Merger Strategies, Economic Cycles, and Stockholder Value

Merging continues to be a popular strategic alternative. Since 1983, over 12,200 companies and corporate divisions, worth about a fifth of the market value of all traded stocks, have changed hands. Along with the wave of mergers are persistent myths, one being that stockholders of acquiring firms rarely benefit from mergers.

If mergers do not create stockholder value, why do corporate decision makers continue to view mergers as a way to achieve redirection and growth? If mergers do create stockholder value, why is there little supporting evidence? New evidence shows that certain types of mergers completed in certain economic contexts can enhance the wealth of stockholders in the acquiring firms.