These things called acquisitions continue to surprise me. Especially how they, quite openly, can get entangled with the personal aspirations and career progress of the companies’ executives.
For example, often it is thinly veiled that the single biggest hurdle to a particular merger, determining whether the deal will go through or not, is the question “who will be in charge” afterwards; the current CEO of company 1 or the CEO of company 2? The proposed merger between Dutch banks ING and ABN-Amro, for instance, was rumoured to have fallen through because executives could not agree on who would take the helm. But are these really good, strategic and legitimate reasons to pursue (or abolish) a deal?! If you didn’t notice: that was a rhetorical question…
Similarly, in 1999, the merger of Viacom and CBS completely hinged on whether CEOs Sumner Redstone and Mel Karmazin could figure out how to distribute responsibilities and power. Eventually, the $40 billion mega-merger – at the time, the biggest media deal ever – seemed to be more of a declaration of love between the two than a move inspired by a clear strategic rationale.
For example, the LA Times referred to “secret meetings” between the two during which Redstone “grew to see the magic of the marriage Karmazin was proposing”, while The New York Times quoted Redstone saying of Karmazin: “He is a master salesman, and he began to turn me on”, also referring to “a marriage that was consummated after a two-year flirtation and a brief but painstakingly intense two-week prenuptial discussion. ‘Mel seduced me’,” Redstone dreamily told reporters and investors after the merger was announced, sounding for all the world like a blushing bride.”
Yet, the marriage came to an abrupt end in 2004, when Karmazin left acrimoniously. What turned out to be the case: If old Sumner (aged 81) would have died during Karmazin’s employment contract with Viacom, he would have taken the mantle. Yet, old Sumner didn’t die… And CBS and Viacom split in 2005.
To me, these kinds of negotiations suggest that the logic for a deal may have more to do with advancing the careers of the people in charge, rather than advancing the value of the combined companies. If you’re an investor or board member, I would conjecture that some suspicion may be warranted.
I’d be really interested in seeing a study comparing efficiency of concentrated-ownership vs dispersed ownership companies. That is, even public companies with someone holding a significant stake an effectively controlling the company (with other shareholders being in effect super-junior debt holders with increased payout function), vs. companies where the ownership is highly diluted and has no effective means of controlling the management.
The concentrated ones would have to be picked though from ones where the owner held the company for say more than five years, to avoid gut-and-dump corporate raiders.
I suspect (in my biased opinion) that we would find the latter are mostly vehicles for emboldening the ego of the CEO and transfer of wealth from owners to management. But it could be just my outer cynic speaking (my inner one knows it).