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Be Salevia ate: mis wergesalyan Pe Fairey aad ented aaa a i ore: a Feta ES Tra ys on preiits UNG 8S tdut ab ie shane mdse ny Hh eee fagaialaty diytatermvert ios tytiens wed We rea ole PO AREAS Nat a Betti tebnsye pee Pe Sree Rd se We treen a sysese yal Tate a aS ta aty ts Ht peo tones Hepes why $ Vista tafser ge: EH Mey sie be eyre tae Seyiaty int ecupsmeciei yee Sh ycordeopee Pacetey' aetna hear eet Ti steeatege male seagrasses sinvat hate ut “ aaae hpreycuutytes ese eteters yan vpysed ogc Bye ay 1 | Soe ai Ae ruts UNIVERSITY OF; ILLINOIS LIBRARY AT URBANA-CHAMPAIGN BOOKSTACKS Digitized by the Internet Archive in 2011 with funding from University of Illinois Urbana-Champaign http://www.archive.org/details/mergerasresponse4 9pfef s'O RaAZsS aye) | Je 4 Cop « Faculty Working Papers College of Commerce and Business Administration University of Illinois at Urbana-Champaign iy nk £t.% tt bee ra peat Piste! vas | J S wel en 2 eee ‘Say Oats Rel tans es / 4, a le eee FACULTY WORKING PAPERS College of Commerce and Business Administration University of Illinois at Urbana-Champaign April 24, 1972 MERGER AS A RESPONSE TO ORGANIZATIONAL INTERDEPENDENCE Jeffrey Pfeffer University of Illinois #49 . ~f? . a SSIS es AR orf sen : ‘ pa) si rreyetriee veoh ee ABSTRACT Merger is examined as one possible strategy for an organization to employ in managing environmental interdependence. Three types of merger are identified: 1) merger to reduce symbiotic interdependence; 2) merger to reduce commensalistic or competitive interdependence; and 3) merger to diversify, and avoid previous interdependencies. Patterns of industrial merger behavior are examined, and it is seen that there is a strong as- sociation between patterns of resource exchange and patterns of merger activity. Competitive mergers, and diversification are also considered, and it is seen that the analysis of merger activity also permits explana- tion of variations in the profitability of acquired firms prior to ac- quisition. al 0 eect aommmmnanay AOE ee iG 1 “c ‘a ; Ese Ca) ; k og iaseeea ne xo) Rea otéhaaog ua Reina ‘ak 2 segnet | a tHgiom to ag? sordt -sonbramebsnsat Tnomanen tvs aaignaee at . ’ xagen (8 jennsbneyshassa! onsotdares’ souber of ares, « shoiasaab sf, | oF sagrois ie ban i sonsbnsqebiozn evraizaqmos o akyatkeaaomnos a: | fabriuchas te enzod ing _tatonshasqobresn. euaivort btova bie von “86 gnotde » et grodd Jars ane ‘eh at bia bona’ wine rolvaded i _ Tegra 30 enmeiseg bas sgrations apunonia to" wayoatag apeuied sot | _ehorobs saa onla evn cobsnatizerovit baie ‘ae aviatseqied ~oanigas noheaey oaks wiivisos Tee lo sloytans ats dak Beas ar as | 88 03 toliq eirttt bostopss Xo euieasttoxg odd nid anohaabany to 190] . saad i i ; u z \ 3 ‘ “ Ke / ayy i F I 7 , uit i Hi: } so y, — ' ¥ rae it q MERGER AS A RESPONSE TO ORGANIZATIONAL INTERDEPENDENCE The operations and decisions of organizations are inextricably bound up with the conditions of their relevant environments. Cyert and March (1963), in their simulation of a duopoly, trace the mutual adjustment of one organization to the other one, and as part of their behavioral theory of the firm, note that organizations attempt to establish a negotiated environment. Hazard (1961) has also commented on the fact that businessmen, at least, seek certainty, and how this is incompatible with some of the requirements of the anti-trust laws. The impact of the environment on the organization has been widely noted (Thompson and McEwen, 1958; Katz and Kahn, 1966; Buckley, 1967; Evan, 1966; Dill, 1958; Thompson, 1967). Thompson (1967, Ch. 3) has postulated that organizations attempt to manage their external dependencies, or to control the relevant environment. Writing from an open systems perspective also, Hawley (1950) recognized the tendency for organisms to attempt to control their environments, and he suggested that they employed a growth strategy. Katz and Kahn (1966) speak of a growth dynamic, and relate this to the organization's require- ments for certainty and survival, which are postulated to be enhanced through growth. And Starbuck (1965) has also proposed that organizations operate on their environments to make them more munificent. We have, then, three distinct issues. First, there are the proposi- tions by Thompson, Cyert and M-=ch, Katz and Kahn and Starbuck (among others) that organizations take actions to control or manage their en- vironments, or at least their dependency on the environment. Secondly, ae bavod ‘idan !esxont ers saotsassenuie te ‘qroletsed bie soodsazeqa ont | “doxeM be Ixeyd seinacor tHe dinwebhecs’ ried do ‘epi atbnos ong ¢ to Insmient be Saurduee odd soars “iglagosb a ‘Ma notzabinre seid at < y ast wre —— a i — _eawots faroteadsd atond, te sen lsd brs 400: seri30 ss. et, nol aeste | ‘bes aaseiyen & detttetue: ot square spotaes tangs, elt ston nih oieadstiiaid duit? 290% oi no kodinamss ents a «ren paneait 29 ato’ an mon to saoe datw efdiseqamcn? all abit wed baw sabotee doa a0 dasmnoxdvir ata ta) tomy ‘ee (bigeders #008 ors dt i bee. hai cial Lanoks pel eproyad et eyes apt olibeaes : d3lw Reisnege achragitwee 30 stamp ovat Fase pete ‘pet £8001) “ | _ . hen insta gh no araddqme ya ~9% frujnd Sosdpoweare) se aise 3 saeione: sex ak ouyiney tniot ot ‘gnome Eres arto} te pau sas bas hice gaaes) ugad bon: smth agi “aa ails eailicble Oy Apey antet ot uly ay? peretoasog bas ssl ange phidy: hepa mangers 303 enosvones “depSasi bags baa 9 08 m tapeinnate snag ong: te wmoanisa ae priciest sie eta * nye | + of tm - The organization may attempt to use the power of the state to obtain more favorable conditions in the environment. Stigler (1971) has ianed that the state can provide an organization with direct cash subsidies, restriction of entry by competition, control over factors which affect substitutes and complements, and the ability to legally fix prices. Or- ganizations have long attempted to obtain favorable conditions through political means (cf. Bauer, et al., 1963; Hall, 1969). Zald (1970) has identified two types of environments--political and economic. It is not at all unreasonable to expect that organizations will use strength or power developed in one environment to obtain more favorable conditions in the other environment. There are many examples