Merger and Acquisition

Since the 1980’s, extensive corporate mergers and acquisitions have had a
profound effect on virtually every major organization and their employees in the world. Historically, mergers and acquisitions have played a vital role in determining the
amount of competition in many U.S .industries. Merger and acquisition activity has
been instrumental in determining the relative size and diversification of many
organizations in the U.S. and has left a permanent mark on the structure of the economy.
Yip (1982) put forward that mergers, acquisitions, and internal development are
alternative means for expansion and growth for organizations. Yip’s findings suggested that
organizations chose either acquisition or internal growth based upon an amalgamation of
market structure and the characteristics of the competition. In order to recognize the reasons
why organizations chose to acquire or merge with other organizations rather than to pursue
internal growth, it is helpful to analyze briefly the theories that attempt to explain mergers
and acquisitions.
Seven theories presented in the literature review to explain merger and acquisition
interests. Trautwein’s (1990) review of the theories of merger motives identified seven
general theories of merger activity (Table 2.0), assembling them into three key groupings.
The major grouping of mergers as process outcomes and mergers as macroeconomic
experiences were self-sufficient without further division. The other major grouping, mergers
and acquisitions as rational choices, was further divided into empire building theory,
monopoly theory, raider theory, and valuation theory.
Rational choice theories hypothesized that organizational leadership intentionally chose
to engage in mergers and acquisitions as a means to achieve some advantage. Empire building
theories within rational choice were concerned with mergers and acquisitions as endeavors that
benefit organizational leadership; mergers and...