The industrial world has approached the turn of the century in a frenzy of merger madness, capping a dramatic wave of global corporate consolidation that has been gaining momentum through much of this decade.
The results--which in this country translated into more than one merger an hour for the past 24 months--have established sweeping, global powerhouses in critical industries such as oil, telecommunications, media and defense.
Worldwide there were $3.4 trillion in deals announced in 1999, topping the record $2.5 trillion last year, according to Thomson Financial Securities Data, a Newark-based markets research firm. That compares with $464 billion in deals done worldwide in 1990.
In the United States, there were $1.75 trillion in deals announced this year, compared with $1.6 trillion last year and $195 billion in 1990, according to Thomson Financial.
Barring a stock market crash or an unexpected reversal in the relatively benign antitrust attitude of government regulators, this pace is expected to continue into the year 2000. The reason: The dealmaking frenzy is a reflection of a brave new business world in which most things happen at Internet speed, acquisitions are funded by stunning stock market riches and boardrooms are in a panic at the thought of being left behind.
Exxon Corp.'s $81 billion acquisition of Mobil Corp. was considered astronomical when it was announced last year. But it has been topped by Vodafone Airtouch PLC's $148 billion offer for Mannesmann AG and MCI WorldCom Inc.'s pending $127 billion acquisition of Sprint.
The Internet is one key force driving this activity, merger experts say. With the Internet wrecking the traditional sales and distribution formulas for everything from cars to computers, even established companies believe they are at risk. The business mantra haunting corporate executives these days is that only the top two or three corporations in an industry will survive the increasingly intense competition.
The rapid falling of trade barriers in recent years is also forcing companies to try to remake themselves quickly to prepare for global competition.
"Companies have realized that mergers and acquisitions are clearly the speediest and most substantive way to affect corporate growth. . . . Given the pace of today's market, companies just don't have time to grow [internally]. And deals beget deals. Companies see competitors on an acquisition spree, and they attempt to keep pace by doing their own deals," said Mark Clemente, a Glen Rock, N.J., mergers and acquisition consultant and coauthor of the book "Winning at Mergers and Acquisitions."
The result has been an unprecedented number of mega-mergers between major industry players. Although the number of U.S. mergers and acquisitions announced this year was 10,698, fewer than the 12,395 in 1998, the value of this year's deals topped the 1998 total in large part because of a handful of mega-mergers.
Whether the benign regulatory environment will persist is a big question mark. Indeed, in testimony last month before the Senate Commerce Committee, Federal Trade Commission Chairman Robert Pitofsky said it was not the total number of mergers that concerned the FTC, but the "increasing number of mega-mergers involving very large firms, usually often direct competitors at the top of their markets."
"The larger the company and the more complicated the industries the more time it takes for government authorities to analyze and determine if" the transaction will hurt competition or pose other antitrust problems, said Albert A. Foer, president of the American Antitrust Institute. "Most mergers are not going to hurt competition, but we can't take the word of the merging parties on that."
Today's acquirers are a different breed from the 1980s swashbuckling corporate raider whose break-it-up and sell-it-off mentality sent shudders through corporate boardrooms. Buyers today insist they want long-term relationships and something deeper than just break-up value. They are seeking new ideas, new products or more market share.
For example, pharmaceutical companies are looking for new products, telecommunications companies are seeking faster ways to get into more households, finance companies want to bust into new services quickly, and high-tech money is constantly chasing creativity. Microsoft ranked as the most active acquirer of the year worldwide, with at least 45 separate deals in excess of $13 billion, according to Thomson Financial. A distant second was Intel, with 35 deals worth more than $5 billion.
Deregulation in a host of fields, including transportation, energy, telecommunications and finance, has hastened the process, said Jonathan B. Baker, law professor at American University and a former chief economist for the Federal Trade Commission.
In addition, political shifts, such as the end of the Cold War, have led in recent years to consolidation in the defense industry, while advances in computers have made it easier to manage the kind of large company that would result from mega-mergers, according to merger experts.
"All of these dramatic changes have led firms to want to change their business strategy. They want to reconfigure their assets. One way to do that quickly and easily is through an acquisition. . . . If the rate of change in technology, deregulation and globalization persists, then this merger wave will continue to exist," said Baker.
The hope is that these deals will bring increased efficiencies. The fear is that they will result in fewer choices for consumers. "I used to buy Mobil gasoline. I resisted buying Exxon gas because of the Valdez" tanker, which spilled millions of gallons of oil into the ocean, said Mark Patterson, antitrust professor at Fordham University School of Law. "Now with Exxon's acquisition of Mobil, I won't have that option."
Patterson said regulators need to consider, for example, whether a consolidation of supermarkets or drugstores will limit consumer choices.
More worrisome to some are "a lot of deals where the companies are moving so fast that fundamental errors are being made," said Clemente, whose consulting firm advises clients on how to integrate their acquisitions. "We're working with a client now that went on an acquisition spree, buying up 10 or 11 companies. Some made a lot of strategic sense. Others were maybe done a little, well, hastily."
Companies used to spend a couple of months on due diligence before considering a bid, but now buyers set their sights on a company and close the deal within days, especially if it involves smaller companies or unregulated industries. "They feel they are fighting their competition to grab these assets . . . so there is a lot of rushing," said David S. Greenspan, Clemente's consulting partner.
The result is that stockholders sometimes lose out. For instance, Greenspan noted that since @Home Network bought Excite, the Internet search engine, the share price of the merged firm has fallen substantially.
Here are the top five announced mergers this year:
Acquirer: Vodafone AirTouch PLC (U.K.)
Target: Mannesmann AG (Germany)
Date announced: Nov. 13
Value, in billions: $148
Acquirer: MCI WorldCom
Date announced: Oct. 5
Value, in billions: $127
Date announced: Nov. 4
Value, in billions: $71
Target: MediaOne Group
Date announced: April 22
Value, in billions: $63
Acquirer: Vodafone Group PLC (U.K.)
Target: AirTouch Communications
Date announced: June 30*
Value, in billions: $56
*deal is completed; all others are pending
SOURCE: Thomson Financial Securities Data
CAPTION: MERGERS UNDAUNTED
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