of the attempts to employ political means to obtain more favorable economic conditions, such as through the use of tariffs and import quotas. Finally, there exists the possibility for organizations to deal with uncertainty or interdependence by absorbing it completely, through merger. Companies may employ merger as a means for integration, by merging either forward or backward in the production process. This is an attempt to deal with symbiotic interdependence (Hawley 1950). Steel companies may merge with coal producers, and oil companies may purchase systems of petroleum distribution. Paper companies may buy lumber companies, or textile firms may purchase fabric stores. Secondly, companies may purchase the com- petition as a way of reducing competitive, or commensalistic interdependence. While this has been somewhat prevented by the anti-trust laws, there are nevertheless a large number of horizontal mergers, or mergers between - nd rover beet ie ft re aie amin a } os 0 asa xi veteaat ox. cihsidpeal pa! peared ge ap aon at 3x ‘abaoaboa. tina e221 como oa Ww aaa ow 2 -minsde ot Sal ons 4 shied. ane: ae wy: ‘Seer er oh “tig90 ant «rely sshge Seta oi an seas sid re nea badom fee: saibait tobe, ate ohana tensa ob shiwoe ns eer: i a) Ries Xe p08 xt weedne38, smohote ; ‘Sonhti, dat sais ato Lorene: eda ; i nee eet aad: 30. dagnovte | won Ew. uaa snnsinnase: “seats vo aa ak: aot ysbiien oiveanvat orton ata 3 stim | _sgotgme od asqinisse net i seinen ere’ wen 93 "8 it im | Oe aaa | ‘ge dou’ sitar sa cen atearosred wns igiceros sein: te | < *. : Pat ae sxoqmt bi mee aoe 069 “date Ines’ oF ene dputoayre so ee tieteang bite, nels prods etal _togeaor’ dguords tliat ay: aniaaoese = scortamaginge pa gedaie: gatgron ‘was totsexmeset wt erin B we. eninow ‘etem> ‘giana #2 ‘Ka Od Jqmeate: me wt wat, Lege wey gotssubioag ota a pasintoed wont ayredi: Lol ‘iveqe 9: {e033 Foxes cov sineitnsgabeiasen, aks | musioxaed to emot.aye anton oir tai Ea bs — Pets aitinas: 6 vationansoo sedi od ver taunts ins “orm axed _ ewe 2eurrs> Yon naa ue bara a nosndi od mnogtan’ Bry ene ‘teancint ost Mies x similar types of companies, each year. Finally, a firm may attempt to handle interdependence through a merger or growth strategy of diversifi- cation. If a firm is too dependent upon a portion of the environment for absorbing its output, or for providing an important input, it may diversify into other product or service ereas, and thereby hopefully reduce its dependence on the portions of the environment with which it previously dealt. The attempted diversification efforts of many of the aerospace companies provide examples of this strategy in operation. Warren (1967) has summarized much of the discussion on interorganizational coordination, noting that the specific means used may vary as conditions in the interorganizational field vary. Also, he has developed a typology of joint decision making, arranged along a dimension of inclusiveness, and varying from the merged, or unitary organization, through coalitional and confederative forms of interaction, to the mechanism of social choice as an interorganizational decision-making method. Merger, then, is just one possible strategy for managing the organiza- tion's dependence with the environment. Merger may be pursued for objectives of growth, of course, and growth per se may be part of a strategy of dealing with the environment. The intertwining of these issues make conclusive resolution impossible until additional empirical evidence is presented. The contribution of the empirical work ie he nee is to provide some evidence of merger behavior which is consistent and compatible with the conceptualization of merger as a response to organizational interdependence. Before getting to this evidence, however, we will review some other treat- ments of the merger phenomenon to determine what previous research has dis- covered. a Jqpco3 ‘coi wry fs ayftean .tany 1280 .emlaggyqed Bo wea ‘wal fhwo1a 30 rsa” “ aiguonds Pm me ore ~tiinaevth 4o nee . 208 taemcernvne wets to mod 170g) % Augs sadtienges owl “ ered 6 " a i | Atorovib em ak ange smeztoged out getbiverg 702 “30 ap eat pads ait oauhen Ltuteqid esas baw BROTH wnueas 19 anubong abil sane ylauokveta Py dons its jw dasieneei vo aca We poh sya cabal is ae: obi - SoLnRAIDD epagnorse ada. ie" econ to aaspiis comakd herp bosqnanae, ie pod Rey Dani 5 ara ktattoge a Manvonts. Mika es oSqanxo. i ' : Seaclaoulaggrarca? HO polaaucar ats to foe aca Laguna aid AtAUT) ™ mt sanktibags .a% pay er boa eee fii cl welt sate goisoa stoke ial Ror egeifones a beqolovss ed of ,comt opens eee Aacotsnnt ap gioxeap: | ia tasaareienions ta. nat eanueb * hehe Shawnee aion soaaob tt bas funata teas: Havent? Hokgeaimeg23 eae ion 70 vbagnaa edd. Hox | f be Ld salous. fatsoe ie. fomaioed edz 23 (sols opresat Ag earsot svi dz: : a : beta sta ga} Asp-ao} atosb faoottésfal -astanszo: “i ‘gargany ese wosasds efdinwcg ans Seu ad , neds ae _-mevinaytde: 30% bowery pe woe angeeMt 3 coatottves ady_dsiw soonne ahem grrr te upaterie h 39; aang af yee et aet dsvoxg ig! .oeaves te us ete -sebnslonas eden anges owes ‘Yo golel wivesar ‘ait Faemeor tie oad As VBetawnerg, C33 “sonabive EaoRsbgims feocdsi hte any blaiagooat. ~ fine e abiverq o3 ei-asen. borxoges HAG, fsiapens ais: $e nis ud phy ijiw are Jogos, ‘hoe suss.a} aaa: wi ae teas agree tes svanshaiyasies x) Tanai jextaagua at onaageor oe os bee sa " ~tharrs tadia ame. usvor ittw a ate canaabive Mids « id ont aa } ‘ies nm BP b> swil doseenes - nutveng Jat ataseses ‘03 comeonoi seeree a Merger Research While mergers occur between governmental units, social service agencies, hospitals (cf. Starkweather, 1971), and many other organizations, the merger of business organizations has been the topic that has been the most extensively treated. This is partially because mergers among economic organizations are recorded by the Federal Trade Commission, which provides a ready and accessible source of data. The difficulty is, however, that theories of merger have been developed primarily by economists, which means that they are primarily relevant for economic organizations. This has led to only a relatively few, focused questions being asked, and to a neglect of the development of a. theory of merger which is generalizable across types of organizations. Note