Building up is back in fashion
Ramjac had just acquired control of the New York Times and all its subsidiaries, which included the second-largest catfood company in the world. . . . RAMJAC owns Colonel Sanders Kentucky Fried Chicken, of course. . . . [RAMJAC's Transico Division] has limousine services and taxicab fleets and car rental agencies and parking lots and garages all over the Free World. You can even rent furniture from Transico. . . . the American Harp Company, which had recently become a subsidiary of the RAMJAC Corporation . . . . Playboy , a RAMJAC magazine . . . . -- Kurt Vonnegut, Jailbird
Well, you get the idea, and probably also why Vonnegut's omnivorous RAMJAC springs to mind. After a brief dot-com-bubble hiatus, conglomeration is back in fashion. Telecom giants are swallowing smaller service providers and equipment makers again, software giants are slurping up small fry, big banks are bolting down smaller banks, and Coors and Molson are mixing their brews. Comcast even made a play for Mickey Mouse! It's not the frenzy that marked the turn of this century, but enough to prompt the Wall Street Journal , as early as last October, to applaud "a welcome return of animal spirits." By February, Business Week was reporting that "leveraged buyout firms are on a tear," and, by early March, that "thanks to more mergers and stock offerings, investment bankers are back in demand after three years of being treated like pariahs." Warms your heart, doesn't it?
But why shouldn't we all be pleased by this return of corporate consolidation with its promises of increased efficiency, higher profits, and rising stock value? True, earlier waves produced such amorphous amalgamations as the scandal-tainted Tyco, whose new full-page ads may serve to inform its own management, as much as the public, as to what among its "more than 200,000 products" it actually makes. But there is no denying that mergers and acquisitions can address many corporate problems.
Combating stagnation with a healthy dose of "synergy," for one. Take, for example, AOL's merger with Time Warner that carried with it multiple opportunities for cross-fertilization between the leading Internet service provider and the media giant . . . well, maybe I picked a poor example, though things have picked up a bit lately for the megafirm. Acquisitions also open up new opportunities for creative accounting, as at Enron where a rapid accumulation of assets--power plants in Poland and India, pipelines in Bolivia, water systems in Britain and Argentina, barges in Nigeria, fiber-optic networks, telecoms, and much more--mesmerized Wall Street and put a gloss on those otherwise dreary profit and loss sheets.
Takeovers can also give a nice boost to CEO compensation. As New York Times columnist Gretchen Morgenson noted after Harrah's July melding of Caesars Entertainment into what is now the world's largest casino company, chief executives often like to have their firms acquired "because their severance agreements kick in. And that means they can become truly, titanically, stupefyingly rich."
Egomania. Naturally, there are naysayers. Management guru Tom Peters, for example, viewing the return of M&A fever last fall, warned that too often a merger "is what you do when you run out of other ideas." Recapping the findings of some "20 good studies," he concludes that, "at best, 50 percent work, and the pessimists say 20 percent." So why are CEO s so eager to agglomerate? "Ego," says Peters, whose latest book, Re-imagine! , stresses the growing importance of women as both consumers and producers. " Forbes rankings are always based on size, and male silliness has a unique dimension."
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