Overview
After an introduction in which merger is defined and an indication is given of the significance of mergers in the U.K. economy, we consider why the topic currently deserves such close attention. This is followed by a discussion, with examples, of the reasons for mergers; after which we look in more detail at the financial nature of the corporate merger decision and the economic implications of this. Consideration of the phenomenon of merger cycles and of business survival is followed by a concluding section on the wider economic implications of mergers. Discussion of Government policy on mergers is delayed until Chapter IX.
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References
M. A. Utton, The Effect of Mergers on Concentration: U.K. Manufacturing Industry, 1954–1965, Journal of Industrial Economics , Vol. XX (1971), 43
See for example W. G. Shepherd, Changes in British Industrial Concentration, 1951–58, Oxford Economic Papers, Vol. XXIII (1966), 126–32;
and M. C. Sawyer, Concentration in British Manufacturing Industry, Oxford Economic Papers, Vol. XXVIII (1971), 352–83. See also S. Aaronovitch and M. C. Sawyer, The Concentration of British Manufacturing, Lloyds Bank Review (October 1974), 14–23. Up-to-date figures at the individual-industry level are to be found in trade journals, the E.I.U. Retail Business, and in stockbroker circulars.
See report on the research of Professor S. J. Prais in National Institute of Economic and Social Research 30th Annual Report, 1972, (1973), p. 10; see also the same author’s A New Look at the Growth of Industrial Concentration, Oxford Economic Papers, Vol. XXVI (1974), 273–288
Hansard 799 H. C. Deb. (5th Ser.) pp. 24–27 (6th April 1970)
See The Times (19th March 1973)
See M. A. Utton, Ref. 1
P. E. Hart, M. A. Utton and G. Walshe, Mergers and Concentration in British Industry, C.U.P., Cambridge (1973), p. 4
See M. Beesley, Mergers and Economic Welfare, in I.E.A., Mergers, Take-overs and the Structure of Industry, I.E.A., London (1973), p. 73
B. S. Yamey, Do Monopoly and Near-Monopoly Matter?, in M. Peston and B. Corry (eds.), Essays in Honour of Lord Rob bins, Weidenfeld and Nicholson, London (1972), pp. 322–23
Monopolies, Mergers and Restrictive Practices, H.M.S.O., (1964), Cmnd. 2299, para. 22
See J. D. Gribbin, The Operation of the Mergers Panel Since 1965, Trade and Industry (17 January 1974), 72
See M. Howe, British Merger Policy Proposals and American Experience, Scottish Journal of Political Economy, Vol. XIX (1972), 37–61
A. Sutherland, The Management of Mergers Policy, in A. Cairncross, (ed.) The Managed Economy, Blackwell, Oxford (1970), pp. 106–34
P. Farrant, The Truth about Mergers, Management Today (May 1970), 120
A. Singh, Take-Overs: Their Relevance to the Stock Market and the Theory of the Firm, C.U.P., Cambridge (1971), p. 165
See M. A. Utton, On Measuring the Effects of Industrial Mergers, Scottish Journal of Political Economy, Vol. XXI (1974), 13–28
F. R. Jervis, The Economics of Mergers, Routledge and Paul, London (1971), p. 133
S. R. Reid, Mergers, Managers and the Economy, McGraw Hill, London (1968), p. 128
G. D. Newbould, Management and Merger Activity, Guthstead, Liverpool (1970)
G. Turner, The Leyland Papers, Eyre and Spottiswoode, London (1971), p. 208
Quoted in, Mergers, Amalgamations and Company Size, The Director (August 1972), 184
J. Kitching, The Strategy of Merging, Management Today (October 1969), 75
T. Lester, The Business Marriage Brokers, Management Today (October 1969), 58
G. Foster, How the GRE Grew, Management Today (August 1974), 53
G.E.C.-English Electric, 1969 Annual Report, p. 4
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W. P. J. Maunder, Technical Progress, Competition and Mergers: Some Empirical Evidence for British Competition Policy, Economics, Vol. X (1974), 236
