers because the shareholders of the
target company are removed from the picture and the target comes under the (indirect) control of
the bidder's shareholders alone.

The cash can be raised in a number of ways. The company may have sufficient cash available in
its account, but this is unlikely. More often the cash will be borrowed from a bank, or raised by
an issue of bonds. Acquisitions financed through debt are known as leveraged buyouts, and the
debt will often be moved down onto the balance sheet of the acquired company.

Furthermore, a cash deal would make more sense during a downward trend in the interest rates,
i.e. the yield curves are downward sloping. Again, another advantage of using cash for an
acquisition is that there tends to lesser chances of EPS dilution for the acquiring company. But a
caveat in using cash is that it places constraints on the cash flow of the company.

[edit] Hybrids
An acquisition can invole a cash and debt combination, or a combination of cash and stock of the
purchasing entity, or just stock. The Sears-Kmart acquisition is an example of a cash deal.

[edit] Examples
In a 1985 The purchasing company issues debentures to the public and money received on issue
of debentures is paid to the selling company

[edit] Motives behind M&A
These motives are considered to add shareholder value:

                                     Economies of scale: This refers to the fact that the
                                      combined company can often reduce duplicate departments
                                      or operations, lowering the costs of the company relative to
                                      theoretically the same revenue stream, thus increasing

                                     Increased revenue/Increased Market Share: This motive
                                       assumes that the company will be absorbing a major
                                       competitor and thus increase its power (by capturing
                                       increased market share) to set prices.

                                     Cross selling: For example, a bank buying a stock broker
                                      could then sell its banking products to the stock broker's
                                      customers, while the broker can sign up the bank's
                                      customers for brokerage accounts. Or, a manufacturer can
                                      acquire and sell complementary products.

                                     Synergy: Better use of complementary resources.
                                    Taxes: A profitable company can buy a loss maker to use
                                     the target's tax write-offs. In the United States and many
                                     other countries, rules are in place to limit the ability of
                                     profitable companies to "shop" for loss making companies,
                                     limiting the tax motive of an acquiring company.

                                    Geographical or other diversification: This is designed to
                                     smooth the earnings results of a company, which over the
                                     long term smoothens the stock price of a company, giving
                                     conservative investors more confidence in investing in the
                                     company. However, this does not always deliver value to
                                     shareholders (see below).

                                    Resource transfer: resources are unevenly distributed across
                                     firms (Barney, 1991) and the interaction of target and
                                     acquiring firm resources can create value through either
                                     overcoming information asymmetry or by combining
                                     scarce resources.

                                    Vertical integration: Companies acquire part of a supply
                                     chain and benefit from the resources.

                                    Increased Market share, which can increase Market power:
                                      In an oligopoly market, increased market share generally
                                      allows companies to raise prices. Note that while this may
                                      be in the shareholders' interest, it often raises antitrust
                                      concerns, and may not be in the public interest.

These motives are considered to not add shareholder value:

                                    Diversification: While this may hedge a company against a
                                     downturn in an individual industry it fails to deliver value,
                                     since it is possible for individual shareholders to achieve
                                     the same hedge by diversifying their portfolios at a much
                                     lower cost than those associated with a merger.

                                    Overextension: Tend to make the organization fuzzy and

                                    Manager's hubris: manager's overconfidence about
                                     expected synergies from M&A which results in
                                     overpayment for the target company.

                                    Empire building: Managers have larger companies to
                                     manage and hence more power.

                                    Manager's Compensation: In the past, certain executive
                                     management teams had their payout based on the total
                                     amount of profit of the company, instead of the profit per
                                   share, which would give the team a perverse incentive to
                                   buy companies to increase the total profit while decreasing
                                   the profit per share (which hurts the owners of the
                                   company, the shareholders); although some empirical
                                   studies show that compensation is rather linked to
                                   profitability and not mere profits of the company.

                                  Bootstrapping: Example: how ITT executed its merger.

