Sunday, November 09, 2003

Broken mergers We have in the past taken the liberty, common in the press, of writing as if proposed mergers and acquisitions are essentially a done deal. That's been a safer assumption in the last few years as antitrust organizations have gotten more lenient (especially in the US) and as companies have gotten more clever at structuring their deals. Nevertheless, a small number of these proposed deals never taken place, whether because of regulatory problems or simple internal issues. Here are a few examples. First Data and Concord US regulators recently blocked the proposed $7 billion acquisition of Concord EFS by First Data. The proposed deal would have created a powerhouse in debit and credit card processing services, as described here. The Justice Department has stated that it as rejecting the deal for fear that it would lead to higher prices for debit card transactions through their combined STAR and NYCE systems. Here's how an antitrust offical explains it: "If allowed to proceed, this merger of two of the three largest PIN debit networks will lead to higher prices to merchants, forcing them to pass on those price increases to many consumers throughout the United States in the form of higher prices for general merchandise," said R. Hewitt Pate, assistant attorney general for the Justice Department's antitrust division. Concord and First Data say the opposite is true, and plan to appeal. Note here the emphasis on prices, rather than power or costs. Oracle and PeopleSoft and J.D. Edwards The PeopleSoft acquisition of J.D. Edwards has gone smoothly, bracing PeopleSoft position in enterprise customer and resource management software arena (described here). However, Oracle's hostile bid for PeopleSoft, announced shortly after, has run into serious roadblocks. The major part is the strong antagonism of the management of PeopleSoft to the whole idea. But opposition ha also come from antitrust organizations in the US and the EU. According to an online report: from the News Factor Netaork:  The most daunting obstacle for Oracle is currently the U.S. Department of Justice, which apparently has its No. 1 merger killer on the job, antitrust attorney Kent Brown. Oracle expects the DOJ to weigh in on the takeover in November or December. "That's really the big issue," says [onre expert]. "The DOJ will not only look at the commercial side of the deal, but it's got a lot to consider on the public side. A lot of governments -- cities and states -- have spent a lot of money on PeopleSoft software, and the havoc caused by liquidating PeopleSoft could be serious." Meanwhile PeopleSoft is suing Oracle for trying to lower its share price by bad-mouthing the company. This has become a bitter fight, and most believe it will never happen. Yukos and the West The recent arrest of Russian oil tycoon Mikhail Khodorkovsky has given potential Western oil partners something to think about. Working with Khodorkovsky's company Yukos was attractive not only because of its enormous oil reserves, but also because of its open, Western-style corporate governance, still a rarity in Russia. There were good indications that both ExxonMobil and ChevronTexaco were interested in a merger/partnership with Yukos, providing capital and technology in exchange for access to the enormous oil fields under Yukos' control. The Russian reserves rival those of Saudi Arabia and they are still being discovered. In addition, a number of Western oil companies already have a presence in Russia. The most notable is the deal between BP and TNK. While the precise reasons for the arrest of Khodorkovsky are not known, the general belief is that it wasn't for political reasons or issues of financial crimes. It's generally considered that certain elements in the Kremlin want to raid the company to line their own pockets. That in turn is bound to raise the risk level for the Western companies above an acceptable level. The fear of arbitrary government policies makes investing a risky game and partnership a dangerous move.  According to an AP report: The fact that the dispute has intensified still creates unease. "Clearly, there are worries that we're starting to see a side of Russia we thought we had gotten rid of," [one observer] said. "Progress is going to be slow. It's going to take time to change historic attitudes there. And this announcement virtually rules out any major deals with Western companies: Newly appointed Yukos oil chief executive Simon Kukes sees no need to join forces with a major Western oil company, casting doubt on the outcome of reported negotiations with Exxon Mobil Corp and ChevronTexaco Corp to buy a large stake in Yukos." (AP report) In the end, it may be an understandab;e wish of Russia not to give away its future, based on its amazing natural resources. This move will certainly slow that movement down. The question is whether it will scare away any new investment. 6:11:29 PM

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