A man tells his friend that he plans to sell his old mutt for $1,000. The friend is openly skeptical. When he next runs into the man, he asks how the
The anecdote may be corny and simplistic, but it is probably the best way to account for the rash of rich premiums awarded in recent corporate takeovers. It seems that asset value—like beauty—lies in the eye of the beholder.
Last week brought another spectacular display of topdollar mergers and acquisitions. Bell Canada bid almost half a billion dollars for Aliant Inc. BCT.Telus Communications Inc. made its first overtures to Call-Net Enterprises Inc. Shell Canada Ltd. unloaded $770 million in assets onto Apache Canada Ltd. In the United States, the largest radio broadcasters combined. And TV Guide Inc. was sold to a high-tech venture, ravenous for content. Even law firms caught the bug: Tory Tory DesLauriers & Binnington of Toronto joined forces with Haythe & Curley of New York.
Crowning all of those deals was the largest ever done: MCI WorldCom Inc.’s $ 170-billion purchase of Sprint Corp., in a bidding war with rival telecom giant BellSouth Corp. At weeks end, however, BellSouth was already making eyes at another takeover target, Global Crossing Ltd., an Internet and long-distance provider.
proposed sale proceeded. “Great,” says his buddy. “I traded my dog for two $500 cats.”
The high dollar value of these deals is publicly justified by their perceived strategic significance: larger market share, access to new technology, brand extension. Ken Nickerson, general manager of Microsoft Network Canada, explains that his company has recendy been growing through relatively cosdy acquisitions because, in a highly competitive business, it’s fast and it deepens Microsoft’s existing pool of talent.
Another reason why so many firms are pouncing now is the extended bull market for equities. A great number of deals are based on stock swaps, which are relatively painless for shareholders—as long as prices continue to escalate.
Last month, U.S. regulators proposed tightening the rules for the way that companies account for mergers and acquisitions on their balance sheets. But in all the number crunching and calculation, there is almost no accounting for the human cost of these splashy transactions. Yet, these are the hidden costs that will ultimately decide whether these deals ever achieve their paper potential.
Once the headlines fade, the integration process begins. And it can reveal some profound flaws in the projected benefits. Germany’s Daimler is only now struggling to come to terms with the cultural differences and management incom-
patibility of its Chrysler purchase. Similarly, 12 months after Travelers Group Inc. and Citicorp merged, the illusion that “co-CEOs” could run the
merged company has been shattered. ABC and Walt Disney Co. are still struggling to make their big-ticket merger work.
But the real consequences of the merger and acquisition frenzy are borne by workers and middle managers. Mergers, however soothing the initial assurances, mean layoffs and budget cuts. And many senior executives are about to incur a steep new cost for proceeding too aggressively with their corporate agenda.
Chronic uncertainty and anxiety have contributed to a renaissance in union militancy. Autoworkers in Canada and the United States are leading the charge. But even the white collar high-tech types at IBM are rallying, as their pension plans have been threatened by cutbacks.
A sense of worker solidarity is also being spurred by the growing financial disparity between labour and management. Recent data collected by United for a Fair Economy, a Boston-based think-tank, shows that widespread use of stock options means that, on average, the ratio of top executive to worker compensation is now 419 to 1. That’s up from 42 to 1 in 1980. The widening gap between the two, along with record corporate profits, have fostered a feeling of entidement and resentment among the rank and file.
These elements converged last week in the negotiations between the Canadian Auto Workers and DaimlerChrysler. Although the CAW did not succeed with its demand that the company urge Magna International Inc., one of its suppliers, to unionize, it did make remarkable progress in establishing the radical precedent. Union leader Buzz Hargrove actually managed to keep the issue on the table throughout negotiations—and provoke serious public debate about its viability.
In geopolitics, a great hue and cry often erupts whenever a third party deliberately interferes with an established bilateral relationship. In Canada, it occurs—and causes an indignant uproar—every time a French dignitary makes a public declaration endorsing sovereignty for Quebec.
The CAW is using that tactic in asking the Big Three carmakers to compel its certification at independent public companies like Magna. They lost because they pushed too far, too fast. But, like it or not, similar demands will surface again—in the auto industry and in other sectors. Unions are regaining their influence and making it clear that they intend to extend their grasp beyond the traditional issues of wages and pensions. That’s yet another corporate cost that has not been accounted for.
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