Abstract:
The UK competition authorities are responsible for regulating company mergers that
were originally considered to have adverse effects that were “against the public
interest”, or presently that could result in a “substantial lessening of competition”. The
research in this thesis examines wider economic side effects of this regulatory policy
that fall outside the remit of the competition authorities. Data on 63 merger cases that
were subject to the merger regulatory process by the UK competition authorities
between 1989 and 2002 are studied for effects on two economic aspects, shareholder
value and managers’ motivations to undertake mergers.
Some previous studies have suggested that competition regimes can destroy shareholder
value. The research in this thesis confirms the finding from earlier studies of greater
gains to shareholders in target rather than bidding companies, but does not find
evidence supporting overall loss of shareholder value to target company shareholders
when a merger is prohibited. It finds evidence that when the regulatory regime is stable
and well understood the capital market behaves efficiently in response to new
information. However, for a sub group of the mergers involving companies with a new
regulatory regime, of which industry and the market had little or no experience with
respect to mergers, the capital market operated less efficiently.
A number of studies have also considered the motivation of managers to follow a
merger strategy. Apparently, none has looked at the influence of competition regulation
on merger motives using stock market data and event study techniques. This research
examined data for the stock market’s perceptions of what motivated managers to pursue
their initial merger bid. The findings suggest that Synergy and Hubris dominate as
motivations for mergers and that, unintentionally, competition policy may help to
reduce the number of mergers motivated by Managerialism.
