FINE 434 Lecture Notes - Lecture 2: Stock Market Crash, Product Differentiation, Capital Market
Document Summary
Critical innovations in: transportation (mobile buyers and sellers), communications (radio advertising allowed product differentiation), merchandising (mass distribution with low profit margins). Decline in relative importance of horizontal and vertical mergers; at 1967-68 peak: horizontal and vertical mergers declined to 17%, conglomerates increased to about 23% of all mergers. Defensive diversification to avoid: sales and profit instability, poor growth prospects and industry uncertainty, adverse competitive shifts, technological obsolescence. Reflected personality of chief executive resulting in noncore acquisitions. Formed to imitate earlier conglomerates with high growth and valuations. No sound conceptual basis: source of sell-offs in later years. Rise of (cid:373)a(cid:374)age(cid:373)e(cid:374)t theo(cid:396)(cid:455): (cid:862)good (cid:373)a(cid:374)age(cid:396)s (cid:272)a(cid:374) (cid:373)a(cid:374)age a(cid:374)(cid:455)thi(cid:374)g. (cid:863) 1968: congress began to move against conglomerate firms; antitrust laws. New industries as a result of new technologies and managerial innovations. Impact of international competition on mature industries such as steel and auto. Bustup acquisitions: segments of a firm divested after acquisition, proceeds of sales used to reduce debt incurred to finance the transaction.