G. D. Newbould, Ref. 19, p. 139
See W. S. Howe, Bilateral Oligopoly and Competition in the U.K. Food Trades, The Business Economist, Vol. V (1973), 77–78, and references therein
R. Winsbury, The Labours of British Leyland, Management Today (October 1969), 67
D. Thomas, Dunlop-Pirelli’s Squeezed Start, Management Today (November 1971), 64 and 71
See G. Foster, Blending Brooke Bond Liebig, Management Today (October 1969), 82; and the same author’s, The Cadbury Schweppes Mix, Management Today (April 1970), 64–73
H. Townsend, Competition in Petrol Retailing, Three Banks Review (March 1966), 21
Monopolies Commission, Report on Petrol Supply to Retailers, H.M.S.O., (1965), H.C.P. 241
The Analysis of European Distribution Systems, International Journal of Physical Distribution, Vol. III (1972), 35
J. Mark, The British Brewing Industry, Lloyds Bank Review (April 1974), 33
H. B. Rose, in foreword to A. Vice, The Strategy of Takeovers, McGraw Hill, Maidenhead (1971), p. xvi
Financial Times (30 November 1968)
Industrial Policy Group, Merger Policy, London (1971), para. 5
J. Kitching, Why do Mergers Miscarry?, Harvard Business Review, Vol. XLV (1967), 88 and 90
G. D. Newbould and A. S. Jackson, The Receding Ideal, Guthstead, Liverpool (1972), p. 109
Ibid., p. 114
P. L. Cook and R. L. Cohen, Effects of Mergers, Allen and Unwin, Cambridge (1958), pp. 433–43
A. Hunter, Mergers and Industry Concentration in Britain, Banca Nazionale del Lavoro Quarterly Review, Vol. XXII (1969), 382
P. E. Hart, M. A. Utton and G. Walshe, Ref. 7, p. 6
S. R. Reid, Ref. 18, Part I
Ibid., p. 124
Unfortunately analysis correlating the business cycle and merger activity has been carried out largely in the U.S. and the existence of any correlation, let alone the interpretation of such findings, has been questioned. See C. Maule, A Note on Mergers and the Business Cycle, Journal of Industrial Economics, Vol. XVI (1968), 99–105. Typical of the uncertain state of knowledge here is the comment: ‘Consistently, the most positive correlation (against merger activity) has been found with measures of the general level of stock market prices. At the same time, the explanations which have been offered for this are less than convincing’.
M. A. Utton, Some Features of the Early Merger Movements in British Manufacturing Industry, University of Reading Discussion Papers in Economics, No. 27 (1970), p. 4
See L. Hannah, Mergers in British Manufacturing Industry, 1880–1918, Oxford Economic Papers, Vol. XXVI (1974), 1–20
A detailed paper covering this aspect of mergers and using U.S. data 1919–61 is R. L. Nelson’s Business Cycle Factors in the choice between Internal and External Growth in W. W. Alberts and J. E. Segall (eds.) The Corporate Merger, University of Chicago, Chicago, 2nd ed. (1974), pp. 52–70
See S. R. Reid, Ref. 18, pp. 47–9
There is a considerable body of academic literature on this, and in purely rational terms shareholders ought to be indifferent between retentions and distributions. In fact many shareholders have a significant preference for regular dividend distributions. See R. J. Briston and C. R. Tomkins, Dividend Policy, Shareholder Satisfaction, and the Valuation of Shares, Journal of Business Finance, Vol. 11 (1970), 17–24
See A. Vice, Balance Sheet for Takeovers, in Radical Reaction, I.E.A., London (1961), pp. 168–70
See W. Davis, Merger Mania, Constable, London (1970)
See, How Jim Slater Bought Forestal, in A. Vice, Ref. 37 (1971), pp. 1–11. Vice also gives a similar example (p. 46) in relation to I.P.C.’s takeover of Amalgamated Press in 1959
R. W. Moon, Business Mergers and Take-Over Bids, Gee, London, 3rd ed. (1968), p. 119