[edit] M&A Advisors
[edit] 2005
 Mergers & Acquisitions Leaders 1 January 2004 - 31 December 2004 (based on $ value)
                                                  Market   Rank Value Mrkt size ($
   Market Sector         # 1 Ranked Advisor
                                                Share (%)     $US mil        mils)
Worldwide Completed -
                           Goldman Sachs & Co                 6.0         980.3      16,435.4
Imputed Fees
Worldwide Announced
                           Goldman Sachs & Co
Financial Advisors
Worldwide Announced
                            Sullivan & Cromwell
Legal Advisors
Worldwide Completed
                           Goldman Sachs & Co
Financial Advisors
Worldwide Completed
                            Sullivan & Cromwell
Legal Advisors
US Announced Financial
                             JP Morgan Chase
US Announced Legal         Skadden, Arps, Slate,
Advisors                     Meagher & Flom
US Completed Financial
                             Lehman Brothers
US Completed Legal
                            Sullivan & Cromwell
[edit] 2004
 Mergers & Acquisitions Leaders 1 January 2004 - 31 December 2004 (based on $ value)
                                            Market       Fees & Rank     Mrkt size ($
  Market Sector       # 1 Ranked Advisor
                                           Share (%) Value $US mil          mils)
Worldwide Completed -
                      Goldman Sachs & Co                 --              897.8         14,312
Imputed Fees
Worldwide Announced      Goldman Sachs & Co           29.6          576,664.3     1,949,000.9
Financial Advisors
Worldwide Announced
                             Sullivan & Cromwell                    22.1             430,160.1
Legal Advisors
Worldwide Completed
                             Goldman Sachs & Co                     31.0             356,182.1          1,516,079.8
Financial Advisors
Worldwide Completed
                             Sullivan & Cromwell                    33.0             500,244.3
Legal Advisors
US Announced
                               JP Morgan Chase                      32.5             270,792.4
Financial Advisors
US Announced Legal           Skadden, Arps, Slate,
                                                                    30.5             254,428.2
Advisors                       Meagher & Flom
US Completed Financial
                       Goldman Sachs & Co                           36.0             269,476.7
US Completed Legal
                             Sullivan & Cromwell                    30.8             230,415.3
[edit] 2003
 Mergers & Acquisitions Leaders 1 January 2003 - 31 December 2003 (based on $ value)
                                              Market      Rank Value Mrkt size ($
   Market Sector        # 1 Ranked Advisor
                                             Share (%)     $US mil          mils)
Worldwide Announced
                               Goldman Sachs & Co                      29.5          392,699.5          1,379,541.5
Financial Advisors
Worldwide Announced            Skadden, Arps, Slate,
                                                                       13.2          175,812.9
Legal Advisors                   Meagher & Flom
Worldwide Completed
                               Goldman Sachs & Co                      31.0          356,182.1          1,206,972.9
Financial Advisors
Worldwide Completed
                                      Linklaters                       17.9          205,727.4
Legal Advisors
US Announced Financial
                               Goldman Sachs & Co                      45.6          239,420.6
US Announced Legal              Simpson Thacher &
                                                                       19.5          102,569.8
Advisors                             Bartlett
US Completed Financial
                               Goldman Sachs & Co                      44.9          200,854.1
US Completed Legal             Skadden, Arps, Slate,
                                                                       27.3          122,171.0
Advisors                         Meagher & Flom

[edit] M&A marketplace difficulties
         This article may require cleanup to meet Wikipedia's quality standards.
         Please discuss this issue on the talk page or replace this tag with a more specific message.
          This article has been tagged since September 2005.

No marketplace currently exists for the mergers and acquisitions of privately owned small to
mid-sized companies. Market participants often wish to maintain a level of secrecy about their
efforts to buy or sell such companies. Their concern for secrecy usually arises from the possible
negative reactions a company's employees, bankers, suppliers, customers and others might have
if the effort or interest to seek a transaction were to become known. This need for secrecy has
thus far thwarted the emergence of a public forum or marketplace to serve as a clearinghouse for
this large volume of business.

