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Vijh Comments on Corporate Mergers

Amid the most vigorous merger market in five years, the failings of Carly Fiorina's $19 billion link-up between Hewlett-Packard Co. and Compaq Computer is a reminder of the risk that lies at the heart of all large takeover deals. The reality is that big mergers, like the stock market itself, perform all over the map. Academic research on mergers has revealed a few broad conclusions, however, says ANAND M. VIJH, finance professor at the University of Iowa, who studied hundreds of acquisitions during the 1970s and 1980s. Cash deals tend to perform better than stock deals, he says, because of the disciplines it creates in buyers. So-called mergers-of-equals tend to do worst of all, he says. "Companies in declining industries have no alternative," Prof. Vijh says. Those deals may do poorly, he says, "but not as badly as if they didn't merge."

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