产业组织理论课件：Lecture 12 Mergers and Acquisitions

1、产业组织理论Theory of Industrial Organization Lecture 12 Mergers and Acquisitions OutlineDefinition of related conceptsMerger HistoryMotives for MergerBusiness alliancesDefinition of related conceptsMerger合并Acquisition收购Takeover收购、接管Integration整合、一体化 Alliance联盟Joint Venture合资Cooperation合作MergersThere are

2、three broad categories of mergers: horizontal, vertical, and conglomerateHorizontal mergers involve firms that are direct competitors The firms must compete in both the same product market and the same geographic market so that buyers regard the firms products as substitutesExamples of recent horizo

3、ntal mergers include the 1996 merger of the Union Pacific Railroad with the Southern Pacific Railroad and the merger of Bell Atlantic and NYNEX in 1997MergersVertical mergers involve firms that produce at different stages of production in the same industryA vertical merger thus combines a previous c

4、ustomer with its supplierSimple examples would be a merger between a supermarket and a baking factory or between an oil producer and a petroleum refinerMergersConglomerate mergers involve companies that operate in either different product markets or the same product market but different geographic m

5、arkets. Conglomerate mergers can be subdivided into three typesA product extension merger involves firms that produce different but related productsExamples of such mergers would be Procter & Gambles purchase of Gillette in early 2005 and Hersheys 2005 purchase of Joseph Schmidt Confections, a maker

6、 of premium chocolates and specialty cookiesMergersGeographic extension mergers take place between companies that produce the same product in different locationsAn example is US Airways 2005 bid to merge with America West: US Airways is focused heavily along the East Coast of the United States while

7、 America West is stronger in travel from the East Coast to western cities such as Las Vegas and PhoenixMergersA pure conglomerate merger puts together firms that operate in entirely separate marketsITT became famous in the 1960s for buying literally hundreds of companies in unrelated industries, ran

8、ging from auto parts to hotels to Wonder BreadMerger HistoryIn the United States since approximately the beginning of the twentieth century, five merger waves have influenced the structure of American industryThe first merger wave occurred around the turn of the century. Most of the mergers during t

9、his period were horizontal, often involving several firmsIn fact, 75 percent of firm disappearances during this wave resulted from mergers involving at least five firmsMerger HistoryMany of todays large firms were formed in this period, including Standard Oil of New Jersey (Exxon Mobil), Goodyear, U

10、S Steel (USX), General Electric, Nabisco, and Eastman KodakAs one economic historian stated, “It is no exaggeration to say that the structure of the modern American economy has been reshaped by the end of the first decade of the twentieth century.” Merger HistoryThe second major merger wave took pla

11、ce in the 1920s. Stigler has called this wave the merger to oligopoly movement, as compared with the first merger to monopoly waveMergers of this period typically combined fewer firms than the mergers of the first wave and, rather than creating the industry leader, often resulted in the formation of

12、 the second or third largest firm in an industryMerger HistoryWhereas most of the mergers during the first wave took place in manufacturing and mining, during the second wave, considerable merger activity occurred in other sectors, such as utilities, banking, and retailingHorizontal mergers again we

13、re prevalent during this wave, although product extension and vertical mergers were also commonlittle merger activity from the beginning of the Great DepressionMerger HistoryThe third merger wave began sometime in the mid-1950sMore than 25,000 mergers took place in the years 1960 to 1970, with sligh

14、tly more than half taking place in mining or manufacturingThis merger wave differed from the earlier two waves in that the vast majority were conglomerate mergersFrom 1963 to 1972 approximately 80 percent of the assets acquired were the result of conglomerate mergersMerger HistoryThe fourth merger w

15、ave took place in the 1980s, with a slowdown in the early 1990sSome 14 percent of the mergers in the 1980s resulted from hostile takeovers, making for dramatic news reports. Mergers picked up again in the mid-1990s; this wave continued into the first decade of the twenty-first centuryThe number of m

16、ergers in the years of the twenty-first century wave exceeds the number of mergers in the previous wavesMerger HistoryThese recent mergers received considerable attention, in part because of the huge sums of money involvedNearly half of the mergers in the twenty-first century merger wave occurred in

17、 industries that had recently been deregulated, such as airlines, banks and thrifts, utilities, and telecommunicationsDeregulation played an important role in restructuring and consolidation of industriesMerger HistoryMerger activity dropped off dramatically during the financial crisis; the number o

18、f deals completed in 2009 was about half of the 2006 numberHowever, as the financial markets recovered, merger activity increased again, showing the role of the state of the economy in merger activityEven though the number of mergers in the most recent wave is unparalleled and the sums of money are

19、vast, we need to remember that the economy has grown considerably throughout the past centuryMerger History Five major merger waves have influenced the U.S. economy. The first occurred near the turn of the century, the second peaked in the late 1920s, the third took place in the 1960s, and the fourt

