Does anyone remember that Sears Roebuck & Co. once owned what was Dean Witter Reynolds and Coldwell Banker, on the theory that shoppers for underwear and power tools would want to stop off at a Sears Financial Center to trade a few stocks and then maybe pick up a, um, house? Uh, no.
Quaker Oats Co. and Snapple (1994) seems logical, and yet it was a famous disaster, which, interestingly, as Sirower notes, Quaker Oats investers, as is frequently the case, knew from day one, knocking 10 percent off Quaker’s share price.
I don’t mean to imply that there is some kind of conspiracy of silence in the business press. No one is keeping deal failures a secret. The fact that most fail is often written, but just, I would argue, never internalized.
And in fairness, it should be noted, first, that deals—despite the layoffs and dislocation typically associated with them—apparently do result in a net positive for society, albeit a marginal one, when you consider the price received by the seller and efficiencies won. But buyers’ boards of directors are not supposed to help the world by blowing their shareholders’ money, and I don’t think reporters are thinking about the good of the earth when they applaud.
And I don’t want to overstate the case. Quality business coverage often includes caveats, questions, and even sometimes outright skepticism. “The markets have not always taken kindly to BofA’s strategic moves,” writes The Financial Times in a column accompanying LaSalle story quoted above.
And I should finally note that much of the overheated language comes under insane deadline pressure, under which even the fastest writer would say almost anything as long as it’s not wrong.
But generally speaking, I’m right. The business press loves the deal.
Why deals keep happening so often is the subject of another post, but let me offer three big reasons and one lesser one. One is the “agency problem,” the oft-noted rewards that accrue to top corporate decision-makers who benefit in myriad ways, not least being money and prestige, by controlling a bigger company. And there is the “deal-infrastructure” issue, namely, Wall Street investment banks, which make a living putting together companies and taking them apart, and can make any stupid plan sound brilliant.
A third reason for all the deals is that a significant number of them do work.
But a fourth, lesser reason, for the unproductive deal churn, is what I would call the “business-press infrastructure” that loves deals for their own sake. A scoop on a major deal is red meat to a business publication, and serious currency for a business reporter. These scoops make or break careers. For M&A reporters, the more deals the better. Don’t let anyone tell you different. A fallow deal period can leave even the most highly touted M&A reporter—even though it’s not his/her fault—with the faint but unmistakable stink of failure.
And if you ask whether there might a conflict of interest, whether reporters must be nice to companies and banks that put these deals together, the answer is yes, albeit, I think, a manageable conflict and only different in degree from the standard beat reporter-company problem.
All this is to say nothing of the public-relations infrastructure that manages major deal announcements. Most Audit readers have never heard of Sard Verbinnen, Joele Frank, Wilkinson, Brimmer, Katcher, and Brunswick Group, but I guarantee you every M&A reporter has. Ever read the term: “people familiar with the situation”?
So, next time you read about the next blockbuster, just remember a few headlines from the past:
The New Media Colossus —- AOL-Time Warner Megamerger Creates Behemoth That Could Dominate Web, Other Media
—The Wall Street Journal, December 15, 2000
Tyco’s Titan: How Dennis Kozlowski is creating a lean, profitable giant
— Barron’s, April 12, 1999.
Or check out this blowhard.
International Paper’s Bid for Champion
Could Spark Battle With Finland’s UPM
By DEAN STARKMAN
Staff Reporter of THE WALL STREET JOURNAL
April 25, 2000
International Paper Co. offered $6.2 billion in cash and stock, or $64 a share, for its smaller longtime rival, Champion International Corp., muscling [ruff! ruff!] in on Champion’s agreement to be bought by Finland’s UPM-Kymmene Corp…
International Paper’s audacious [!] move adds more fuel to the merger fire [Burn, baby!] that has consumed the global paper industry this year. Behind the moves: A tighter rein on supplies would help the industry have more control over the wildly fluctuated prices that have traditionally haunted [spooky!] the industry.
Did it work out? I have no idea.