Chapter 8: A New Retrospective on Mergers
* F.M. Scherer INTRODUCTION For at least three decades Dennis Mueller and I have plowed parallel furrows on a question of considerable importance: the economic consequences of mergers. (At Princeton during the 1960s we worked in another common ﬁeld: the economics of research and development.) Both of us have been skeptical of the conventional corporate ﬁnance wisdom insisting that most mergers are value-enhancing. As I return once more to merger questions after a lapse, I have three itches that still need scratching. First, during the past several years merger activity has revived strongly and bids fair to reach the highest levels ever recorded. It is time to take a new look at the trends. Second, the debate over the success of mergers continues. And third, I have become intrigued about how mergers and their consequences are being treated in business schools. This chapter addresses all three themes, with emphasis on the US experience, although similar developments are visible in Europe. 2 RECENT TRENDS After a brief slump connected with the 2001–02 stock market crash, merger activity has rebounded. Figure 8.1 extends to 2006 a statistical series begun in the ﬁrst (1970) edition of my industrial organization textbook. It is a series of splices, beginning with Ralph Nelson’s series for 1895–1920 and then extending the series, expressed in billions of constant 1972 dollars, with adjustments for Tobin’s q and data source coverage.1 Thus, more than a century of US merger activity is tracked. One sees clearly the great merger wave...
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