Newspaper article THE JOURNAL RECORD

The Theme of Recent Corporate Mergers -- Bigger Is Better

Newspaper article THE JOURNAL RECORD

The Theme of Recent Corporate Mergers -- Bigger Is Better

Article excerpt

NEW YORK -- If there's a common thread to the latest rash of corporate mergers -- including the handful of deals announced this week -- it is that bigger is better, that tremendous piles of assets and extensive domains are the best weapons in the global struggle for capital and customers.

That certainly seems to be the logic behind Starwood Lodging's surprise $13 billion bid Monday for ITT. The addition of Sheraton would make acquisition-happy Starwood the largest hotel company in the world. It also appears to be the explanation for a recent pair of mergers between four of the nation's "Big Six" accounting and consulting firms.

Indeed in one industry after another, companies have scrambled to bulk up for battle, pushing the total value of mergers and acquisitions so far this year to a record $710 billion, according to Securities Data. That is almost 10 percent higher than the total for all of 1996. "We are definitely in the middle of the largest merger wave in our history," said David J. Ravenscraft, an authority on mergers at the University of North Carolina. "It's a continuation of what started in the 1980s" and shows no sign of abating. The only problem, according to a variety of analysts: There is precious little to show that corporate combinations make money. "There's lots of historical evidence that acquisitions destroy value at least for the acquiring company," said Donald C. Hambrick, a management professor at Columbia University. A study by Ravenscraft concluded that 40 percent of 5,000 mergers between 1950 and 1977 were undone within a few years. A more recent study by Michael E. Porter of Harvard Business School suggests that the figure may be closer to 60 percent. "The track record for mergers is just not that great," said Margaret M. Blair, a senior fellow at the Brookings Institution in Washington. Such conclusions have done absolutely nothing to dampen the merger mania, especially in frantically changing industries like telecommunications and financial services. Indeed, the business story of the year may turn out to be the bidding war for MCI Communications Corp., the once pioneering phone company that has been stretched thin by increasingly fierce competition. The firm now has three suitors, overseas giant British Telecommunications; Jackson, Miss., upstart WorldCom; and until-now second-string GTE. If completed, GTE's nearly $29 billion bid would be the largest cash acquisition of a company in business history. Not much smaller are a series of bank, brokerage, and investment bank mergers, among them the $10.5 billion combination of blue blood Morgan Stanley and brokerage and credit card giant Dean Witter Discover; the $8.8 billion buy of bond trading Salomon Inc. by Travelers Group; NationsBank's $13.8 billion takeover of Barnett Banks; and Minneapolis-based First Bank Systems' $8. …

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