that Thompson, Katz and Kahn, and Starbuck have stated that organizations seek to manage their environments, or make them more certain--not just business organizations. There is probably a great deal to be learned, in fact, by comparing the merger behavior of organizational types, but that task must await the development of better data bases as well as more advanced theoretical conceptualizations. The economists have essentially asked two questions--when do mergers occur, and why do mergers occur. Nelson (1959) in a study of the episodic nature of the occurrence of mergers, came to the conclusion that mergers occur at times of favorable conditions in the capital markets. He writes, “Empirical investigations of such factors as the rate of industrial growth, the rise of technological innovation, and the growth of interregional trans- portation indicate that they were not likely to nage been important immediate factors in the merger wave....Peaks in the expansion of merger activity were found to be closest in timing to those in industrial stock prices, stock market trading and new business incorporations" (pp. 6-7). fe » aaa if Ae rm ee ; Brio swears «dso wine cate", ARE Hosanna 28 sa) Meaigond or ‘3 “oatwaee Intobe ae Losromasoveg, mawiod top i" bat pity sed vent +n piaet out yaad noid enoeynginsare eta we Ss be see ncaa angio onianos i? ning 9’ ae ee ‘dramr dot hs sans Wyte redaeit fried ipa % e ba! aud abet vo} tantaagye. abenuoae at saawvatnn itsanieg co 2d gen ®- os bus. boxes sated su samp hesuaa wn, ay ages: eaoTDR | sidusi Loxeneg at Ais get io. ‘evans s ‘to tango ; ‘svat doudsa2 pore aula tas “aia: sneqiadt et doom: 48 ps ni = ns oa 9. esa ghee het -Sgenem as 009 ee slags a it ranese avgténdorg at seet +8003 Jax .agie ‘eeentaud abe, Jonatha 2 Fano? ¢nstanyro: ot rotwaded shgzéa. , Ba zegnon ee 12368, col cbaraaol, ag flow as ‘gaoud: ‘io aadvod: 29) 2amqe! leveb at 2 Ko sm tens: sandy: mga ennite Souragnana taotien anal raomavbe Me 9 i the ae ONE Em Fexoprea ah aechrrarol sagup: ows Lbadaselfaanpeue pond: sxevoninss' fa i + i ( ~ , phbousys bald Aeicbuse. * nit eee), posal «301890: wreion, ab, he ba y errr aedd fe aed Aone - a dy, oo 89, F Assi 3e. spaneae90 obit -t Bot haw: of : satel tangs oa at anotatinns olan ae, en 3 , Hower sg: Lgiectenba: Ro oone Laid oe ; wroaped doues te wet ephaaeat i -8- Gort (1969) felt that mergers occurred because of discrepancies in evaluations of the firm between the selling and the buying parties. These discrepancies, he believed, were more likely to exist in times of rapid technological change, and when there were speculative capital markets. Gort stated that "forces which generate discrepancies in valuation are decisive in determining variations in merger rates both among industries and over time’ (p. 624). In an analysis carried out on Federal Trade Com- mission data covering the period 1951 through 1959, Gort found that the technical personnel ratio, productivity change, growth, and the concentration ratio were each correlated with the merger rate. Most analyses of merger behavior have attempted to demonstrate that merger-active firms either were more profitable or were not more profitable than firms that did not engage in as much merger activity. If the goal of profit maximization, common in economic theory, is assumed, then the issue of whether or not mergers enhance profitability becomes a central one. Dewing (1921) analyzed 35 consolidations, and found that earnings diminished after the consolidation, and had, moreover, been grossly overestimated before the consolidation occurred. Livermore (1935), in a study of 328 firms which had merged during the period 1890-1904, found that successful mergers accounted for less than 50% of the total. Reid (1962) studied some 66 firms during the period 1950-1959, and found that the highest percentage of very successful firms was in the group not involved in pequdetetonee Kelley (1967), working with a relatively limited sample of firms, concluded that active acquirers were neither more nor less profitable than other com- parable firms in their industry. Reid (1968), exploring the possible motives for merger, has provided some evidence that mergers are made for growth , ai “hod Btingetow§ ia ‘wbunned Wer. ‘siogate sults eet. 4 bebe -eolsirie sir ied os bie ani thaw ‘ads mind ath and te fj brqer *» bonds WE Sabin ot ae ate otsy swith ‘asia ( wbidatsha | ta3 Dae Wigatqanye h ota ae aeay hie sega tele wit 'siat 9b ay mi, an 2 Anas wert ered Andie sabre” owt eraaialiit Gedie tia O43 0% soe ar ig 39 Sa ‘wilatisseab % at a 7 Uren ~ HD sae Javatiow ie ae bal 1589 axle ‘wa. why! 4 “oat % = gas Saas bates 3 side feet seni R es ottia ats patron a meats oy =. “aia stim ‘pe nihey nage 2 Cited t ie i i tee now | X% ‘tags 83 3r° ven eeision. sagzan duis eg ar saline : aor bi det 3 silbiy sith acai ) Baan an at . pigwds i Siemees at iiesive soldi : “3 <000 caciins ai eaeoed riened hao ituie ania shies jon so — botwtaimth aghinvia daaky Siannd bd) COOL IRATT ones 8 Beton, (rset) 1 7 7 “ s i ‘ D oe a bod emt skeznyy Reais metal, Revere tia bait ‘bas hea Sabi tc sha & are by bess # & Laer) eyiemevid © we funds aplidab2 roid wis oy Hirassasue Ptr, ici mg’ AGH c= O08 bo Fisg a auth ‘toner bat fissile eed BAibude itn wiat sneak ofy Yo POP’ aad, viet ey bodiawsa a - pees Wy sanaiiestbg Swen cd Bia and bangs ® berm ‘tees ude vee on field gnterb ; if * i a a ee ; aor) a at ri beta an ab ‘say’ ah sh ial we " Levansne re hebil depo! _ caret 2 wa tain beens tonaaaled 8 a “Be 1: ‘gai 19435, tied ‘sfdadiieiy wae qu tom. Ande the 4 nave srdrenoq eit} BAPaclene. deers brad i iz a Ua th Ve et sft : age objectives, and that. merger-active firms are actually less profitable than others in the same industry. Mueller (1969) has also hypothesized that mergers are made for growth. Finally, Hogarty (1970), studying 43 firms and utilizing stock market price as a measure of merger success, also was forced to conclude that merger active firma were at least not superior to those who were not active, as measured by increases in the value of their common stock. After at least fifty years of research, it seems that if mergers are made to increase profitability or share price, they are not particu- larly successful in doing so. This may be because the price of good companies to be