Anticipated Profitability of Mergers : An Analysis of the Characteristics of Acquired and Acquiring Firms

Measurement of merger gains using post-merger data is sifficult and highly conjectural. Thus, it is difficult to test merger theories and to estimate merger gains using such data. The approach in the current paper is to use pre-merger data in an economic model, in order to test the managerial and neoclassical theories of merger, to estimate the size of anticipated merger gains, and to examine a variety of diversification measures, including the traditional approach, the OFT's approach and others. The results support a managerial theory of merger, but questions the accuracy of the OFT's diversification classifications.