20、h was in the 1980s. The fifth wave began in the 1990s and continued in the first decade of the twenty-first centurySome Recent Large MergersMotives for MergerIn one sense all mergers occur for the same reason: One group believes that the acquired company is worth more than the acquired companys owne

21、rs believe the company is worthNo merger will take place unless this condition is fulfilled. Several major reasons are commonly advanced to explain mergers: Market Power, Efficiency Gains, Risk Reduction, Empire Building, Failing Firm, Aging OwnersMarket PowerAlthough all three types of mergers can

22、increase market power under some circumstances, horizontal mergers are more likely than either vertical or conglomerate mergers to have serious anticompetitive effectsBecause horizontal mergers always increase concentration, the possibility exists that market power will increase and adversely affect

23、 competitionMarket PowerA merger between General Motors and Ford would very likely increase prices and profits in the automobile market, even given competition from the Japanese and EuropeansVertical integration can increase entry barriers into an industry or raise rivals costsVertical mergers would

24、 serve to create or enhance market power. By integrating vertically, a firm may be able to reduce its rivals access to distribution or to suppliersMarket PowerEconomists recognize that vertical integration only has anticompetitive effects when market power is either actually or potentially presentth

25、at is, when the real structural problem is dominance at either the upstream or downstream levelTheoretically, conglomerate mergers also may increase market power. The most likely negative impact of a conglomerate merger is a reduction in the level of potential competitionEfficiency GainsMergers are

26、often motivated by a desire to increase economic efficiency, and some mergers result in significant efficiency gainsEconomies of scale may result from any merger but are most common in horizontal mergers. A horizontal merger may also enable the consolidated firm to reduce its production or marketing

27、 costsA merger can also result in cost-savings due to economies of scopeEfficiency GainsVertical integration can allow a firm to take advantage of technological complementarities or reduce the transactions costs associated with coordinating the different stages of productionA firm might have better

28、information about a production process or the quality of an input if it is vertically integrated, and lead to gains in efficiencyConglomerate mergers may improve efficiency by taking advantage of synergies in production or distributionEfficiency GainsAll three types of mergers may improve efficiency

29、 by eliminating X-inefficienciesIn a world in which managers have some discretion, costs may not be minimized because of X-inefficiencyIf managers are interested in living a quiet, peaceful life, they may not continually strive to find the least costly way of organizing production, handling material

30、s, and, in general, doing businessEfficiency GainsInefficient firms suffering from X-inefficiencies may be the most likely targets of takeover bids because these firms have the greatest potential for improving their profitability by replacing current managers with more efficient managers.Although ho

31、rizontal mergers may result in real economies of scale or a reduction in X-inefficiencies, one must be careful to distinguish real economies from pecuniary economies.Efficiency GainsPecuniary economies result when increased market power gives a firm the ability to obtain inputs, including capital, a

32、t lower prices than its competitorsSuch pecuniary economies lead to a change in the distribution of income but do not lower the opportunity costs of productionRecent evidence suggests that although many mergers, particularly horizontal mergers, result in some cost reductions, the cost savings are of

33、ten smallFinancial MotivesA motive for merger may be speculation that the “whole is worth more than the sum of its parts.” When a large conglomerate is on a roll of good purchases, its stock value will rise, and so will its price/earnings ratioIf this successful conglomerate purchases another profit

34、able company with a lower price/earnings ratio, and finances the purchase by exchanging its stock for the acquired firms stock, all parties may gain financially in the short runFinancial MotivesThe owners of the acquired firm gain if the conglomerate pays a premium for their stock, that is, if the c

35、onglomerate pays more than the stock is worth on the open marketIn addition, the owners of the conglomerate gain because earnings per share rise when the acquired firms profits are added to the conglomerates profitsThis financial motive for merger was probably strongest during the merger wave of the

36、 late 1960s, when acquisitions were financed largely through stock exchangesFinancial MotivesEven in the absence of any real benefits from the merger, the stock market behaves as if the acquired firm will fare better under the conglomerates ownershipIf investors stop believing in the conglomerates a

37、bility to keep growing and keep increasing its profitability, then its stock value will tumble, and existing stockholders will sustain large capital lossesBy that time many of the original stockholders will have sold their stock for large short-run capital gainsRisk ReductionIt is often argued that

38、mergers, particularly conglomerate mergers, reduce risk, and there is some truth to the old saying: Its foolish to put all your eggs in one basketFor a merger to reduce risk, the acquiring firms profits must not be perfectly correlated with the acquired firms profitsA merger will not reduce risk sig

39、nificantly if the acquired firm operates in an industry that is highly interdependent with the acquiring firms other business activitiesRisk ReductionIn the case of considerable interdependence, when one part of the acquiring firms business flounders, so will the acquired part.Pure conglomerate merg

40、ers are the most likely mergers to reduce risk. Horizontal, vertical, product extension, or geographic extension mergers are much less likely to significantly reduce risk, because they usually involve markets that are interdependent with the firms other operationsRisk ReductionA merger of two coal c