acquired is high enough so that no foatcmerger excess profits can be realized. In any event. no study has examined the pattern of merger peeticr or which companies are acquired by whom in mergers, though Gort (1969) did analyze the type of company doing the acquiring. We Bball hypothesize, following Cyert and March (1963), Thompson (1967), Katz and Kahn (1966), and Starbuck (1965), that mergers are an attempt on the part of organizations to reduce uncertainty and manage their en- vironments. This perspective is generalizable across organizational types, consistent with the results, or lack thereof, of the literature cited, and focuses attention on patterns of merger activity, in which both the acquired and acquiring firms are analyzed. The evidence eee with this hy- pothesis is presented below. Patterns of Merger Activity The merger data utilized in this study were drawn from the Federal Trade Commission's Report on Large Mergers in Manufacturing and Mining, 1948-1969 Aa onan raat ci Pon hoot ‘mnth acapa nn on bean avon 7 Ce nee wns y sapa3e9 ton, 28, ‘ett Hate ovata ae alLieiting Seeprons sig, nm bd gok 24, os, engage ‘ee om mat | "sa a maiee a ae ee: “aivtioven wey anek yriegne ee ome ‘ont myles wo: cee ihe pay | wey ae “— thee ant bap say ae tt ied, piencronyt tf : ae et ‘fauogsasinpane anon es eisveltesnury at “peseegnaes ait Dis chang te apeeeierht os th Satna Hyak 30) unt pt date “alone a 1 ged esa nt ; ae hi00 fr ia tp. seria ro so 3anaya . 7 Hi 2. woh tieren ag at AGH te i ; DN i } Pd I f Vite ’ a mY Y in a D Ee i aki) oye ange saw samira” ponte, ad i: _ppenetage ‘nian wo Li0- (Federal Trade Commission, 1970). Mergers of manufacturing companies with other manufacturing companies were analyzed, with the exception that mergers of petroleum refiners with producers of natural gas and crude oil were included. The data included a total of 854 mergers, representing the acquisition of some $44.9 billion in assets over the period.” We have hypothesized that mergers are organizational responses to environmental interdependence. While there are many resources of concern to organizations, we have focused the analysis on resources that are ex- changed for money. Levine and White (1961) have developed the concept of exchange as a means of analyzing interorganizational behavior. The measures of resource interdependence we employed were derived from Leonteif's (1966) input-output tables, showing transactions among sectors of the economy. Re- source exchange measured in these terms permits a test of the hypothesis which states that mergers will tend to be with organizations with which the given focal organization is relatively more interdependent. Using inter- Reeuidanoe data on this aggregate level, of course, requires a comparable aggregation of the merger data. Therefore, the analysis to be presented is based on a classification of merger by the 20 two-digit Standard Indus- trial Code classifications. Clearly, one extension of the present analysis would be to obtain company by company transactions data, and to conduct the analysis on this basis. The classification of both acquired and acquiring company as to their role in the merger, and by industrial sector is done by the Federal Trade Commission. While there are probably errors and difficulties in the classifi- cation, these are unrelated to the specific study to the extent that these judgments are not made by the author. - sbinio. ‘aie ved | Lene ner ay) Mi ita aataniieigen s esas #8 x0 it * vies sits ei ree “e hesijees Fikbagenean A y pr _ teas io Neorvbna - us i itauerg phe te rare, | ane ii say esoiiiousy ‘fs! | dingeaan ‘eas ‘he io owen fe eeodoo: ts bigetawsb ovied ¢ feet) vidu Soh 3 2 oe tone site stabveded Liner sisiasiiniayat aolnylann Ye 8 os i A ORE 2 e'thbsnoast ot bovtven’ wee ‘poeotone | ow ‘gonaie aa -jpncoe éd9 Me ‘wroyons foes ot en . : ids sq Py auras daca cainekas fe dover acisvead, ta an es ah ee ae leak: wd ea atau of, .Stckaradt tab iene i ae iobsvaasiiels ° nt “sagtshe? neta io) ok seis tw; ag peo ios) tig. sSennb72 ug eh an “areds ‘ba ‘ex Yietans ‘wits ins iis Sitios bei ae eek HSH Seis ‘Siioann bi ry) bul BTA Gaa, tas ll wine sagt pee + agi yohert oll-« Two matrices were constructed representing patterns of merger activity--one based on the number of mergers, the other based on the assets involved. In these tables, the horizontal row represented the acquiring industry, and the column the industry of the company that was acquired. The raw data were converted into percentage terms, so that each table read across as the percentage (by number or assets) of ac- quisitions made by industry x that were with industry oe Considering the Leonteif input-output tables, three measures of resource interdependency were defined. On a comparable two-digit manu- facturing rere basis, we derived measures of 1) the percentage of an industry's output sold to a given other industry; 2) the percentage of an industry's input purchased from another manufacturing industry; and 3) the percentage of the industry's total transactions that occurred with a given other ington ‘ Based upon the conceptualization of merger as absorption behavior occurring in response to conditions of organizational interdependence, we can propose the following relationships: Let * i ij the percentage of the total number of mergers of industry i that were with industry K,, = the percentage of the total assets acquired by industry i that were in industry j Cy = the percentage of industry i's sales made to industry j tis = the percentage of industry i's purchases made from industry j Baie the percentage of industry i's total transactions that are with industry j. eure west sick ae poesia oes, ee vin “pr eitasin sal “spokes: seams ; q anita igi. “et atdwranens a coal “hatin ous sora whee ie fhe Ro susitaaieg baa ca te eal pas ss co sine eaaabat ties Ryesadoneg aris t 5) seein asia ania ‘ ene aa ee eet a ae A : i . te : i 4 al i i eheny ‘Teo ns 1@ ao Goi) 1 hiage) Ay petegaey a EF - i > Mh yy a i haat cals A i Me f : 7 fi n eae ‘ 7 . Rees = eae iS P ee ih satura a) siawale, wile 2) gait etabia Ae abana 30. seinen oe et ads * ; by | c “pcan Bahay wae eat o fee x | beats Om ane fuser pot 0 eguxcseeg add. ad : i? souk py oe ciel ts ‘Hives oa ian aaten : 2 etoeatbe br saxsompeat a t citi te? oe sai ng 2 