Thursday, January 27, 2005

Merging Trends

Let’s suppose you’re the president of a successful high-tech company. You’ve worked hard and brought the firm to a new level of success. You charge lower prices and offer better products than you competitors. You constantly push the boundaries of the technology to bring the best bargain for your customers. You led the company to the heights of its success and want to bring to the next level.

To pull it off, you need capital and you need it cheap. You need a new customer base, one to build on. You need employees familiar with the new equipment and customers. There’s one way to get all of this in one fell swoop and that’s a merger.

It’s no wonder why mergers garner so much attention in the business world. And two major mergers are making headlines, but the content rarely alludes to the great new potential about to be unleashed. It’s the legal issues.

SBC Communications is looking to buy AT&T and China’s Lenovo Group has plans to buy IBM’s personal computer division. In both cases, the Justice Department will probably allow the merger to go through, but that doesn’t mean there’s no political lunacy in the stories.

Back in 1997, then-FCC Chairman Reed Hundt shut down any chance of a merger between the two companies by simply calling it “unthinkable.”

Today, three Republicans are wrongfully concerned that IBM capital and technology will move overseas to China and want the review process extended so defend-orientated government agencies can lend their views.

Mergers are wonderful business tools. When one company mergers with another, management can take the best of both and serve the economy even better than if both were working independently. Politicizing this process never yields benefits. At best, it slows down economic progress through mountains of paperwork and political misinformation. At worst, it flat out prevents businesses from providing more for the economy. Paradoxically, there’s more distrust of big business than the much, much larger Big Government. If only the Justice Department would break up themselves.


Chris said...

Well, let's see. First of all government is wont to mettle in the affairs of two businesses who want to merge. And now, it seems that government is also wont to mettle in the affairs of two people (who happen to be of the same gender) who want to marry (which is just another type of merger.) It seems to me that the government might have its eye out against anything that involves merging. Hmmmm...

-Ron said...

Lane Ends, Merge Right

To merge, so far as the active verb is concerned, is easily enough understood. When in traffic we see a yellow sign with the curvy line coming into and becoming part of the straight line, we know that a highway merger is imminent. A driver can find himself in one of two positions: either having to merge into flowing traffic, or having to move over to allow that same merger. In both cases, there is a readjustment process that occurs.
Highway builders (ignoring for the moment how the road is paid for) understand that you just can’t put roads everywhere. Not only is it cost prohibitive, it’s just a silly notion. Instead we build a handful of good roads in places people are most likely to use them. Occasionally, to cut costs we’ll squiggle the road around a mountain instead of burrowing through it; but on the whole, we put the roads where the people are. There are US highways, state roads, county roads, township and country roads, even private ones. We might call all of these specialty roads. They are typically small (or smaller) in size and volume of traffic, and they tend to serve the needs of their immediate geographic area.
Interstates, on the other hand, are fewer and farther between. There are only a handful of roads that do what they do, and hence qualify as an interstate. They are terribly expensive to build, and are simply enormous in and of themselves. These roads are more generalist, and handle an enormous volume of traffic from nearly everywhere going, likewise, nearly everywhere. But these roads would be absolutely useless without the ubiquitous onramp.
It is only the merger between small, specialized, local roads and large, voluminous interstates that allows both to be successful. First, without the onramp, one would be forced to use a seemingly endless series of local roads to get to one’s destination, even if it was across the country. But with the onramp – with the availability of a merger – small road drivers can access the vast resources of the interstate Road System, drastically cutting down on time, fuel, and vehicle maintenance costs. Additionally, because the interstate roads’ business plan does not include food, gas, and lodging, the interstates in turn facilitate business booms on the local roads at nearly all access points. Rare is the exit without a McDonalds and a BP.
David is absolutely right: mergers are nearly always a good thing – something we should be reminded of every time we check our blind spot whilst merging left.