Consolidations in chemical and aluminum sectors could affect the prices
The companies that are the meat and potatoes of industry are now joining the merger stew.
For the economy, this consolidation could result in fewer producers of raw materials such as chemicals, aluminum, steel and oil. For the consumer, the new combinations may ultimately affect the price of everyday products such as cars, toys, antifreeze or aluminum foil.
Many of the moves are strengthening the US manufacturing base at a time of growing competition from foreign firms. But they are also likely to result in lay-offs and plant closings.
The latest companies to join in the merger craze are Union Carbide, which makes the chemicals used in crayons and cosmetics, and Dow Chemical, which makes the chemicals used in antifreeze and plastic-lined pipe.
Also, last week three aluminum manufacturers, representing about 25 percent of the world's production, also announced a global merger. On the same day, Alcoa, Inc., the world's largest aluminum company, made a $5.6 billion offer for Reynolds Metals Co., the third largest producer of aluminum.
"Each of these companies is fighting the fact there is an oversupply of their commodity in the world," says David Bliss, vice chairman of New York-based Delta Consulting Group. "There is only so far they can go with cutting costs through layoffs and new equipment."
In addition, Mr. Bliss says the companies are reacting to the giant industrial companies, such as Daimler-Chrysler, that are flexing their muscles when they buy industrial commodities. By shopping worldwide, such giant companies can squeeze suppliers, forcing them to lower prices even more.
This kind of leverage, combined with the glut in supply, is forcing commodities suppliers to look at merging so they can try to retake control of supply. "You have to have force to meet force, scale to meet scale," says Bliss.
Good for consumers?