varaacihent ah: ‘amen es , en ian tik ‘gis Soodvowinass ‘Palio wht ese tho cavinas ee Seinees St ’ me my =, 1% Then, we have hypothesized that = ' ; 7 at asi + bytiy + byt + ou (1) ' t ' t i ‘ 1 4 te ett op Sai + bata + batt, . =p (2) ~~ where u-is a random disturbance term. We are not, a priori certain which measure of resource interdependency is most responsible for merger behavior. We shall also consider three alternative hypotheses to the notion that merger is a response to resource interdependence. The first is that mergers occur on a random basis. Because there are differing numbers of large firms in different industries, the observed patterns of merger behavior would not be equal across industries even if mergers were occurring randomly. In other words, the supply of potential merger candidates large enough to be reported in the FTC series differs across industries. Data on the number of firms with assets over $10 million were collected from the Internal Revenue Service Statistics of Income for several different years. Because of the high cor- relation between the figures for different years, we chose one year, 1958, as the year from which data would be collected for the analysis. This year is approximately at the mid-point of the time period being considered. The variable ny: or the number of firms in industry j, was then introduced as a controlling factor in the analysis. A second alternative is that profitable industries are likely to attract firms interested in acquisitions. Industry profitability, in terms of the rate of return earned on equity, was included as a controlling factor. We denote the profitability of industry j by P;: ; 4s) ote ated3bo doit ise one, aw aro sosiodseoet ‘totiaws n ay | sats aobton’ ‘ws ox. enidivigs wvtandnwath, si vaineaas we ‘peas ow sxogzan g089 at aey et .soawiribyaexsdit soseies 4 siihdigad ’ ‘ort ngial 0 ey antssitith eve vvodd sivas atid trots 7 “Sea t bihow robvades Seiad bn wertona ae bevivade ai veksiite ve sis cast to édino ada ag ead! \ ainesaution peorod Po isixon | abhi avooved Laaveted avty! aoxt Totaal foo ext. wobitin’ org sie nay: aia vets to swinonl eer Yoorattib terevee oo) ‘smoont 6’ 89 . BE, cane ome svi en , | sees ‘tnerattsh set eemugit aa monies Resse ae oe {bagubovaat | agi wha: vt vets ak en a “eal co % ‘e 8 alata fa, at eine a odie. to win: me sa tigesPoxg rt ats nga aot | eid wW: 703908: iat Ledo03 foe ‘babii fod estas “bb ~13- Finally, the concentration, as measured by Weiss (1963) for each industry was employed as an alternative variable. It was thought that concentration might be a surrogate for difficulty of entry into an industry, and that the variable also reflected important characteristics of industrial structure. The concentration measure is denoted by c i" Analysis of the Merger Data The results of the analysis of merger as a correlate of organizational interdependence are quite striking. Considering a11 manufacturing indus- tries at once, the following simple correlations were observed. t te! tt ) n c { i i j iy 65 - 62 - 66 01 16 01 t iy -59 ~52 57 .03- wed 04 The Pearson correlations with all of the transactions measures for either the number of mergers or the assets merged were significant at less than the .001 level, while correlations with either the profit rate variable or the concentration ratio were not significant. The correlation with the number of firms in the industry in which the acquisition was made was sig~ nificant at less than the .01 level, but the magnitude of the correlation is significantly less than those for the transaction variables .> “4 = in iar 7 ar “gait: -aenads Rey. a r iatdataey- nsomreatn me os + hes | ms osah wetea: to ata tt ‘x08 snore a - " salogtaeacunede-tnasbge. bazaars outs aissizey one 9 . iy F -) om ae we bazoneh at | sienaem otswtansous at “eninge lire ined, Ory Ces ay ay seta ; i ‘. [nveasex tongs: sa agaforsoy ». Sasa digo ia! teytana ‘is: aoventungs 6 aa v i ~aubat pulwizccRonaer sid Suizeblenc -gtsaae astup exe 4 (i ae SS a _sbovaeeds oxeu esanzalerie> olqaty raed a sono th wok, — ) Ge reptke, 03 ewmuases aon bogenand ois: to “Abesdate eaoRantarreo 088 neteay) “avert seal or donodituere oreu: begusm, risers st ~. sxegion 3 ie. 3 “<0 oldatizev ae jttoag erty radste Pept y snoktatorss ata tevel: Sabigs: . ed A 7 ety tt ty moiselsnses ‘ont viene ” ; i ih MARE ti? a gents _addig eda dat toolinlesion wy oule bom 701 i r : 42 xf inf rt see i " Be. : _ aapaeg i ido 2d ‘ban i satel, at besuanerg tp ostueey neaedt * mate . edn or exegiion 40 mmasnontn oa 4 fe + Het eon : - an a Ce ee hy ee “st aan sanennige etleat anna ane anette - —— esata ny nh ore anotatyates! say caateud. ows 5 at ai i ong galarntqne mt Tiew an el une ob ootduszey mig ods 2 sot Ph ey Ww = ols datas oH at lareed etaeubar al ws euba' me po yolveded, ree 30 Ps i - oe mneyI oS aor? aubat o ad $990, ino tontwrted was 30 agosove & _ eeeertes wey aekeeer hme ay ronabhanes avai oat age ot an any ab 433 # at gram os ite sales sp west % ese a a is ae ates the percentage of industry i's purchases made from industry j, Boi is th: percentage of industry i's total transactions with industry j, is the Py profit rate of industry j, n, is the number of large firms in industry j, j c, is the concentration of industry j, x,, is the percentage of mergers by j ij number of industry i with industry j, and x; is the percentage of induatry j i's acquisitions by total assets that were with industry j. Mergers Within the Same Industry When we consider only mergers within the same two-digit Standard In- dustrial Code bateeory, the model is put to its severest test. First of all, firms tend to have relatively more transactions within the same industry, and have also tended to merge relatively more frequently with other firms in the same industry. Therefore, it is possible that this clustering of data points is spurious, and has produced artificially good results. There is also the alternative that mergers occur based upon informetic: or patterns of familiarity with the operations of the industry in which the Bequdateien is being made. Interdependence, in the sense of resource exchange, can certainly tend to increase familiarity between the exchange partners, and to that extent, it is impossible to separate the effects of familiarity from_ the effects of