Abnormal Returns To Acquired Firms By Type of Acquisition and Method of Payment: 1. Introduction

The premium paid to an acquired firm in a merger should be dependent on the magnitude of the expected synergistic benefits, and the form of payment. In a horizontal or vertical merger the synergistic benefits are readily apparent--economies of scale, complementary resources, and reduction of business risk. Sources of benefit to shareholder from conglomerate mergers are less clear.