COMMENTARY: Mega-Mergers and Greed

c. 2000 Religion News Service (Andrew M. Greeley is a Roman Catholic priest, best-selling novelist and a sociologist at the University of Chicago National Opinion Research Center. Check out his home page at http://www.agreeley.com or contact him via e-mail at agreel(at)aol.com.) UNDATED _ In media exultation of the AOL/Time-Warner mega-merger, almost no one said such […]

c. 2000 Religion News Service

(Andrew M. Greeley is a Roman Catholic priest, best-selling novelist and a sociologist at the University of Chicago National Opinion Research Center. Check out his home page at http://www.agreeley.com or contact him via e-mail at agreel(at)aol.com.)

UNDATED _ In media exultation of the AOL/Time-Warner mega-merger, almost no one said such mergers rarely work.


Often, the much-praised synergies somehow fail to materialize. At other times, the ordinary employees, who were not consulted about the merger in the first place and whose cooperation is necessary to make the deal work, resist, drag their feet, and sometimes even sabotage the project. The heavy layers of bureaucracy dense with officials fighting for more power stifle creativity. And the barons on top pretend to be friendly to one another but must spend time and energy fending off a stab in the back.

A Business Week study of mergers a couple of years ago concluded most are not successful and stockholders generally lose wealth _ except for the corporate bosses, who usually clean up.

One of the more spectacular examples of such failure was the decline and fall of Pan American Airlines. Once the pride of American aviation (Pan Am’s two round-the-world flights _ Pan Am 1 and Pan Am 2 _ used to meet in New Delhi at 3:AM), the company tried to merge with National Airlines to obtain access to domestic routes.

The”strategic geniuses”at Pan Am boasted about the wonderful”synergies”of this merger. They did not count on the resistance of National’s employees to being taken over. Everyone knows the result: Pan Am disappeared from the face of the earth.

Time Warner itself is the product of an unsuccessful merger, despite the much heralded”synergies”that were supposed to revolutionize the media industry 10 years ago. It is now a debt-ridden company whose stock has not risen dramatically despite the market run-up of recent years.

Disney’s acquisition of ABC has put the company in serious financial straits. Is there any reason to think that, over the long run and despite the happy talk about another”revolution,”the new media merger will be any more successful? Don’t bet your last futures contract on it!

Then why the merger?

The answer is the greed and the ambition of the corporate bosses. AOL, its own valuation absurdly high because of the hi-tech craze in the market, was able to offer Time-Warner approximately twice what its stock was worth on the market. That great vulgarian and anti-Catholic Ted Turner made 2.5 billion paper dollars on one day. In effect AOL guaranteed the stockholders of Time Warner part of its profits from the high tech run-up. It was an offer the corporate bosses of Time Warner could not refuse. And AOL’s Steve Case trades in his paper profits for a place with the big guys. His $6 billion-a- year firm now has partial control of a $26 billion-a-year media giant.


Turner and colleagues get the money; Case gets the power and the fame. Employees and the public? They really don’t count.

I wonder how many such mergers will go sour before the media analysts realize they don’t work. Most of the hype about the AOL merger reads rewrites of the stale stories about Time and Warner or Disney and ABC. Very few journalists, either because of bad memory or stupidity _ or perhaps both _ have the honesty to say if the new mega-merger works it will be the first one that has.

Investors have learned their lesson even if reporters have not.

The value of both stocks, which rose sharply immediately after the merger, have fallen since then. Investors sense that this is a highly dubious combination, one which will probably become another over-sized and bumbling dinosaur, another muscle-bound and stupid conglomerate whose service of its customers is likely to deteriorate and whose respect for its employees, is likely to evaporate.

Will the government, so eager to destroy Microsoft, permit this merger? Probably. Will investors prevent it by selling their holdings in both companies? That will interesting to watch.

Big is not beautiful and bigger rarely works. Corporate bosses, eager for power and wealth and public attention, are a threat to the common good.

If American capitalism really believes in the free market then it should beware of cumbersome giants which are too big to die despite their inefficiencies and too unwieldy to do anything but continue to exist. Society is not well served by men whose lust for power and wealth create such monsters.


DEA END GREELEY

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