TAKEOVER MOTIVES DURING THE CONGLOMERATE MERGER WAVE

This article examines the stock market response to acquisition announcements during and immediately after the conglomerate merger wave of the late 1960s. The main finding is that acquirer shareholders benefited from diversification acquisitions, which implies that diversification was not driven by managerial objectives. It is also shown that the market responded positively to bidders who retained the management of target companies and negatively to bidders who replaced target management. This is consistent with the hypothesis that the market favored acquisitions intended to exploit managerial synergies. It suggests that the market disliked takeovers that were motivated to discipline target management. Evidence on buyer and target price-earnings ratios is presented that is inconsistent with the conjecture that conglomerates were able to mislead investors by earnings-per-share manipulation.