Chapter 8: Structural Factors Underlying Mergers and Acquisitions in Liner Shipping
* Mike Fusillo 8.1 Introduction Merger and acquisition activity tends to occur in waves for a multitude of reasons.1 In general, firms seek mergers and acquisitions to capture economies of scale in production, increase management efficiencies and exploit synergies between rival operations and markets. In the literature, mergers tend to be classified under two headings: behavioural, which are combinations based on market mis-valuations of firms; and neoclassical, which explains that the initial spark that ignites a merger wave can be traced to shocks to various elements of industry structure, specifically the industry’s demand curve, production technology and regulatory environment.2 More recently, the ‘eat or be eaten’ theory of mergers combines elements of neoclassical and behavioural theories (Gorton et al., 2000). In the eat-or-be-eaten hypothesis, mergers are defensive and will tend to occur when, as Goriatchev (2006: 6) suggests, ‘an expected industry shock that makes some mergers profitable in some future states of the world induces a pre-emptive wave of mergers’, even if the mergers are initially unprofitable. The theory holds that these mergers are defensive acquisitions and claims to explain both the stylized facts of mergers and why they occur in waves. Combining neoclassical and behavioural factors, Bernile et al. (2006) suggest that in concentrated industries, strategic considerations are an important motivator of mergers during periods of above or below trend demand growth. There are two stylized facts associated with mergers: the first and most relevant for this chapter is that mergers tend to be more frequent in industries that have...
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