Technology and Competition Drive Merger Mania in 1990s
IT'S not your imagination: Mega-mergers are sweeping through the American economy at a rate reminiscent of Wall Street's go-go 1980s.
Corporations, like people, seek partners to help them face an uncertain future. And the twin forces of deregulation and technological progress are promising sweeping change throughout the US and global economies - pushing a host of big firms toward the merger altar.
"The trend line is nothing but up," notes Mary Lou Steptoe, former head of the Federal Trade Commission's Bureau of Competition.
Telecommunications is a good example of an industry where firms are racing to reposition themselves for a brave new competitive world, says Ms. Steptoe. The $23 billion betrothal of Bell Atlantic and Nynex follows on the heels of a proposed merger between two other Baby Bell phone companies: Pacific Telesis Group and SBC Communications.
But companies in other economic categories are struggling to ready themselves for a brave new future as well. Defense firms are racing to combine in the face of reduced Pentagon purchases: Witness last year's combination of Martin Marietta and Lockheed. The merger of Chase Manhattan and Chemical Bank reflects the greatly increased competition that changes in government regulation have brought to banking.
Health care and health insurance firms face continued cost pressure and a move to so-called "managed care" - two reasons Aetna Life decided to buy US Healthcare earlier this year. Computer firms face a coming competitive shake-out.
"There are a number of industries that seem to be undergoing tremendous change," says Steptoe.
Recent events are good evidence of that assertion. April 22 was the second biggest day ever for US corporate mergers, with seven announced combinations totaling $27 billion.
The Bell Atlantic-Nynex combination was the biggest betrothal. But Cisco Systems and StrataCom Inc., two California computer-network companies, also announced a $4 billion merger. Genesis Health Ventures and NeighborCare Pharmacies, two East Coast health firms, announced a $57 million merger. Banks, chemical firms, and natural gas transmission companies were among the other companies who announced coming marriages.
Overall, the first quarter of 1996 saw a record $208 billion of US merger and acquisition activity, according to figures compiled by Challenger, Gray & Christmas, a Chicago consulting firm.
For all of 1995, merger activity totaled $458 billion, according to the firm - a 32 percent increase over 1994.
This high level of combinations may be one reason economic anxiety troubles many workers. Last year there were 13,163 layoffs due to mergers, says Ann Challenger, a partner at Challenger, Gray.
"You know there are going to be people that are duplicated when you combine," she says.
This high level of merger activity also inevitably raises antitrust questions.
It's true that an increase in world competition makes the combination of some US firms not necessarily anti-competitive, notes Thomas Morgan, a professor of antitrust and trade regulation law at George Washington University. Regulators must look at the unique facts of each case to decide where proposed mergers are in the best interests of consumers.
But the fast pace of US merger activity "does trouble me," says Professor Morgan.
Take the Bell Atlantic - Nynex merger. The facts aren't yet all available, and the proposed combination could well pass muster with authorities. But the two Baby Bells are neighbors, and could well have been competitors for the provision of long distance service and other communications products.
"I do see problems with it," says Morgan. "We didn't break up AT&T to have its components merge."
Consumer advocates are also worried about the Bell Atlantic-Nynex combination, only the latest in a string of telecommunications mega-deals pushed by recent deregulation efforts. These moves, consumer advocates say, confirm what they have feared about the deregulation process: Long before consumers see new services and lower prices, the big telecom companies are getting even bigger.
"There's virtually no local [telephone] competition," says Bradley Stillman, telecom policy director of the Consumer Federation of America. And "the notion that bringing together two monopolies that cover a quarter of the population could somehow lead to more competition is absolutely ludicrous."
Even analysts who approve of the merger say consumers will have to wait awhile before they see lower prices or new bundles of services. "It's going to be a year at least before the consumer sees anything," says Robert Mirani, senior telecom analyst at the Yankee Group, a Boston investment firm.
From a business standpoint, the Bell Atlantic-Nynex deal makes a good deal of sense, analysts say. The combined company would control the lucrative telephone market along the Northeast corridor from Washington to Boston.
But the deal's partners are after more than local phone service. They aim to offer services from long-distance to television. They argue their combined size will help competition, not hurt it. "You need critical mass to be important," says Frederic Salerno, a Nynex vice chairman. "If consumers are going to be able to make choices, you are going to need players who have the resources to make the competition real."