Here’s a good example of how poorly the business press covers acquisitions that could hurt competition.
The Wall Street Journal reports today that Western Digital is buying Hitachi’s hard-drive business. The headline:
Merger to Create PC Drive Giant
PC Drive Giant, indeed. The merger will give Western Digital half of all global hard-drive unit sales. What does that mean for competition? Here’s the Journal in the third paragraph:
The combination should ease cutthroat price competition that has long marked the industry, analysts said.
That’s not how I’d phrase that, to put it kindly. Another way to put “should ease cutthroat price competition” is: “should mean higher prices for consumers,” not to mention “could allow it to get by with lower quality products.”
In the following paragraph, the Journal gives us a hint that the competition thing could be problematic, but gives us another euphemism for “higher prices for consumers” (emphasis mine):
Deals that could limit price competition may attract close antitrust scrutiny, but executives for both sides said they expect to get approval from regulators and close the transaction in the third quarter.
That graph is followed by this:
“There is significant competition,” said John Coyne, Western Digital’s chief executive, in an interview. He said authorities don’t normally challenge deals that reduce the number of competitors in a market to four from five. If antitrust authorities don’t approve the transaction, Western Digital has agreed to pay Hitachi a $250 million fee.
The CEO of the company about to corner 50 percent of a market says there will be “significant competition,” huh? The thing is, Mr. Coyne is surely correct in predicting that antitrust regulators won’t do anything about his deal or deals in industries that go “to four from five” competitors, even if it results in nothing more than higher prices for consumers and higher profit margins for companies. But there’s no consumer advocate quoted here, needless to say, to balance Coyne’s assurances of rigorous continued competition.
Also interesting: The paper reports that Hitachi had been planning to sell its hard-drive division in an IPO. Hitachi says that’s because it will get money quicker. Left unexplored is the possibility that, since it’s going to get market dominance and therefore price advantage, Western Digital is paying a premium over what Hitachi could get in the market.
Indeed, companies announcing acquisitions typically see their stocks fall on the news. Western Digital’s skyrocketed by 16 percent and a competitor’s went up 9 percent.
The New York Times is even worse than the Journal. It gives the deal six dull graphs of DealBook copy, the last of which is this:
Western Digital’s financial adviser was Bank of America Merrill Lynch and its main legal adviser was O’Melveny & Myers. Hitachi was represented by Goldman Sachs and the law firms Morrison Foerster and Skadden, Arps, Slate, Meagher & Flom.
That last graph, by the way, is the deal reporter’s beat sweetener. The reporter can’t single out which banker or firm leaked him the scoop—that would blow their cover—so he names them all, thereby getting the leaker’s firm publicity while giving them plausibile deniability. There’s no other real reason for it to be in a general paper like The New York Times. Problem is, I don’t think the Times got a scoop here, so it’s just extra pointless.
The Times‘s brief, which is just a rewritten press release, is so deal-centric it’s myopic. What does the deal mean? We’re told in the lede graph that it “will further expand the company’s reach in data storage.” In the second graph, the Times says it “is expected to immediately increase earnings per share, excluding certain deal-related costs.”
That’s great and all, if you happen to be among the tiny fraction of Times readers who own Western Digital stock or are interested in buying it. If you happen to be among the approximately 100 percent of Times readers who use hard drives, alas, you get nuttin’. Nowhere does the Times report the deal will likely mean higher prices for hard drives.
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.