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And how could I have forgotten mergers and acquisitions?

When a company is underperforming, a merger is often the right answer. Disastrous for the newly formed company and damaging severely the lives of thousands, it's the way of hitting the jackpot for executives stuck with payouts in the $ tens of millions.

But, luckily, there was an article in the Times Magazine today to remind me. The author goes too easy on m&a, but she does get the point. Here are some quotes:




Perhaps the biggest downside to mergers, however, is their human toll. Deals that combine companies are becoming a bigger factor behind large-scale layoffs across the nation.

Given all the forces that seem to be lined up in opposition to mergers, it may be a bit surprising that the deals keep on coming. But there are people for whom they make perfect sense: the executives and the Wall Street bankers behind them. There are several reasons for this -- for example, acquisitions enable companies to show earnings growth that rising stock prices, and therefore investors, require -- but the most compelling case for mergers may simply be the immense wealth that they
generate.
...
The actual numbers associated with some of the bigger deals can be staggering.

''The only thing people get paid for these days is growth, not running a company well,'' Jack Ciesielski, editor of The Analyst's Accounting Observer in Baltimore, says. ''The cult of growth will always encourage companies to buy other companies to paper over the valleys in their earnings patterns.''

An academic study from 2000 examined the relationship between chief-executive compensation and mergers in the banking world. Richard T. Bliss, a professor at Babson College in Massachusetts, and Richard J. Rosen, then a professor at the Kelley School of Business at Indiana University, studied bank mergers that occurred from 1986 to 1995. They found that these deals had a positive effect on the size of executive compensation and that even when an acquiring bank's stock declined following a merger, the compensation paid to the chiefs running the institutions grew significantly enough to offset any losses to their stockholdings.

''The net result is that even mergers which reduce shareholder value can be in a manager's private interest,'' Bliss and Rosen concluded.


http://www.nytimes.com/2005/06/05/magazine/05MERGERS.html?pagewanted=2

Posted by: Anton Philidor   Posted on: 06/05/05 You are currently: a Guest | Members login | Terms of Use

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