Horizontal merger wave (1895-1904)
The first merger wave began right after the 1883 depression in a period of rapid economic expansion. The combination movement consisted mainly of horizontal mergers, which resulted in high concentration in many industries, including heavy manufacturing industries. Accomplished with this merger wave was the completion of the transcontinental railroad system, the advent of electricity and a major increase in the use of coal. The completed rail system resulted in the development of a national economic market, and thus the merger activity represented to a certain extent the transformation of regional firms into national firms. The 1904 decision of the Supreme Court in the Northern Securities case (193 U.S. 197 (March 1904)) might have contributed to ending the wave. The decision established that mergers could be attacked successfully by Section I of the Sherman act, which prohibited “every combination in the form of trust or otherwise” in restraint of trade. However, the foundations of many of the large oil, steel and other industry multinationals was already irreversibly laid during this period. Some commentators say the court decision mentioned about led to three phases of organisation of the American economy. |
Similar financial terms
Horizontal mergerInvolves two firms that operate and compete in the same kind of business activity. Forming a larger firm may have the benefit of economies of scale. Horizontal mergers are regulated by the government for possible negative effects on competition. They decrease the number of firms in an industry, possibly making it easier for the industry members to go into cartels for monopoly profits.
Horizontal spread
The simultaneous purchase and sale of two options that differ only in their expiration dates.
Merger
Refers to negotiations between friendly parties who arrive at a mutually agreeable decision to combine their companies. In practice, one part might be stronger and dominate the negotiations.
Vertical merger
Occur between firms in different stages of production operation for many reasons: (a) avoidance of fixed costs such as heating, storage, transportation, (b) eliminate cost of searching for prices, contracting, payment collection, communication, advertising and coordination and (c) more efficient information flow and better planning for inventory. Uncertainty over input supply is avoided by backward integration which reduces to the fact that long-term contracts are difficult to write, execute, an ...
Conglomerate merger
Involve firms engaged in unrelated types of business activity. Among conglomerate mergers, three types have been distinguished: (a) product extensions which broaden the product lines of firms (concentric mergers), (b) geographic market exentions which involves two firms whose operations have been conducted in non-overlapping geographic areas and (c) pure conglomerate mergers which involve unrelated business activities.
Limitation on merger, consolidation, or sale
A bond covenant that restricts in some way a firm's ability to merge or consolidate with another firm.
Kondratiev Wave
Named after Soviet economist Mikhail Kondratiev, the theory that Western capitalist economies are susceptible to high performance volatility. Sometimes called Kondratiev cycles, it refers to stock market cycles which last 50-60 years.
Elliot Wave
(a) A theory named after Ralph Elliot, who contended that the stock market tends to move in discernible and predictable patterns reflecting the basic harmony of nature; (b) in technical analysis, a charting method based on the belief that all prices act as wavers, rising and falling rhythmically.
