Thursday, January 18, 2007

A few notes on M&As in the upcoming year In a Wall Street Journal article ("How to Assess 2007's M&A Activity," 1/16/07), analysts Dennis Berman writes that 2007 will be an even bigger year for such deals. He warns, however, that investors should be wary, as success leads to hubris, and eventually catastrophe, especially for smaller investors. As Berman points out, "The purpose of most of today's mergers is to save money. Firing people is the obvious way to achieve it." Bad news for workers. But also bad news for investors -- after the initial personnel savings are delivered, most companies are unable to deliver any enhanced revenue after a the dust settles from a merger. Berman also warns against touchy-feely takeovers, especially those where the two companies combine names (think Sprint/Nextel). As Berman points out, the will to get back to making money, rather than the well-being of management, is less likely to be driving such a "merger of equals." For shareholders, ruthless hostile takeovers are better for shareholders (think Oracle and PeopleSoft). As we've often observed, the government is less and less a factor in regulating deals. With such pnce questionale competition killlers as Whirlpool and Maytag's merger, and the AT&T- Bell South-Cingular deals, there really is no current, meaningful government enforcement of antitrust law, at least in the US. "This presents outsized opportunities for companies, in Street parlance, to think the unthinkable. Borders and Barnes & Noble? Caterpillar and John Deere? BP and Shell?" and with a possible new less-business friendly administration in prospect for 2008, he points out such deals are now or never. That's the reason, along with lots of corporate money floating around looking for a home and a record year in deals just past, why this next one should be even bigger. 9:31:23 PM

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