Hempel(1971) company’s asset, type of financing and the time

whether conglomerate mergers and horizontal or vertical mergers differ in terms
of certain financial and some other related characteristics. Mergers were
divided into 2 groups. First group consist of   mergers that were completed from 1958-1968
for which comparable financial characteristics were available , sample  consist of 200 mergers and the second group
consist of  all common stock exchanges merger
that were completed from 1950-1968 for which comparable financial characteristics
were available, sample consist of 84 mergers. The author used t-test
and multiple discriminant analysis  to
determine the discriminating ability of each variable. The results indicate
that for group 1 mergers return on acquired company’s asset, type of financing
and the time period were the three characteristics that differ significantly
between conglomerate merger and horizontal or vertical merger. The results for
group 2 merger indicates that relative leverage level, size of premium payments
and time variable differ significantly between conglomerate mergers and
horizontal or vertical mergers.

Utton(1972) studied mergers
in manufacturing industry for the period 1954-1965 and suggested that no
relationship exist between the opening size of firm and growth. The author’s study was based on the
conclusions given in the survey prepared by Monopolies Commission. The author
emphasized on the importance of mergers in bringing a change in industrial
structure in UK, in general and in manufacturing industry in particular. Next
the author suggested that for large company’s asset acquisition do not play
significant role in growth. Lastly the author suggested that in sample of 13
distinguished industries proportion of net assets held by top ten firms have
risen significantly from 1954-1965 for eleven out of thirteen industries with
mergers making notable contributions.          

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Melnik and Pollatschek(1973)
analyzed the possible benefits from the conglomerate merger from the point of
firm buying controlling stake in the target firm. The authors suggested that
conglomerate merger results in reduction of variability of returns for the
firms whose business activities are unrelated and this gain was independent of
the other economic gains of merger, this gain was referred as diversification
gain. Next the author reviewed the pertinent literature which suggested that
merger results in generation of stable income stream which induces lender to
increase lending limits beyond the limits that were received by merger parties
prior to merger, this was referred as increase in debt capacity.     

Utton(1974) aimed to measure
the impact of mergers on performance. The author attempts to compare the profit
performance of merger intensive firms with performance of other firms in same
industry. Strict criteria were applied for sample selection. The sample
consists of 39 intensive acquirers for the period 1954-1965. Pre-tax profit as
a percent of net assets was used as the measure of profitability. The results
showed that there was no evidence that merger intensive firms have higher
profitability than industry averages. Next the author compares the performance
of merger intensive firms with performance of firms which did not merge
irrespective of the industry. Random 39 companies which meet certain standards
were included in sample. The results showed that companies heavily dependent on
mergers in subsequent periods of internal growth have low overall efficiency.     

George and Silberston(1975) analyzed
waves of mergers in industrial economies to understand its causes and effects.
There was rapid acceleration in mergers in terms of value and numbers from mid
1950-1960 in UK, USA, Sweden, The Netherlands and Germany both at aggregate and
industry level. Taken collectively, past researches demonstrates economies of
scale benefits, acquisition of management team with specialized know-how and
experience and utilization of excess capacity as some the genesis of mergers.
It was found that in UK merger activities were at peak at 1920’s and had a
pronounced impact on industrial concentration. Next the author attempted to
determine relationship between industrial structures in different economies.
Correlation coefficients were used to determine similarity in rankings of
industries according to level of concentration. Results showed greater
similarity in rankings between West Germany, Italy and France than between any
one of these and UK. The study does not provide any clear
evidence of the effect of mergers; the study however states that previous
studies suggested that results of mergers are disconcerting. Lastly the author
suggested that internal efficiency aspects of merger, competitive environment
within which firm operates and likely impact of mergers on firm’s environment
must be considered for evaluating mergers. 


J.R. Franks et
al.(1977) in their research studied whether
any abnormal gains or losses accrue to shareholders as a result of mergers in
U.K’s  breweries and distilleries sector
and distribution of such gains and losses among the shareholders of acquiring
and acquired firms. The study was based on 70 mergers during the period
1955-1972. The authors applied cross sectional analysis of residuals of market
model regression equations in which log price relatives of each security was
regressed on market indices for period of 40 months, for each merger
announcement date was defined as month zero. The residuals reflected effect of
announcement of merger. Financial times actuaries index was used as a proxy of
London stock exchange since it was the best available published index at the
time of study. The no trading bias was overcome by corresponding dates and
elapsed time for market index and security price. The pattern of cumulative
average returns showed that between t= -40 and t= -15 acquirees were less
profitable than acquirer because of fall in cumulative average returns. From t=
-4 cumulative average returns of acquirer and acquires rose, however gain in
acquirer’s cumulative abnormal returns was due to overreaction effect which was
subsequently readjusted.       


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