41、ompanies would do little to reduce risk in the event of a depressed market for coal became depressedSimilarly, if a hotel firm purchased a rental car company, and then because of a recession the demand for vacation travel declined, both the hotel and car rental businesses would sufferEmpire Building

42、A factor encouraging some mergers is the desire of an individual to build a financial empire. Strange as it may seem, some mergers are primarily the result of an individuals effort at self-aggrandizementPerhaps the two best examples were the efforts of Harold Geneen as the chief executive offi cer (

43、CEO) at ITT, and Charles Bluhdorn as the CEO at Gulf & Western. To these individuals, growth, pure and simple, was often sufficient motive for a mergerFailing FirmA firm on the verge of bankruptcy may attempt to find a buyer to bail it out. The Penn-Central railroad merger, which ultimately ended in

44、 bankruptcy, was a classic exampleFew large mergers appear to be motivated by the existence of a failing firmBoyle found that in only 4.8 percent of all large mergers was the acquired firm suffering from economic losses before the mergerAging OwnersIn some cases, a motive for merger is the age struc

45、ture of the companys ownershipIf a company is privately owned or controlled by an individual without heirs, or without heirs who have a desire to operate the business, then the owner will sometimes search for a buyerA merger permits the owner to retire on the anticipated future earnings of the firm

46、because these earnings are capitalized into the present value of the firmThe Welfare Effects of a Horizontal MergerBefore the merger, the industry performed competitively, with output of q1 and price P1, which equals marginal cost MC1The merger results in the creation of a monopoly with lower margin

47、al costs of MC2 but with lower quantity of q2 and higher price P2If the deadweight loss triangle ABC is larger than the rectangle P1CDP0, the merger has a net negative effect on society If the deadweight loss triangle is smaller than the rectangle, then the merger has a net positive effectExample：Co

48、st-Reducing Merger Resulting in a Welfare GainIn this example, the competitive industry produced 280 units of output with price equal to marginal cost of 30. After the merger, marginal costs fall to 10, but output declines to 180 and price increases to 55. The merger reduces consumer surplus by the

49、sum of the dark gray and light gray areas P2ABP1 = 180(25) + (1/2)(25 100) = 5750, but it also reduces the costs of producing the 180 units by the blue rectangle P1CDP0 = 180 * 20 = 3600. The dark gray rectangle P2ACP1 = 180 * 25 = 4500 represents a transfer from consumer surplus to producer profits

50、. The light gray triangle ABC = (1/2) (25 100) = 1250 represents the deadweight loss resulting from the merger. Because the light gray deadweight loss ABC = 1250 is smaller than the blue cost-savings area P1CDP0 = 3600, this merger has a net positive effectEffects of a Horizontal MergerThese two fig

51、ures highlight the trade-off of market power for cost reductionIf the effects of the cost reduction exceed the effects of the market power increase, the merger has on balance a positive effect for society, whereas if the effects of the market power increase exceed the effects of the cost reduction,

52、the merger has on balance a negative effect It is also worth noting that delivering on efficiencies promised before a merger may be complicated by difficulties integrating two firms personnel, equipment, systems, and cultureEmpirical Evidence on the Effects of MergersEconomists have relied on three

53、types of evidence to determine whether mergers improve economic efficiencyThe first type of event studies examine the impact of a proposed merger on the stock market valuation of the firm around the time of the mergerA second type of study examines the premerger profitability of acquired and acquiri

54、ng firmsA third kind of evidence comes from postmerger studies of profitability and productivityEmpirical Evidence on the Effects of MergersFrom the point of views of first type of study, if merger targets suffer from severe X-inefficiencies, investors should believe new owners will replace the inef

55、ficient management team with a more efficient oneAs a result, the stock market evaluation of the acquired firm should increase at the time of the announcement of the merger because the anticipated higher future earnings should be capitalized into the value of the stockEmpirical Evidence on the Effec

56、ts of MergersSome empirical evidence suggests that around the time of a merger the acquired firm experiences a significant increase in the value of its stock, which results in large capital gains for the stockholders of the acquired companyBecause these studies generally find that the stock values o

57、f the acquiring companies did not experience any significant change at the time of merger, they conclude that the anticipated net effect of these mergers on efficiency must be positiveEmpirical Evidence on the Effects of MergersAccording to the second type of study, if mergers enhance efficiency, ac

58、quiring firms should be more profitable than other firms, and acquired firms should be less profitableAcquiring firms, by contrast, should be full of highly efficient managers and should be more profitable. The evidence regarding acquiring companies suggests that the acquiring firms are relatively l

59、arge and tend to be growing quickly, but there is little evidence that they are particularly profitable compared with the typical firmEmpirical Evidence on the Effects of MergersBased on the third kind of studies, one study was found that the target lines of business suffer a loss in profitability f

60、ollowing a merger. Another study reached a different conclusion about the gains from mergers. It is found that postmerger performance improves relative to the industry benchmark.The effect of most mergers on competition and efficiency is probably quite smallProfitability of Acquired FirmsDefinition