transactions interdependence. However, in considering only mergers within the same industry, we can more plausibly assume a constant degree of familiarity within each industry. Differences in within-industry merger rates can then more confidently be attributed to variables other than familiarity. | cee raat fod + som un as ‘terevog ” Ey sevobeneht eet i Esa 1 = ' i ’ Sa re { eo 3 aay . ad : ee i Re b y =" abhi? teak: : Ly ae. wi ame ao Bf HIZALH Be ‘ia no: getivbtecas at noodle _saavimgeanal soot swans he scone " aata3ab90 * sewean dient oom AR! Ae eraaabod caus poe saat 70 ? _vnteubat= sndaiy ab seoarse8I iat san tain. —- | t "y : SA ; My : : easel ‘ite yi T Broke ie v The ta ; mail \ ips he Ba ran | | ) b i / ji! ; | ' Y,. vs a aes, af r ‘ £ wilt #. ne i re ma? ee el i aN - ha, ie Weis t Lye iw te , i Hn th 249 The correlations between the measures of merger patterns and the re- source interdependency measures, as well as the control variables, for the 20 data points representing mergers within the same SIC, are presented below: t ae ti are P, ny cs iy B47 46% .36* -.30 .38* -~.14 x44 .35* .33* 34% mia 42% -.06 The asterisk again represents statistical significance at less than the .05 level. While n, is significant and in the expected direction, n, is not j J correlated with any of the resource interdependence measures, and hence their significance is maintained when combined with n, in a multiple regression j analysis. Measures of resource interdependency are important in analyzing differences in the percentage of mergers that occur within the same two-digit industry group. Five of the six correlations are significant at the .05 level. and all are in the expected direction. In considering mergers within the same industry group, we are studying mergers that may be occurring to reduce either symbiotic interdependence, or competitive or commensalistic interdependence. We would expect the relation- ship between economic concentration and the reduction of competitive uncertainty Eottellow an inverted U-shaped relationship. At very low levels of industrial concentration, there are many firms active in one market, and there is no smali group of them that truly dominate the environment. Merger under these condi- tions reduces uncertainty very little, because any given firm accounts for so small a proportion of the competition. On the other hand, at very high levels of concentration, a great proportion of the industry's output is in the control e smeseantn basse ute at bn Fant te a fe sinaa “ae “ selene atgihim a Bi i ste benidines ces ar oe oer) 74 Rg i - atabioeowa ci sai aia ruaed tat wraguan bo. ogarmnoten ‘on ie ears “frat tO. att hl + Anna ge Btn cantsetorsen xe ots tee ont | squats a ra | gelybode ane sed adios 4 seal wa eds atidsiw . 3% soaahoegolrea) a ah sedate satiber ‘at sat rwgee oo in oat ay quis _gtotantes oi aoaqxs bixiow oe _#panbragsb'resed oh aasonas cil ‘ Tarmatabet 3 to Meret wet sey 2 Sgunapiaeten ogni: besaavnt ne ' a yi hk "agen ea ii wai tie . Rote: on a wrnes bee ctealsam wits hae vane sath yuan on, need wolte ae rf -Kbane: wea wobaw ‘seaapit ssoamsipneae ods . satoob ire ‘s y oa, ok esmungon a any wo ics aa weiss ev @ aval dg Litt ie bara niitso at smtogans os ” = me (ks x ~18- of a few large firms. Under these circumstances, uncertainty can, perhaps, be reduced through tactics such as price leadership or other forms of inter- firm communication, because the behavior of only a few major competitors must be monitored and predicted. Stigler (1964) analyzed oligopoly behavior based on information theoretic considerations. He hoted that with very few firms, the probability of detection of deviations from standard industry practice would be much greater. Furthermore, as concentration in the in- dustry increases, prohibitions against horizontal mergers are more likely to be vigorously enforced, which would again contribute to a decline in the number of mergers within the same industrial category. From a graphical analysis, it was determined that a value of approxi- mately 40% for the concentration ratio appeared to be the peak of the inverted U. Therefore, a variable representing the absolute value of the industry's concentration less 40% was defined, and related to the percentage of merger activity occurring within the same two-digit SIC. This variable, difcon ;? was correlated -.38 with x and ~.39 with x! both correlations in the noe a expected direction statistically significant at the .05 level. While this variable was uncorrelated with any of the measures of resource interdependence, it was highly correlated with the number of firms, n This correlation ; explains the previously reported signficant correlations for this control variable. When the two independent measures of resource exchange, t,, and t! ij ij’ and a are combined in a single regression equation, 37.8% of the variance in the percentage of number of mergers within the same industry classification, and 35% of the variance in the percentage of assets acquired within the same industry can be explained. Phe} op We int i} : wi - Heed ea ae : We ; ' Wy yh, A) ge ys y i fae rd ‘aan fa at ee Y «Bie. Ay mg ae , ; f - | j f - ,eitadveg naa Ss oe Mouyal a beads Lie 7 as te oat nena 16 “qhdessbsol sot34 me: dove. sobioes psa a baa etos228qan9. wate “bk & te te sotvaded: as anigoid\ aot suk dobvediad Usgogh!» biioy aba caaer) 4sigit® shesahbong bon.torostoon, od ss kaw vol suis baton of aed} Yavab Lao sbaevonn vo traci oh ee i “peiaabatd brelinad a wey siior sai v28 38 mi sdadab Tons Lidedony als rt sit wild ob oatsnvingosia cs pevaienartixst! igineny, fogn oo bloow sobtsemy gtawi “Biom wie axagesty Iasags tier. Tae sam headog, wseenstoad ods ai sai tuo Boo saudisians aioge biitese ifoxdy beosebas ylaue set | uanaoe nt ss ibd Pare ct atbang scapes Skapinies to aulse ‘a Sid beysemeseb aw 32° phnietana feondgeny i us sy _paveaeis aa ¥o dang ati ao osahgge cried melanstowsia ite sot Xb a'yrzaubds até 20 Sulee s2iloade ats pxbtdionergen, stdadaay. e ‘ $03 “8 299300 2 ugesnboxsy ais “ bedpion bre _gbaattsb Pr x08 tint got: SS = ry fiostin sideisiv asst xe see hogn ee ods. shih enae rah Me. ee dake ei.