Mergers & Acquisitions in 1980s American Economy

The purpose of this research is to provide an overview of merger and acquisition activity in the American economy in the 1980s. Serious questions have been raised concerning the potential adverse effects on the American economy which may stem from the mergers and acquisitions of the 1980s.1 These concerns range from macroeconomic effects to the impacts on corporate equity shareholders.2

BACKGROUND ON THE MERGER ENVIRONMENT

During the 1980s, corporate mergers and acquisitions haveassumed historically high levels of activity in the American economy.3 Earlier major episodes of merger and acquisition activity in the American economy (particularly in the 1960s) were primarily motivated by corporate diversification strategies, in which the principal goal was growth.4 By contrast,

1D. Bandow, "Are Hostile Takeovers Good for the Economy?" Business and Society Review, Fall 1987, 4549.

2P. F. Drucker, "The Problem of Corporate Takeovers: What Is to Be Done?" The Public Interest, Winter 1986, 20.

4W. F. Glueck, Business Policy and Strategic Management, 4th ed. (New York: McGrawHill Book Company, 1984),274.

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.5

Regardless of the strategic goals involved, merger and acquisition activity usually re

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financial gains, it may not be assumed that the merger is intended to create diversification benefits. One study identified two different types of synergy which may be associated with mergers. These synergy types are operational synergy and financial synergy.11 It was found that financial synergy typically creates greater value than does operational synergy.12 Therefore, any comparative advantages over competing firms will more likely be gained through __________ 11S. Chatterjeu, "Types of Synergy and Economic Value: The Impact of Acquisitions on Merging and Rival Firms," Strategic Management Journal, 7 (1986): 119139. 12Ibid. 5financial synergy rather than through operational synergy, if the finding is generally valid. It was also found that the greatest value for both merging and rival firms results when collusive synergies are involved in the merger or acquisition of firms. Synergies, either financial or operational, and whether collusive or not, do not, however, appear to be, in all instances, relevant with respect to the development of competitive advantage.13 Typically, it has been found that hori zontal mergers, specifically, do not produce longterm advantages over rival firms. This finding impl

Category: Economics - M