Introduction

The recent boom in merger and acquisition activity in the United States has become a sensitive issue in the ongoing dialogue among consumers, labor, business, and government. According to a recent survey, 3,064 merger transactions involving U.S. firms were completed in 1984, with a total value of more than §125 billion. In 1985 there were 3,165 merger transactions with a total value of over §139 billion; interim figures for the first three quarters of 1986 suggest annualized rates of 3,337 mergers and §158 billion. Some recent developments suggest that the movement may decelerate in 1987 and 1988: (1) the insider trading scandal associated with arbitrage activities surrounding mergers, (2) the increase in the tax rate on capital gains, and (3) the vast surge in stock market valuations of existing assets. As a long-run phenomenon, however, merger activity is likely to continue at a substantial pace in the future. Quite simply, as long as there are incentives to change ownership structures for corporations, mergers will be a fact of life. In addition, industry-specific developments will foster mergers in particular areas.

1. Deregulation. The deregulation in banking, started by the passage of the Depository Institutions Deregulation and Monetary Control Act of 1980 and continuing under the Depository Institutions Act of 1982, will entail new consolidations (mergers). Moreover, a variety of banks that are in difficulty – notably savings and loans and banks in Texas – are likely to merge to survive. The airline industry is having a similar experience.

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