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Mergers and Acquisitions. Merger Comparison. Merger Waves. 1898-1905 Mining & Manufacturing Horizontal & Vertical Basic Industry Monopoly Structures Created (e.g., Standard Oil 70% of Refining) Key Companies Formed (e.g., DuPont, U.S. Steel) Sherman Anti-Trust Act (1898) Ineffective.
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Merger Waves • 1898-1905 • Mining & Manufacturing • Horizontal & Vertical • Basic Industry Monopoly Structures Created (e.g., Standard Oil 70% of Refining) • Key Companies Formed (e.g., DuPont, U.S. Steel) • Sherman Anti-Trust Act (1898) Ineffective
Merger Waves • 1920-1930 • Section 7 of Clayton Act (1914) Ineffective • 12,000 Firms Disappeared • Public Utility Holding Co’s. (e.g. AT&T)
Merger Waves • WWII-1970s • Celler Kefauver Act (1950) Closed Loophole • Aggressive Anti-Trust Treatment of Large, Horizontal & Vertical Mergers • Conglomerates and the “P/E Game” (e.g., ITT, LTV)
The P-E Game Company A acquires B for $6 per share with an exchange of stock. NEW SHARES ISSUED:
Merger Waves • 1980s • Relaxed Anti-Trust Treatment • Large, Horizontal, Vertical & Conglomerate (e.g., Chevron-Gulf $13b; GE-RCA $6b) • Hostile Takeover Attempts & Responses (e.g., Mesa-UnoCal; Revlon-Gillette) • Debt Financing, Junk bonds, LBOs (e.g., KKR-RJR Nabisco $25b) • State Anti-Takeover Legislation: Ohio, Pennsylvania, Maryland, Massachusetts • Demise of Junk Bond Markets & Incarceration of M. Milken
Merger Waves • 1990s • Strategic and Mega Acquisitions • Stock Financing or Debt Bridge • Different Industries • Communications (AT&T-McCaw Cellular; World Com-MCI) • Health Care (Merck-Med Co.) • Finance (Travelers-Citi Corp.; Deutche Bank-Bankers Trust) • Internet (AOL-Netscape) • Energy (Dominion-Consolidate Natural Gas; Exxon-Mobil) • Defense (Lockheed/Martin-Loral) • Hotel (Starwood Lodging-ITT Sheraton) • Transnational (Vodafone-Airtouch Communications; Daimler-Chrysler) • European Arena (Olivetti-Telecom Italia) • Stock Market Meltdown and Recession ended it
Mid 2000 Merger Wave • Examples • P&G/Gillette • Bank of America/Fleet • JP Morgan/BankOne • Federated (Filenes)/May (Macys) • SBC/AT&T • Verizon/MCI • K-Mart/Sears • Oracle/People Soft • BP/Royal Dutch Shell
Mid 2000 Merger Wave • Characteristics • Horizontal • Cost Reductions and Layoffs • Gillette 12,000 layoffs and cut retiree benefits • AT&T 10,000 layoffs • Executive Payouts • CEO Kilts at Gillette gets $173 million to go away • CEO Dorman at AT&T gets $16 million to go away