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Discuss the economic reasons for the merger movement that characterized the late 19th century. Give an...

Discuss the economic reasons for the merger movement that characterized the late 19th century. Give an assessment of the validity of these reasons.

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The economic reasons for the merger movement that characterized the late 19th century.

Merger movements:

One outstanding characteristic of mergers in the United States is the highly episodic nature of their occurrence.

In three periods—1898 through 1902, 1926 through 1930, and 1957 through 1961—industrial mergers occurred on so extensive a scale that they are best described as waves or movements.

This tendency of a fundamental form of enterprise expansion to show vast and widely separated peaks of activity has probably interested students more than the examination of individual mergers.

Economic reasons:

(1) The first recorded merger movement of major proportions occurred as the United States entered the twentieth century, its peak years being 1898 through 1902.

explanation:

For a number of industries it represented the formal consolidation of companies that had already achieved a certain degree of policy coordination through agreements to avoid active competition, agreements that had shown distressing tendencies to break down.

For a few important companies it represented merely a change in legal form, from trust to holding company, of an earlier merger.

Most importantly, however, it involved the consolidation of companies in a large number of previously dispersed industries into single companies in which control was tightly centralized.

It transformed many industries formerly characterized by many small and medium-size firms into those in which one or a few large corporations occupied dominant positions.

During the first merger wave such industrial giants as U.S. Steel, American Tobacco, International Harvester, DuPont, Anaconda Copper, Corn Products, American Smelting and Refining,

Otis Elevator, Allis-Chalmers, and American Sugar Refining were created.

(2) The second large movement took place in the last half of the 1920s, its peak years being 1926 through 1930. To some degree it represented consolidation in the important new industries that had appeared since the first merger wave.

It also reflected attempts in some industries to restore the levels of concentration achieved three decades earlier by firms whose leading positions had been eroded in the meantime.

Among the prominent companies created by merger in this period were National Steel, National Dairy Products, United Aircraft, Owens-Illinois, and Caterpillar Tractor.

(3)The third large movement was probably underway in the early 1960s. There was a short merger revival immediately following World War II, which was confined mainly to the two years 1946 and 1947.

However, merger activity did not return to sustained high levels until the mid-1950s.

The pattern of recent mergers has been more varied, with product diversification and tax minimization playing a more prominent role than in the earlier movements (Butters et al. 1951).

Conclusion:

The current revival of merger activity, while large, is not as large as the earlier merger movements.

In the five turn-of-the-century years, 1898 through 1902, at least 2,700 firms disappeared into the manufacturing and mining mergers reported in the financial press—and reporting was not as comprehensive as it has since become.

In the peak years of the late 1920s, 1926 through 1930, mergers claimed 4,800 firms.

By contrast, in the five years 1957 through 1961 there were about 2,900 disappearances.

Since the number as well as the size of industrial firms has grown considerably in the past six decades, the most recent levels of merger activity are relatively lower than suggested by the absolute comparisons.

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