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RECENT DEVELOPMENT IN

MERGERS AND ACQUISITIONS


The functional importance of mergers and
acquisitions is under going a sea change since
liberalization in India. The MRTP act and other
legislations have been amended paving way for
large business groups and foreign companies to
resort to the merger acquisition route for growth.
Further, the SEBI (substantial acquisitions of
shares and take over) regulations, 1994 and
1997, have been notified.
Mergers and acquisitions as a strategy by
several corporate groups like R. P. Goenka,
vijay Mallya and manu chhabria for growth and
expansion of the empire in India. Some of the
companies taken over by RPG group included
Dunlop, ceat, Philips carbon black, gramophone
India. Mallya’s united breweries (UB) group
was straddled mostly by mergers and
acquisitions. Companies under the UB
conglomerate included best and Crompton,
mangalore chemicals and fertilizers, kissan
foods besides four liquor firms (united
breweries, carew phipson, herbertson and
McDowell).
MERGERS AND ACQUISITIONS
IN DEVELOPED COUNTRIES
USA: several major merger movements
have occurred in the United States and each was
more or less dominated by particular type of
merger. All of the merger movements occur
when the economy experienced sustained high
rate of growth and conceded well particular
development in business environments.
1895-1904movements: the combination
movement at the turn of the century comprises
mainly of horizontal mergers, which resulted in
high concentration in many industries; including
heavy manufacturing industries. The period was
one of rapid economic expansion. The
movements peaked in 1899 and almost ended in
1903, when a severe economic recession set in
[1] mergers completed in the period 1887
through 1904 were estimated to involve 15 %of
the total numbers of plants and employees
comprising manufacturers in 1900 (markhar,
1955).
The mergers of 1895-1904 followed by
major changes in economic infrastructure and
production technologies. The period was
followed by the completion of the
transcontinental railroad system, the advent of a
national economic market and thus, paving the
way for regional firms becoming national firms
(markhan, 1955 salter and weinhold, 1980).
While the preceding argument by markhan does
mergers some economists cast doubt on the
possibility that largescale production was a
motive to combination. Lynch points out three
problems in economy of scale national. (A)
although scale economics can be more easily
accomplished in combination of small firms than
of large firms; the merger activity was
concentrated in the large-firm category.
However, markhan notes that nearly all the
tabulation of early mergers were based on large
mergers and did not include merger involving a
capitalization of less then $1 million (Markhan,
1955).(B) lynch’s second point is that
combinations resulted in multi plant operations
but scale economics are obtained when
production is integrated by investments in large
replacement facilities. Clearly, horizontal
combination between geographically separated
plants will not have any production economics
of scale in the absence of their physical
integration. However, economics of scale can
exist not only in production but also in
administration and marketing. (C) Finally, lynch
observe that merger activity in the early period
occurred in a wide variety of industries and
technological advancements motivating
horizontal mergers cannot surface in a number
of industries with in a short time span. This
appears to miss the point that economies of scale
available not form technological advancements
in individual industries but rather became
realizable from the reduction in transportations
costs, whose impact could have been pervasive.
EUROPE: Since the middle 1950s a wave
of takeovers, historically unprecedented in its
scope, and its effects had swept through British
industry. In a study of UK manufacturing
industries by Ajit Singh (1971), it was found that
2,126 firms engaged in manufacturing, which
were quoted on the U.K. stock exchanges in
1954; more than 400 had been acquired by 1960.
Out of the next 100 large firms in 1954, 10 were
taken over during the next 6 years. The number
of unquoted manufacturing companies and other
smaller concerns acquired in the same period
runs into thousands. This take over movement
has been far larger than those which occurred at
the turn of the century and in the early 1920s.
The reasons for the enormous volume of
acquisitions in the 1980s were manifold. The
stock market in the UK, in harmony with
markets in other countries, experienced a strong
bull phase while culminated as the October crash
of 1987, there was a mire relaxed, laissez-faire
governmental attitude to mergers and
acquisitions embodied in the new vision of
Thatcherism.
The 1980s also witnessed divestments on a large
scale.
The simultaneous increase in acquisitions
and divestments suggest a considerable amount
of corporate restructuring in the UK economy in
recent years. Such restructuring has been made
possible by new organizational innovations like,
leveraged buyouts, management buyout
(Sudersan 1995).
Even though Taggarts’ figure does not
cover the period from 1987 to the present, junk
financing was certainly curtailed by market
conditions starting in late 1989. even if junk
bonds did not play a major role in the 1980s
mergers deals, the dramatic increase in corporate
leveraging during the 1980s served to deteriorate
the quality of debt worldwide especially when
coupled with high interest rates supported by
governments contending with inflation caused
by increase lightly, itself due in part to more
lending and easier consumer credit. This has led
to the highest levels of foreclosure and
bankruptcies since the great depression in the
1930s.

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