Corporate Survival Mode

Financial Crisis Prompting Mergers, Changing How Firms Operate

From oil drillers that have closed down rigs to retailers that have liquidated stores, companies across America are reshaping themselves with breathtaking speed to adjust to the rapidly spreading financial crisis.

Biotech firms are slashing research budgets to conserve cash. Trucking companies are outfitting vehicles with speed governors and installing onboard driver monitors to conserve fuel. Companies that can afford it are scooping up competitors to enhance their own prospects.

Pfizer, the world's largest drugmaker, helped stir up the mergers and acquisitions market yesterday with a deal to purchase rival Wyeth for $68 billion in cash, stock and debt. Analysts said that while Pfizer's pursuit of an acquisition was tied less to the economy than it was to the company's need to fill a stagnant drug pipeline with promising new medicines, the downturn did play a role in its announcement that it would cut 8,000 jobs.

But for many companies the financial crisis is playing a major role in how they operate, prompting changes in business models or partnerships that never would have been considered in flusher times.

"We think what's happening now is the entire system is hitting the brakes very rapidly," said Chuck Mulloy, a spokesman for Intel, the computer chipmaker that is shuttering its last manufacturing plant in Silicon Valley and cutting more than 5,000 jobs worldwide.

Like others, Intel was caught off guard by a rapid deterioration in business. In mid-October, the company forecast fourth-quarter sales of $10.3 billion. Within 10 weeks, more than $2 billion of the anticipated revenue had vanished, with actual sales coming in at $8.2 billion. "Demand just fell off the cliff -- unprecedented in the 40-year history of this company," Mulloy said.

A falloff of a similar magnitude has hit the oil and gas industry, where drillers are pulling out of the Barnett Shale in Texas and other exploration areas that had been booming just months ago. A sharp drop in oil and gas prices has precipitated the decline.

"We've seen a cascade of rig-count declines beginning in December and accelerating here," said Richard Mason, publisher of the Land Rig Newsletter, which estimates that the number of oil and gas rigs has fallen by a third from their peak in October. That translates into a loss of 700 rigs and 14,000 jobs.

"Exploration and production companies are acting a whole lot like consumers. That is, they're not spending anything at the moment until they get a little more clarity as to how this will all evolve," Mason said. "The irony is the industry had been scrambling to add people for nearly half a decade, and all of a sudden, after they put them to work, the market collapses."

There was less of a boom-bust cycle at Expo, the chain of home furnishing showrooms owned by Home Depot. Expo had never been a big success, but the company held onto it for years -- until now.

"The Expo business has not performed well financially and is not expected to anytime soon. Even during the recent housing boom, it was not a strong business," Home Depot said in a statement yesterday announcing that it would close the 34-store chain over the next two months. "Continuing this business would divert focus and resources" from Home Depot's namesake stores, the retailer said.

The shutdown follows bankruptcy filings by several regional department stores and the liquidation underway at Circuit City.