A merger boom comparable to those of the 1960s and mid-1980s
occurred in the 1900s and into the new century. The merger activity of the
1960s was associated with increasing stock prices and heavy use of pooling of
interests accounting. The mid-1980s activity was associated with a number of
leverage buyouts and acquisitions involving junk bonds. Merger activity in the
early 1990s, on the other hand, appeared to involve primarily purchases with
cash and standard debt instruments. By the mid-1990s, however, many business
combinations were being effected through exchanges of stocks.

Problem:

a) Which factors do you believe were the most prominent in
encouraging business combinations in the 1990s? Which of these was the most
important? Explain why.

b) If a major review of the tax laws were undertaken, would
it be wise or unwise public policy to establish greater tax incentives for
corporate mergers? Propose three incentives that might be used.

c) If the FASB were interested in encouraging more mergers,
what action should it take with regard to revising or eliminating existing
accounting standards? Explain.

d) Why were so many of the business combinations in the
middle and late 1990s affected through exchanges of stock?