I. SOURCES GAIN OF Those elements of a corporate combination which have been identified as likely contributors to a net increase in market value may be categorized as either â(operatingâ or âfinancialâ in character. On the operating list would be counted the following: (1) Opportunities for economies of scale or other direct efficiencies in manufacturing; ( 2 ) The enhancement of competitive sales positions through augmented monopoly power or the appeal of a more complete product line; (3) A complementarity in research and basic technological expertise relating to new products; (4) A convenient fit of scarce managerial skills leading to greater administrative efficiency. I t seems unarguable that if indeed one or more of these conditions is present in the joining of two enterprises, the aggregate profitability of the two will rise, as should the consequent market value of the surviving firm. On the other hand, there has been considerable skepticism expressed in the literature as to the frequency with which such benefits are accessible in practice [2, 6, 11, 151. I t has further been pointed out that by no means do all the relevant payoffs require the act of merger for their realization [2, 111. Because
The Journal of Finance – Wiley
Published: May 1, 1971
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