H. B. Rose and G. D. Newbould, The 1967 Take-Over Boom, Moorgate and Wall Street (Summer 1967), 7–8
M. Gort, An Economic Disturbance Theory of Mergers, Quarterly Journal of Economics, Vol. LXXXIII (1969), 624
See E. T. Penrose, The Theory of the Growth of the Firm, Blackwell, Oxford (1959), pp. 155 and 160
W. W. Alberts, Conglomerate Growth by Acquisition Revisited, in W. W. Alberts and J. E. Segall (eds.), Ref. 51, pp. 52–70
M. L. Kastens, How Much is an Acquisition Worth?, Long Range Planning (1973), 54
See H. G. Manne, Mergers and the Market for Corporate Control, Journal of Political Economy, Vol. LXXIII (1965), 110–20
Ibid., 113
See J. M. Samuels and F. M. Wilkes, Management of Company Finance, Nelson, London (1971), pp. 362–4. Evidence supporting the view that those companies which are currently ‘undervalued’ tend to be subject to takeover is given in J. M. Samuels and J. Tzoannos, Takeovers and Share Price Evaluation, Business Ratios, No. 2 (1969), 12–16
W. W. Alberts and J. E. Segall (eds.), Ref. 51, xvi
See J. Whittaker, What Level for Share Prices?, Lloyds Bank Review (1968), pp. 1–14
See H. B. Rose and G. D. Newbould, Ref. 58, 23
See, for example, D. A. Kuehn, Stock Market Valuation and Acquisitions: An Empirical Test of one Component of Managerial Utility, Journal of Industrial Economics, Vol. XVII (1969), 132–44. For more recent analysis see D. Kuehn, Takeovers and the Theory of the Firm, Macmillan, London (1975). Newbould, on the basis of statistical analysis covering U.K. mergers in the years 1967 and 1968, found V (in absolute or relative terms) ‘irrelevant to the incidence of mergers’. See G. D. Newbould, Ref. 19, pp. 95 – 107.
On the other hand Hindley, using U.S. data, found that firms which were most frequently raided had lower values for V than unraided firms. See B. Hindley, Separation of Ownership and Control in the Modern Corporation, Journal of Law and Economics, Vol. XIII (1970), 185–221
See A. Rubner, The Ensnared Shareholder, Penguin, London (1965), pp. 123–6
D. A. Kuehn and R. L. Marris, New Light on Take-Overs, The Banker (1973), 758
These sentences have offered a very brief synopsis of Dr. Singh’s results. It is hoped that they do some justice to Dr. Singh’s full account of his findings. See A. Singh, ibid., Ref. 15, chs. III—VI
Sir Geoffrey Howe, Government Policy on Mergers, Trade and Industry (1st November 1973), 232
See a discussion of this in J. F. Pickering, Industrial Structure and Market Conduct, Martin Robertson, London (1974) pp. 137–44
B. Hindley, Industrial Merger and Public Policy, I.E.A., London (1970), p. 18
Quoted in, Mergers, Amalgamations and Company Size, The Director (August 1972), 179
See O. E. Williamson, The Economics of Discretionary Behaviour: Managerial Objectives in a Theory of the Firm, Kershaw, London (1974), pp. 21–25
See G. Meeks and G. Whittington, Giant Companies in the United Kingdom 1948–69, Economic Journal, Vol. LXXXV (1975), 824–43.
Some further support for the relationship between company size and acquisition intensity is given in S. Aaronovitch and M. C. Sawyer, Mergers, Growth, and Concentration, Oxford Economic Papers, Vol. XXVII (1975), 139–41
See K. D. George and A. Silberston, The Causes and Effects of Mergers, Scottish Journal of Political Economy, Vol. XXII (1975), 183
A. Singh, Take-overs, Economic Natural Selection, and the Theory of the Firm, Economic Journal, Vol. LXXXV (1975), 503
S. Aaronovitch and M. C. Sawyer, Big Business, Macmillan, London (1975), p. 190
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© 1978 W. Stewart Howe
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Howe, W.S. (1978). Mergers. In: Industrial Economics. Palgrave, London. https://doi.org/10.1007/978-1-349-86141-5_7
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