During the 1980s, corporate mergers and acquisitions have assumed historically high levels of activity in the American economy (Drucker, 1986, p. 17). Earlier major episodes of merger and acquisition activity in the American economy (particularly those in the 1960s) were primarily motivated by corporate diversification strategies, in which the principal goal was growth (Glueck, 1984, p. 274). By contrast, the unfriendly takeover (wherein the strategic goal often has little relevance to the primary business activity of the acquiring corporation) has characterized most of the acquisition and merger activity of the 1980s (Drucker, 1986, p. 20).
Further, an increasing proportion of the acquisition and merger activity in the late 1980s is of the leveraged buyout (LBO) variety. A leveraged buyout is one in which the cost of the purchase is largely borne by the firm being acquired. In most instances, these deals are structured to be financed by so called junk bonds. Junk bond is the term used to describe an (1) original issue, (2) high yield, (3) low grade, (4) corporate bond (Weinstein, 1987, p. 76). In the context of high and low grade, this definition is generally applied so that the lowest ranked bond which would be included in the high grade classification would be Moody's Baa (Weinstein, 1987, p. 76).
Statement of the Problem
Regardless of the strategic goals involved, merger and acquisition activity usually results in some degree of corporate diversification. This result has been particularly characteristic of most mergers and acquisitions in the 1980s, where the principal business activities of target firms, more often than not have little in common with those of the raiding firms.
Serious questions have been raised as to the adverse effects on the American economy which will stem from the mergers and acquisitions of the 1980s, particularly with respect to LBOs. These qu...