THE CAUSES AND EFFECTS OF MERGERS
| DOI | http://doi.org/10.1111/j.1467-9485.1975.tb00057.x |
| Author | Aubrey Silberston,Kenneth D. George |
| Published date | 01 June 1975 |
| Date | 01 June 1975 |
Scottish
Journal
of
Political
Economy
Vol.
XXII,
No.
2,
June
1975
THE
CAUSES
AND
EFFECTS OF
MERGERS
KENNETH
D.
GEORGE
AND
AUBREY
SILBERSTON
A
major feature of many industrial economies over the last twenty years
has been a large wave of merger activity. This has naturally resulted in
increased attention being paid to the subject, and in particular to questions
concerning the underlying causes of intense merger activity
and
also
to
the
economic consequences. Before turning to some
of
the possible causes and
consequences, and to policy considerations, it is worth looking at some facts
and figures.
I
MERGERS
AND
CHANGES
IN
INDUSTRIAL
CONCENTRATION
Table
I
shows figures of the expenditure on acquisitions and mergers
in
the
U.K.
from 1954
to
1973. The acceleration
of
activity both in terms
of
value and numbers from the mid-1950s
to
the second half
of
the 1960s is
clearly shown. The very high value figure for 1968 reflects the well publicised
and
very
large mergers in the electrical and vehicle industries, but this year
is in fact well surpassed both in terms of value and numbers by the much
less publicised mergers
of
1972. The value figures are not deflated, but this
does
not
significantly affect the story told by the table.
If
these figures are put in perspective and the value
of
expenditure on
acquisitions and mergers
is
related to such magnitudes as, say, the total
capital outlay or gross fixed capital formation of the industrial and com-
mercial sector then the general picture which emerges is that the level
of
merger activity was four
or
five times as high during the last
four
years of
the 1960s as it was during the early years of the 1950s (Hughes, 1974).
The
U.K.
has not been alone in experiencing a sharp upward trend in the
level
of
post-war merger activity.
In
the Netherlands, the number
of
enter-
prises acquired or amalgamated
in
mining, manufacturing and distribution
increased from 100
in
the four years 1958-61,
to
nearly 600 in the four years
1966-69 (de Jong, 1971). In the earlier period
in
Sweden, 249 enterprises
were acquired or amalgamated in mining, manufacturing, utilities and
con-
struction, compared to 624 enterprises in the Iatter period (Ryden, 1972).
In
the
United
States over the period 1948-1965 over 800 companies with
assets
of
$10 million
or
more were acquired in manufacturing and mining.
The value
of
the assets acquired totalled $27 billion, or roughly
10
per
cent
of
the total assets
of
all firms in this size-class.
But
in the
three
years 1966-
1968 an almost equal value
of
assets, $25 billion, was again acquired.
Again, there has been an active merger movement
in
West German
manufacturing industry with major peaks in 1959 and 1970.
and
another
boom year
in
1972
in
terms
of numbers, although not
of
the value,
of
acquisitions. Some comparative figures for the
U.K.
and West Germany are
179
180
1,061 1,069
1,080 1,123
91 1 91 1
2,522 2,532
(530) (530)
K.
D.
GEORGE
AND
A.
SILBERSTON
Table
I
ACQUISITIONS
AND
MERGERS
IN
THE
U.K.
INDUSTRIAL
AND
COMMERCIAL
SECTOR,
1954-73
844 846
1
787 793
884 884
I
1,203 1,210
~
(617) (617)
'
Average
1954-58
Average
1959-63
1964
1965
1966
1967
1968
I
1968
I1
1969
I
U.K.
Quoted companies
acquired as a percentage
of
total:
Number Net Assets
1969
I1
1970
1971
1972
1973
(3
year)
West Germany
Joint
Stock
companies
acquired or merged as
a
percentage
of
total:
Number Capital
Stock
Expenditure
on
Expenditure on acquisitions
acquisitions and mergers
Em
Ern
annual averages
1.9 0.9
3.2 1.8
5.1 3.2
3.6 2.1
116
341
502
505
507 517
447 502
822 822
1,774 1,946
annual averages
1.4 1.6
3.2 2.3
3.0 09
2.6
1.5
1,779 1,951
900 908
Number of
Acquisitions
Acquisitions and mergers
29
1
690
939 940
995
1
,m
805
808
763 763
942 946
630 634
~
609
61 1
Sources:
Central Statistical
Office,
Economic
Trenak,
April
1963
and November
1965:
Trade
and
Industry,
19
May
1971
and
23
August
1973.
Notes:
(i) From
1954
to
1968
the figures are based
OD
the Board of Trade's regular
analysis of company accounts. For
1968
I1
and
1969
I
the basis of the figures is press
reports
of
quoted companies. For
1969
I1
and subsequent years the basis is the press
reports of all industrial and commercial companies.
(ii)
In
the case
of
mergers, i.e. where two companies A and B amalgamate to form a new
company C, the valuation is obtained by regarding a merger as the acquisition of the
smaller company by the larger one.
For further details
see
Boardof Trade Journal,
25
February
1970,
and
Trade and Industry,
19
May
1971.
Table
11
MERGER
ACIIVITY
IN
U.K.
AND
WEST
GERMAN
MANUFACTURWO
INDUSTRY
Time period
1955-58
1959-63
1964-69
1955-69
Sources:
West Germany: Wirtschaft und Statistik.
U.K.: Figures compiled by Mr.
A.
Hughes
of
Cambridge University. based
on the accounts of public quoted companies.
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