MERGER

A merger is the joining together of two or more companies. The usual goal of a merger is to increase market share, diversify into new products or markets, gain improved efficiency, or eliminate a competitor. Mergers usually take one of three forms: one business may merge with another through purchasing its assets; the merging companies may form a completely new company that acquires the assets of both firms (a "consolidation"); or the two companies may exchange stock with each other (known as "a pooling of interests"). When the acquired company resists the merger, it is referred to as a "hostile takeover." Mergers that occur between two companies in the same industry are known as "horizontal mergers," and when one company acquires a customer or supplier it is known as a "vertical merger." When the merging companies are in two different industries, the resulting company is known as a "conglomerate."

In U.S. history, mergers have generally occurred in spurts and usually when the stock market is enjoying strong "bullish" growth. The first major merger period occurred between 1895 and 1904, when the expansion of the U.S. railroad network made it possible for firms to combine and serve a truly national market for the first time. Between 1892 and 1902 more than 2600 U.S. firms were swallowed up by mergers, and in roughly the same period the 100 largest U.S. companies used mergers to increase in size by a factor of four. In 1901 the American Can Company was formed through the merger of no less than 120 companies. The next big merger period occurred in the late 1920s, when the emergence of radio and the truck presented new opportunities to create national markets through radio advertising and local distribution.

The merger boom of the 1960s peaked in 1968, when the 200 largest U.S. corporations acquired 1.6 percent of the entire manufacturing assets in the U.S. economy. Because of the federal government's successful attempts to prevent companies from forming monopolies many of the mergers of the 1960s took the form of conglomerates. A fourth period of intense merger activity began in the early 1980s and continued into the 1990s. The driving force behind these mergers were technological advances, global competition, and the deregulation of industries, such as the airline industry, that had once been closely supervised by the federal government.