The history and mystery of merger waves - University of New South ...

In 1948 the first step in the development of UK merger policy was taken with thepassing of the Monopolies and Restrictive Practices Act which created a Commission tolook into deals that might be adverse to the public good. The terms of reference for theCommission, however, were vague and the criteria to be used in determining the publicgood were equally indistinct. Not surprisingly, this had no noticeable effect on the levelof merger and acquisition activity which continued to fluctuate gently over time but withno sign of a merger wave for more than a decade. The first real merger wave in the UKwas in the 1960s and coincided with the internationalization of the World economy. TheBritish government decided that large firms were needed to compete effectively on theinternational stage and to achieve this goal the Industrial Reorganization Corporation(IRC) was created with a brief to encourage the development of such companies throughhorizontal mergers which made up the majority of mergers in this wave. Amongst thetop 200 manufacturing companies in 1964, 39 (19.5%) were involved in merger oracquisition activity within the next five years xvi . Given the low levels of merger andacquisition activity prior to this time, this was a major increase in activity. During thesame period, the Monopolies and Mergers Act (1965) was passed which prohibited anymerger or acquisition that was contrary to the public good, and created the Mergers andMonopolies Commission (MMC) to rule on contentious cases. This law focusedpredominantly on horizontal mergers as the public good was generally associated withmarket share and consumer choice and, as a result, the popularity of this type of dealshould have been limited to a considerable degree but any deal backed by the IRC wasexempt from the legislation which allowed the merger wave to occur, irrespective of itsdeleterious impact on competition in many markets. This wave experienced a partial11