Is it just The Audit, or does anyone else feel that business stories about mergers and acquisitions sound like they were written as though readers should break out champagne and throw their hats in the air?

The long-awaited unleashing [Audit comment: grrrrrowrrr!] of bank mergers in Europe is at hand, promising to reshape the industry as the continent’s financial giants yield to the lure of size and global scale. [Boo-yah!][1]

Never mind the details, what’s of interest here is language.

For AstraZeneca, based in London, the acquisition would help bolster its product pipeline after some recent setbacks and would supplement its portfolio, now consisting of pills, with biologic drugs—protein-based therapies that are made in cultures of living cells.[2]

Bolstering is good, especially after setbacks.

Or:

LaSalle, which BofA proposes to buy from ABN Amro for $21bn, would immediately push BofA to the top of the lucrative Chicago market, one of the few US cities where it has little penetration.

The Audit feels that it’s good to be on top, generally speaking, especially in locations where one has little penetration.

BofA would add 17,000 commercial and 1.4m retail clients. It would gain a foothold in Michigan and, at a time when earnings growth is slowing, executives say the deal would immediately add to profits.[3]

Michigan? Wow!


Listen, mergers are undeniably news, and what’s more, they’re one of the most fun things in business to cover. There is a wow factor. These are big capital-allocation decisions affecting thousands of jobs, billions of investor dollars and, in the aggregate, the outcome of the competitiveness struggle of companies and nations. And while M&A is routine on Wall Street, for most companies, it is a one-time roll of the dice. An acquisition taken is a dozen alternatives foregone. They’re also benchmarks—important pricing moments that help determine values and in fact, create realities. What was unthinkable the day before—think AOL-Time Warner—is now happening.


And for sheer glamour, you cannot beat a cross-border contested deal, like the one going on now for control of ABN Amro. After Barclays agreed to buy the Dutch banking giant for $88 billion in stock (never mind about how that works; it’s not as good as cash), a consortium led by Royal Bank of Scotland offered an unwelcome (to ABN’s managers who fear the new bidders will break up their company) bid of $99 billion, about 70 percent in cash. And how about this oh-so-British understatement from Sir Fred Goodwin, RBS’s chief executive, quoted in The Financial Times: “Most people would think we’re good for it,” he says. “We’ve got the cash.”


So, The Audit has nothing against deals. The Audit is not—as The Audit’s many foes, enemies of truth, may or may not believe – a deal-killer.


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.


“Acquiring firms destroy shareholder value,” writes Mark L. Sirower in The Synergy Trap: How Companies Lose the Acquisition Game. “This is a plain fact.”


Sirower, managing director of PricewaterhouseCoopers’s M&A strategy practice and a visiting professor at New York University’s Stern business school, doesn’t mean all acquiring firms are shooting themselves in the foot, just most of them. And if you think The Audit has found some obscure prophet to make a highly contentious point—a business blog’s cry for attention—you are wrong. Apart from all of Wall Street, and all the consultants who depend on it, you will find few academics who would contest this point, and it is common wisdom among M&A reporters. If this post triggers heated debate to the contrary, that these deals are actually wonderful, good. Let’s hear it.


There is no consensus on how many mergers fail, just that most do. Sirower says past estimates of failure rates of up to 80 percent are overstated. He pegs it at 65 percent. I have no idea.


Sirower has some funny examples that echo in memory.


Anheuser Busch bought the maker of Eagle snacks in 1982. Beer and pretzels, brilliant! As Sirower dryly notes, “They all use yeast.” Not part of the planning was the inevitable response by Frito-Lay, which cut prices, introduced new products, and crushed Eagle and its chips. After seventeen years of losses, the Eagle brand was put to rest, with four of its plants sold to … guess.

Dean Starkman Dean Starkman runs The Audit, CJR's business section, and is the author of The Watchdog That Didn't Bark: The Financial Crisis and the Disappearance of Investigative Journalism (Columbia University Press, January 2014). Follow Dean on Twitter: @deanstarkman.