What Determines the Ratio of Exchange in Corporate Mergers?

Abstract

During the examination of this field, it was felt that a great deal was said about possible methods of evaluation, but not much about probable methods or the most prevalent methods. many times during the analysis of a company has one had occasion to examine a recently proposed, or recently consummated merger, and has asked, wonder how they ever arrived at that price?, or How did they ever come up with that ratio? Having been in this situation on occasion it was felt it would be helpful to have an idea what factors actually do appear to be considered most important. The question also arose as to whether corporate mergers were consummated at a premium or a discount to the merged concern. With this in mind it was felt a detailed examination of a number of industrial mergers would yield useful knowledge about valuation techniques in mergers and the tendency for premiums or discounts and about how much of either. It should be mentioned that although many mergers were examined, the final study was concerned with 25 industrial mergers containing 50 corporations with a public market for their stock. In order to retain homogeneity all mergers were pure stock exchanges. A further detailing of the characteristics of the sample is given below: (All the mergers required a proxy statement which, in turn, was the source of figures). 1. Of the 50 companies involved, 28 were listed on the New York Stock Exchange; five were on the American Stock Exchange, one each on the Midwest Stock Exchange and Pacific Coast Exchange, and 15 traded over-the-counter. 2. The size characteristics show a large range and dispersion similar to that recorded in the Federal Trade Commission's Report on Corporate Mergers. 3. Industry dispersion is over 12 industry groups as defined by the Standard Industrial Classification. The greatest concentration was in Electrical Machinery which had 10 companies (including eight electronic companies, since no separate class is available.) In all future references to the mergers the numbers designated in Table I will be used.