1897-1904 The First Merger Wave

1890 saw a significant change in operations of industries in U.S. A. The introduction of Sherman act lead to proclaiming price fixing illegal. It managed to curb the price fixing however law was unclear on merger of companies via stock trading and shares. Thus the companies who were finding troubles cause of Sherman act decided to merge. This was also supplemented by crash of stock market in 1893 and financial uncertainty which lead to many companies to question their capacity to survive. Most of these firms were small and were managing to operate profitably by price fixing which meant to control supply and demand. However it meant to be anticompetitive and thus government wanted to control it.

However, lack of comprehensive implementation and will power by government lead to various mergers that transformed many industries Monopolistic.  Most of the mergers were horizontal in nature. Collated data suggests that in this period 78.3 % of mergers were horizontal in nature compared to 13% vertical merger. Rest 9% was vertical and horizontal merger.  Around 2900 companies were part of this wave.  1899 saw peek of all mergers when around 1200 companies entered the fray.  The wave finally ended in 1904 with certain mergers showing signs of failure, financial mishandling and Mr. Roosevelt antitrust campaigns and strengthening of Sherman law.

This wave saw maximum consolidation in industries like primary metals, food products, petroleum products, chemicals, transportation equipments, fabricated metal products, bituminous coal and machinery.  These mergers resulted in nearly monopolistic market structure. The out of these merger resulted in one of major Giants like U.S. Steel which grabbed market share of 75% on inception was result of around 785 steel operations. Some of today’s giants like DuPont, American tobacco, general electric’s, Eastman Kodak, standard oil and Navistar international. J.P Morgan played a key role in the wave by founding U.S Steel and overseeing the mergers that created general electric.

These giants were helped by scales, new technological invention and in some cases by doing away with operating units. For example Standard oil garnered revenue by operating three units only and it do away with unnecessarily plants and thus had better operational efficiency. Companies and manager focused on production process so to enhance their ability to engage in ever expanding mass production.

However the monopolies created spurred a backlash and justice department charged many monopolies with violation of Sherman anti -trust act. The act was itself actually a response of anti rail road protest when some of hostile takeover actually turned violent judiciary system was highly corrupt. The then president Roosevelt (Known as trust Buster) and this successor focused on enforcing the act.  The major success came when in 1904 when northern securities merger was deemed illegal by court. With time standard oil was also divided into entities like standard oil of New Jersey (Exxon now), standard oil of New York (Mobil now), standard oil of California (chevron now) and other entities which became major players in the industry. However more than the court room preceding the wave ceded cause of failure of many companies to acquire efficiency, irregularities in attaining finance ,stock market crash of 1904, weak banking system etc.