At present, the process by which a company is bought or sold can prove difficult, slow and
expensive. A transaction typically requires six to nine months and involves many steps. Locating
parties with whom to conduct a transaction forms one step in the overall process and perhaps the
most difficult one. Qualified and interested buyers of multimillion dollar corporations are hard to
find. Even more difficulties attend bringing a number of potential buyers forward simultaneously
during negotiations. Potential acquirers in industry simply cannot effectively "monitor" the
economy at large for acquisition opportunities even though some may fit well within their
company's operations or plans.

An industry of professional "middlemen" (known variously as intermediaries, business brokers,
and investment bankers) exists to facilitate M&A transactions. These professionals do not
provide their services cheaply and generally resort to previously-established personal contacts,
direct-calling campaigns, and placing advertisements in various media. In servicing their clients
they attempt to create a one-time market for a one-time transaction. Many but not all transactions
use intermediaries on one or both sides. Despite best intentions, intermediaries can operate
inefficiently because of the slow and limiting nature of having to rely heavily on telephone
communications. Many phone calls fail to contact with the intended party. Busy executives tend
to be impatient when dealing with sales calls concerning opportunities in which they have no
interest. These marketing problems typify any private negotiated markets.

The market inefficiencies can prove detrimental for this important sector of the economy.
Beyond the intermediaries' high fees, the current process for mergers and acquisitions has the
effect of causing private companies to initially sell their shares at a significant discount relative
to what the same company might sell for were it already publicly traded. An important and large
sector of the entire economy is held back by the difficulty in conducting corporate M&A (and
also in raising equity or debt capital). Furthermore, it is likely that since privately held companies
are so difficult to sell they are not sold as often as they might or should be.

Previous attempts to streamline the M&A process through computers have failed to succeed on a
large scale because they have provided mere "bulletin boards" - static information that advertises
one firm's opportunities. Users must still seek other sources for opportunities just as if the
bulletin board were not electronic. A multiple listings service concept has not been applicable to
M&A due to the need for confidentiality. Consequently, there is a need for a method and
apparatus for efficiently executing M&A transactions without compromising the confidentiality
of parties involved and without the unauthorized release of information. One part of the M&A
process which can be improved significantly using networked computers is the improved access
to "data rooms" during the due diligence process.
[edit] Merger
In business or economics a merger is a combination of two companies into one larger company.
Such actions are commonly voluntary and involve stock swap or cash payment to the target.
Stock swap is often used as it allows the shareholders of the two companies to share the risk
involved in the deal. A merger can resemble a takeover but result in a new company name (often
combining the names of the original companies) and in new branding; in some cases, terming the
combination a "merger" rather than an acquisition is done purely for political or marketing

[edit] The Great Merger Movement
The Great Merger Movement happened from 1895 to 1905. During this time, small firms with
little market share consolidated with similar firms to form large, powerful institutions that
became even market dominating. The vehicle used were so-called Trusts. To truly understand
how large this movement was - in 1900 the value of firms acquired in mergers was 20% of GDP.
In 1990 the value was only 3% and from 1998-2000 is was around 10-11% of GDP.
Organizations that commanded the greatest share of the market in 1905 saw that command
disintegrate by 1929 as smaller competitors joined forces with each other.

[edit] Short Run Factors
One of the major short run factors that sparked The Great Merger Movement was the desire to
keep prices high. That is, with many firms in a market, supply of the product remains high.
During the panic of 1893, the demand declined. When demand for the good falls, as illustrated by
the classic supply and demand model, prices are driven down. To avoid this decline in prices,
firms found it profitable to collude and manipulate supply to counter any changes in demand for
the good. This type of cooperation led to widespread horizontal integration amongst firms of the
era. Horizontal integration is when multiple firms responsible for the same service or production
process join together. As a result of merging, this involved mass production of cheap
homogeneous output that exploited efficiencies of volume production to earn profits on volume.
Focusing on mass production allowed firms to reduce unit costs at a much lower rate. These
firms usually were capital-intensive and had high fixed costs. Due to the fact of new machines
were mostly financed through bonds, interest payments on bonds were high followed by the
panic of 1983, yet no firm was willing to accept quantity reduction during this period.