- bes: qt sahy He» beja iw: “ekis ftw .Levet 36, ois 1% abo Jingie eftsotsitiage noissenth 6 #82, at ainebiaieives agent \ i _ Setbaisgabitesin) oomuaners ip dorebinsie ods 20 we wane barslerroie ase | mibiolexro. ent “e panei 46 vodeon $49. tae bovadiirrs aan a : | beptinas aids 16%: ioe inloanon: o-aanol ings ber aages Stanvons 4 hae , R ree yo ; 7 ee. = i ( 3) ae ‘ 4? bow.» j3 .tegadond orTEO Res, 9 vonisneom, sngbnagabek aus ea ml 7 ais F308: x siti aioe ao wegrsy algnts 2 hina pie ps 7 _ Pea eubbs ene ‘ado eitddaw ex oyada te sedinat te sen bertonas 4ipebe ae ayrdnoyiay, oil | nm sanelves eds, Be SRE bow nr id, a crs mn Pa oe ‘ \ =ig- Diversification In our earlier discussion of merger as a strategy for dealing with organizational dependence on the environment, we noted that there were three types of mergers that were relevant: 1) mergers to absorb symbiotic interdependence, or mergers for vertical integration; 2) mergers to absorb commensalistic interdependence, or horizontal mergers to absorb some of the competition; and 3) mergers for diversification, or mergers to avoid either type of interdependence by diversifying the activities of the organization.’ Having now discussed some evidence on the first two types, it remains to consider some evidence on diversification. Diversification is a strategy for avoiding interdependence, and is likely to be utilized hen due to either monetary or statutory constraints, absorption of the external interdependence is not possible. Diversification, then, will also be systematically related to the percentage of resources exchanged with some important external organization. If there is no inter- Bapenietice. there is no need for diversification. The one organization that would most clearly meet all the conditions hypothesized to generate an avoidance strategy for managing dependence is the government. ‘The government can not be absorbed, and co-optation does not eliminate the threat of changes in the levels of appropriations. We would therefore postulate that firms, or industries, which did a great deal of business with the government, would engage more frequently in diversification for reducing interdependence. a lgstubh 268, ut Pt ae e ray SE SAT SEEN ay } ae ii ieee! Sok Q a a j iW: ey a ra ores 2s oie geil a8 bates ow seme aa 9 aad 5% x Fr * Wee aA Pas 9 fies PES Sa shige Aaondn: 0 tesa, a emawater Se “ad a deonda. re iagion 7 ksiguadiond sy, "Sanwabrgat ana BERS aedate. Siows a Lobes “voviaeai3 wevh ‘rol, | “maa aid Be: anustehses, a. pit eanenint we ’ Lae : igh o “Toninoutbesna ‘ne aeaies hy ae yan : dle ye te rae aa a ‘ genmbstianas qrorunde 70 “aesnae wilde ea ‘au specdpenes ad ws iiss as sedvuche ean rs : one Pe ‘yok ; Paton “ (aces nan comsbaegsiaae feaviaariniye 6 63 eign: & if sa | i 2. eigpal eitidas hoa 'b horiut ‘tig bid aetemmaed deat ‘tashay oat ‘oe if ‘acd obs? fesaben). dparalest te wire mots ey fo woin ae om i candi» eoveeoat ae 9, n2acen wes ove evana, awed ae ; i pervejoctian | nt. rasan etaves. alas ou nae or eustin, est i be ~ue ay? ae Sivesaa eas oe a tes ee seh aa oe badat saRig 2M £oe not ‘aaub ainiovergee bon ‘ ,baei- -otithenaae ods xb on Py binder | Pits, es al Viyem hed Care vy pee ah i up i ae a: r Teaeet z j Ad e ox 3 Honaquonds veal te Cid zy be an sag3ina io, cities eerantly tacts etd th en heey Fs aq ‘s: as ies a : +6 vt idea ong we si06i naga): poker: mare: wheat “am a ; a A a : " euoalk, ov wa ‘ m sae 08 aig i ae Retuerite SRE ptt a hei | Wunemars te 4 ; 03 ad i ctaha $07 ee anti 8 aH Eh eer Yall ale ue ated ey cera ~-22- acquiring competitors who are fighting for similar resources or markets, or by acquiring suppliers and customers who are vertically related to the organization in the input end output exchange relationships. The second reason for merging is to reduce interdependence by diversifying into other activities, so that the organization's reliance on a particular set of organizations in its environment is reduced. While organizations probably do desire to acquire profitable ventures, other things being equal, we can see in operation a set-defining search rule. If a firm is merging under the absorption strategy, the set of firms in which it can make its acquisitim is, by definition, limited to those in resource areas with which the firm is interdependent. On the other hand, diversification permits inclusion in the considered set of many other firms besides those which are interdependent in a resource eechanee sense with the focal organization. It is not un- reasonable to expect, then, that strategies of diversification will permit peeinel uation of more potential merger candidates. And as a consequence of the larger set of considered alternatives, diversification mergers will tend to be with firms that are more profitable prior to the acquisition. In Table 3 we have reduced the Federal Trade Commission data to show the rate of return earned by two sets of acquired companies-- those acquired Table 3 about here in horizontal or sereical mergers, which are mergers for absorption, and those other mergers, made for diversification. An analysis of the table using a Chi-square contingency analysis confirms at the .02 level of sig- nificance that we are forced to reject the null hypothesis that the profit- ability of firms acquired for absorption is equivalent to that of firms resale ied wit 38! ps edostne cis I we et eatt ot ap ‘aporweal a vik | yer og basuies alfnatdane one one SHOT MHD, bats “eink ign pope el ee \ Ly? ay ‘buoaoe oat “agh knorsalers: apna 2098. Hae: sient el at pak : ose ts pauls fs na a te sak ane (12 ‘exoeth re omnal hebgebiewant ‘pubes be. ae “quigzen yn é te 2e8 gatuots ay #2 scam ten w noleqaliaaze my aes coe e929 yi a | * eiedorg Biyiins.insge abn “ybaouber, hk tame sk eess wad at wan ~~ Tasme, pd ages ate. beanie at@oattosq gstupon oF one ae eighenn ; ; ‘ fh i 7 abou gular, na wat} aw a] tovses gatnitab- ‘je le gotsarege ot 6 : } Lar bach ds eqs alam BBO a) bage a bert to aoe gale eraoanion 020 a watt ad? “Hokster dtiw reer antn987 Hl, neost ‘eg saat sao atet a wo Soutsns sse8 pottent tesa et «bat sto ata 00 | | anobaogubaan? a2 mani stant nabbed eacek vase ones 8 06 ee: ~au ‘tha of ai obiaslnngxe. ixso® als ai ‘eamee “wpanitoon IS THORS Siew tire petiadbieeread Sad Wnlgedoads. this neds Aone, 4a oh | to senaitpanne ia: es "ins aonb hemes. “9g eee Beldovseq stom Ve. woes noms ithe mregeee ie? Sombie axmyih ‘app aaagen tn waantgoge 18 5 fan a . si wom! ri i odd (a2 aolsq qtaesiaaay:) mroE a4 anit eee ad ex _ erases ee tenon ana wml pee ei Lunes tang a t ire eae naseue Dare | Pape +“ vist erogz Re emicetieg —— 08 ptdas atl +6. irae ioe UA. ‘ee sad dpenet! wet oon : vad a “ ; apis te lovel’s3, Pie 4k wee it vation yeoman 09 es | ; ery er =23= acquired for diversification. Inspection of the results indicates that they are in the predicted direction. Conclusion The pattern of mergers among industrial companies has been analyzed as a response to organizational interdependence. It has been shown that there exist statistically significant associations between patterns of resource exchange and patterns of merger activity, and that these as- sociations are able to account for about one-half of the variation in merger behavior. Merger, when conceived as a response to organizational interdependence, is then a strategy to be examined along with other strategies that can be utilized in managing the organization's environment, and also is a strategy that can be analyzed in a consistent conceptual framework across types of organizations. We have specified three types of merger behavior: 1) merger to absorb symbiotic interdependence; 2) merger to absorb competitive or commensalistic interdependence; and 3) merger for diversification, or merger to avoid existing interdependencies by reducing them. Data on all three types of merger behavior have been examined, and by following this mode of aaalgetae we have even been able to partially account for observed variations in the strength 6f our correlational results. The confidence in the conceptual schema developed is thereby strengthened, because not only can it explain a significant amount of the variation in merger behavior, but it can even be employed to predict when it will work well or poorly in the job of explanation. As we have stressed throughout, merger is only one form of organizational linkage, and is at one end of Warren's (1967) continuum of inclusiveness. 1 ; RO Ger pi sale Hee = ys ee Re ats x a - Be on aes Pb Pe ei 4 F Po ics = , r : : Py w ie: f " i fs tn ' ; ie z 7 i Dy ands asunnatiat sei to walsgegeat coo} 4 802 | i ee ae aakigoaih foreihexg aad er) basen # ‘90d snd Saineqnos per ‘sper mnsgree ; = te ici Pee Ne Ny a toy tai ‘iuide nia ez’ at ‘esoabnaiabyssa Leen meno Pace setae A pes Ree POR ee Ces 7 | , te aes cnet: wmarsatoodne sonaratages wis ites ‘ ; EN, ? Opty MSIE IDPS ate ta cae | asee Hy pit : “ae fae - Vale en ‘sends tat tees iviiae | agro 0 anesseg ed | ae “ah ae: ets’ ‘Re Ind 008) 10008 aot an033% ad vise mers SEE, NOs PENEUDE eR MTS Gye Non, UaMaad ee Gone SRE at cleo “A spruce ian # viet dt GS aR bowi estos: ade rie ren ' { ia * 2 J BY 4s ie Nias ar : ah ey sy ae re ake sotiotexse densu die anata’ bankanaty ad ot ceeesetee a ern ‘of ; é Berea tee ete bos y ae ; ier on x Seer is Ns a tas i We ® alelgze a2 mao ‘eine 480: ‘oan. baandsipanss doris ah degotevet s : 2 ot soe, a on RN, ee Piet 3 e te: a | sd cove on | ak sud paren ‘ree a nottabiay =f3 to | Sovone ’ ae Aare eee at y Oy Aaa poigg arity Y re Fe a rach ara BRA erst noi tems tgzs ed a toss te jisw sto Liv at \ oe . aoe N ‘ txaotyesinngi> ba wae ner efno al re ,sWodgoorts bona orm” ba, raashwetekitsal 8 pumet saga (Ren) ‘ aoe 39 bos sno, 30 #8. ‘ban: fog ied 7 - ary (hy fe : sir ve re B pire’ f ue ae q = - AY eo Pe AS yal yy oe ok r ny a y itt ay “9h The task remains to relate the various strategies for managing the en- vironment to each other over time, and to conditions in the interorgani- zational environment that might explain the use of one rather than another. The task also remains to examine growth, apart from merger, as a strategy for managing the environment, and to specify the environmental conditions that will tend to produce strategies of diversification or integration. ~inegioxssab aan vi ‘td ties ot sie and 1090 ‘yeitse oy 03 “Sit ote <7 fudsorns mess vital, a8 to aye oils suntigen sta its +e ve i . fi i . = Le ee i a iy ae ‘ H i 7 ‘be 1% & oie ee) eid vas. tsa ; egrets 2 ae tigre wort Fee iin Sndetexe a3 ‘witier gets a | bnoz2hiios Laseomeietions orls ehineds oy hes siniwoce vig ps3 gle PY ae Ms: soaaeigoas te not smeitimivtt le baigoasive souboaty a haw ftte 4 J 7 = FOOTNOTES lone concept of symbiosis has been defined in the human ecology literature . as "a mutual dependence between unlike organisms” (Hawley, 1950, p. 36). juring the period studied, there were 1,417 total mergers in manufacturing and mining involving firms with assets of over $10 million. These mergers accomplished the acquisition of $63.7 billion in assets. However, there are many other types of mergers not covered either by the particular FIC report, or by the study. There are mergers that are large and involve companies in industries besides mining and manufacturing such as retailing the services, or finance. And, there are the many smaller mergers that occur. sthese tables are available upon request. These tables are available upon request. Sthese particular correlations are higher for a simple linear correlation than for correlations on various non-linear transformations of the vari- ables, though in no case is the difference particularly large. As the theoretical basis for the study has only predicted a relationship, without specifying shape, it is interesting to note that a simple linear fit pro- vides the best results for these data. Quring the period studied, there were 373 mergers between firms that were in the same 2-digit industry classification. "according to the Federal Trade Commission (1970), approximately 16.1% of the total number of mergers in mining and manufacturing during this period were of a horizontal variety, or were likely to be for the purposes of reducing commensalistic interdependence; 13.3% of the mergers were verti- cal, or to absorb symbiotic interdependence; and 70.7% of the mergers were classified as conglomerate, or as tending to further diversification. This classification is both arbitrary, and not relevant to the analysis under- taken in this paper, however. The fact that transactions interdependence, which is a symbiotic relationship, accounted for so much of the variation, provides some evidence that there is considerably less conglomeration than is customarily believed. ie aie) Po! 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