A WSJ Deal Column After The Audit’s Own Heart

It’s not often you see something like this in the financial press.

David Weidner writes on The Wall Street Journal Online that mergers and acquisitions suck—or to put in his headline’s words: are “Wall Street’s Biggest Con.”

This ought to be dropped into every deal story as the boilerplate “to be sure” paragraph:

M&A is a mostly empty exercise built on promises of profits and efficiencies that rarely come to fruition. Companies almost always overpay for their targets, hurting their shareholders and enriching few except the CEOs who do deals and the investment bankers who goad them into the next must-have merger.

Ouch. Also: all true.

As Audit Arb Dean Starkman wrote two-and-a-half years ago on the press’s hyped-up coverage of deals:

But reading some—maybe most—stories about blockbuster deals, the reader could understandably come away with the impression that something good just happened, particularly for the acquiring company.

Um, that’s not the case.

In fact, in probably two out of three cases, shareholders of the acquiring company should wear black armbands.

Weidner’s there, too, more starkly even than Starkman:

Multiple studies have shown no evidence that shareholders of acquisitive companies do better than their stingier counterparts. Some companies are able to wring costs from acquisitions, but usually don’t. Close to 90% of European mergers fell short of their objectives in 2007, according to Hay Group.

The wording’s a little imprecise there and it would have been nice if the Journal would start linking inside its stories. Here’s the Hay Group study. It looked at more than 200 M&A deals since 2003 and found:

91% failing to fully deliver the objectives which drove the deals in the first place, according to business leaders. Close to three quarters (78 per cent) of deals studied were yet to generate significant new value.

That’s nasty. And let’s not forget that deals come with big social and economic costs. They’re inevitably followed by large numbers of layoffs as companies cull “redundant” workers. What’s the point if it creates no value?

But what does that matter when a few bankers can rack up bonuses in the tens of millions? Weidner:

With so many deals failing to meet expectations, it would seem that corporate boards and CEOs would be skeptical of the practice. They aren’t though, not when presented with smooth-talking investment bankers whispering in their ears and financial incentives awaiting them.

And correlation, of course, isn’t causation, but this raises something interesting to ponder:

The roadside is littered with deals that promised great things and went bust. Is it any surprise that the serial dealmakers of the financial world — Citigroup Inc., Bank of America Corp. and American International Group Inc. — are at the center of the nation’s financial malaise?

Why is that?

I could quote the whole piece, and almost have, so just go read it yourself.

My one beef, as with the last Weidner column I wrote about, is that the Journal doesn’t run Weidner in print. They’re not exactly hanging it on the front page of the Web site, either. I saw it via Journal alum Heidi N. Moore via Journal Deputy Managing Editor Alan S. Murray on Twitter. To find it on WSJ.com I had to go to the Markets subsection and scroll down to Columns.

This kind of stuff deserves better play.

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Ryan Chittum is a former Wall Street Journal reporter, and deputy editor of The Audit, CJR's business section. If you see notable business journalism, give him a heads-up at rc2538@columbia.edu. Follow him on Twitter at @ryanchittum.