[edit] Long Run Factors
In the long run, due to the desire to keep costs low, it was advantageous for firms to merge and
reduce their transportation costs thus producing and transporting from one location rather than
various sites of different companies as in the past. This resulted in shipment directly to market
from this one location. In addition, technological changes prior to the merger movement within
companies increased the efficient size of plants with capital intensive assembly lines allowing for
economies of scale. Thus improved technology and transportation were forerunners to the Great
Merger Movement. In part due to competitors as mentioned above, and in part due to the
government, however, many of these initially successful mergers were eventually dismantled.
The government over time grew weary of big businesses merging and created the Sherman Act in
1890, setting rules against price fixing(Section I) and monopolies(Section II). In the modern era,
everyone knows of the controversy over Microsoft, but starting in the 1890s with such cases as
U.S. versus Addyston Pipe and Steel Co. the courts attacked such companies for strategizing with
others or within their own companies to maximize profits. Ironically, such acts against price
fixing with competitors created a greater incentive for companies to unite and merge under one
name so that they were not competitors anymore and technically not price fixing. The Sherman
Act is still under debate to this day, ranging from broad to strict to mixed interpretations. There
are many varied opinions on whether it is acceptable to dominate a market based on size and
resources, and we must wait and see what the courts of the future will conclusively decide.

[edit] Classifications of mergers
                                     Horizontal mergers take place where the two merging
                                      companies produce similar product in the same industry.

                                     Vertical mergers occur when two firms, each working at
                                      different stages in the production of the same good,

                                     Conglomerate mergers take place when the two firms
                                      operate in different industries.

A unique type of merger called a reverse merger is used as a way of going public without the
expense and time required by an IPO.

The contract vehicle for achieving a merger is a "merger sub".

The occurrence of a merger often raises concerns in antitrust circles. Devices such as the
Herfindahl index can analyze the impact of a merger on a market and what, if any, action could
prevent it. Regulatory bodies such as the European Commission and the United States
Department of Justice may investigate anti-trust cases for monopolies dangers, and have the
power to block mergers.

Accretive mergers are those in which an acquiring company's earnings per share (EPS) increase.
An alternative way of calculating this is if a company with a high price to earnings ratio (P/E)
acquires one with a low P/E.

Dilutive mergers are the opposite of above, whereby a company's EPS decreases. The company
will be one with a low P/E acquiring one with a high P/E.

The completion of a merger does not ensure the success of the resulting organization; indeed,
many mergers (in some industries, the majority) result in a net loss of value due to problems.
Correcting problems caused by incompatibility—whether of technology, equipment, or corporate
culture— diverts resources away from new investment, and these problems may be exacerbated
by inadequate research or by concealment of losses or liabilities at one of the partners.
Overlapping subsidiaries or redundant staff may be allowed to continue, creating inefficiency,
and conversely the new management may cut too many operations or personnel, losing expertise
and disrupting employee culture. These problems are similar to those encountered in takeovers.
For the merger not to be considered a failure, it must increase shareholder value faster than if the
companies were separate, or prevent the deterioration of shareholder value more than if the
companies were separate.

[edit] FX impact of cross-border M&A
In a study conducted in 2000 by Lehman Brothers, it was found that, on average, large M&A
deals cause the domestic currency of the target corporation to appreciate by 1% relative to the
acquirer's. For every $1-billion deal, the currency of the target corporation increased in value by
0.5%. More specifically, the report found that in the period immediately after the deal is
announced, there is generally a strong upward movement in the target corporation's domestic
currency (relative to the acquirer's currency). Fifty days after the announcement, the target
currency is then, on average, 1% stronger. [1]

[edit] Major mergers & acquisitions in the 1990s
Acquirer and target, announcement date, deal size, share and cash payment.
June 3, 2010

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