Magazine article USA TODAY

MERGER ORPHANS Need Protection

Magazine article USA TODAY

MERGER ORPHANS Need Protection

Article excerpt

THE NEWS of another merger or acquisition has become almost commonplace as companies around the world combine in an effort to expand market potential and benefit from the economic efficiencies of consolidation or the attraction of product and delivery integration. Worldwide merger activity in one year alone increased more than 25%, from a market value of 2.7 trillion dollars in 1998 to 3.4 trillion in 1999.

The resulting enhanced productivity and market reach of these many combinations have significantly contributed to the strengthening in the American economy and in related financial markets. Clearly, the U.S. has become a stronger competitor in the world markets in the delivery of products and services, with a resulting improvement in its trade balance and the power of its currency as the result of the many mergers.

The merger-mania phenomenon in the U.S. has brought mixed blessings for the investor, however. While most stockholders have realized the benefits of immediate increased stock value following the announcement of a merger, long-term investors have often been disappointed. Poor execution and unfulfilled promises associated with many mergers have resulted in declines in shareholder value within months following them.

In almost all cases, though, the top executives of both companies to a merger have realized significant benefits. They usually walk away from a deal with millions of dollars as golden parachutes open, options immediately vest, and special arrangements are made to ensure their furore. In addition, the top executives who remain with the surviving company have been placed in new, more-powerful, and rewarding positions with the opportunity for increased wealth.

Nevertheless, the initial public focus and media hype of most mergers is on the immediate enhanced shareholder value created by the combination. The size and might of the new company is applauded; the New Word stature is praised; and the benefits that will befall everyone ring through the media reports and along Wall Street. The two CEOs stand tall, look one another in the eye, and tell the world how intelligent they are and how improved mankind will be as a result of this merger.

Only infrequently is there any mention of the working-class employees whose lives and families will be disrupted, the community services' functions that will receive less funding for projects serving the needy, or the customers who will see change affecting the way they do business. These are the orphans of a merger.

Almost all communities in the U.S. have a variety of organizations and groups who serve society and depend on the corporate support of major corporations and companies to meet their financial and volunteer service requirements. These groups serve the needs of the troubled, ill, and less fortunate and even help to improve the level of education and the arts. Their purpose is to aid in providing a healthy, safe, productive environment for the nation's citizens and a positive one in which the business community can also build and grow.

Despite the usual rhetoric on the part of the merging survivor about multimillion- or billion-dollar commitments to social needs, the available support in the way of contributions of cash, volunteers, and leadership is most often reduced. Much of the professed support has already been committed or is part of a low-risk government program. Moreover, there is generally a loss of local decisionmaking and direct contact express or create any understanding of the communities' needs.

Southern California, for example, has witnessed over this past decade the loss of both the corporate headquarters and decisionmakers of First Interstate Bank, Security Pacific Bank, Home Savings of America, UNOCAL, and ARCO, among many others. The Times Mirror Corporation and Tribune Company agreed to merge, with the Tribune Company of Chicago being the survivor. The result of all these mergers has and will be less of a local voice and fewer resources to meet community needs. …

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