Bad merger policy is why wealth and power is so consolidated in America. But last month, two government enforcers started to turn the table on the monopolies who run our economy.
"Disaster all around, predicted by most people, except Judge Leon."
When very intelligent people do obviously stupid things which happen to provide a financial windfall to a small number of people, it's natural to wonder about corruption of one sort or another.
Shining the light on the dark corners and funky transactions will scatter the critters to the crevices but what they also need is a good dose of Raid (or its competitor if there is one). The company that owns Raid was convicted of price fixing in France and was subject to a RICO lawsuit in the US and probably doesn't work on corruption anyway, so it will fall to organizations like the FTC.
Don't forget, mergers always suck for employees of the company being merged. Hope you did not get too attached to those benefits and better start the job search just in case.
"And AT&T-Time Warner is the rule, not the exception. Big mergers rarely work out, even for shareholders. Financial analysts Taiki Morita and Nick Schmitz recently looked at all 268,350 mergers in CompuStat from 2000-2021, and found that 'corporate acquirers in the US generally tended to underperform the market. And the bigger the deal, the worse the returns. The firms in the 10th decile generated a -23% premium relative to the market in the subsequent year.' In other words, the government enforcers trying to block the merger had a keener sense of the interests of AT&T shareholders than Judge Leon or the CEO of either AT&T or Time Warner."
I think you have your finger on the pulse of an antitrust push in the US that will definitely change the rules of the M&A game, but I want to point out that this stat is a bit misleading:
1. Morita and Schmitz are only talking about the subsequent year's equity premium, which is a silly way to think about M&A. Large-scale consolidation can take years, and per your "Adam Hates Everything Example," can be catastrophic if rushed.
2. You quote in a way that does not make it clear what Morita and Schmitz mean by the 10th decile (they're talking about asset growth). The snapshot you strategically pull from their research is one row of a comprehensive table they offer, and it is the lowest decile of asset growth, so an outsize amount of destruction to equity premium in the short-term is to be expected. Concrete example: If I am a big pharma company, and I lay out a ton of cash on an early-stage exotics company with 0 drugs in its pipeline but massive potential for a breakthrough on a new type of therapy, my cash burn is high and the assets I will amass if the deal clears low, so the subsequent year will be rough for equity premium even if it is the strategic choice for shareholders in the long-term. That is not to say CEOs should get to play blackjack with shareholder money, but merely to illuminate the fact that being in the 10th decile of asset growth is tied to a hit to equity premium in the near term and does not imply value destruction apriori.
3. The article being quoted here is about comparing Japanese and American M&A in light of a few reports from companies like Bain that insinuated that Japan is worse at M&A. Clearly, the authors have a reason to read the conclusions of their research with a slant, which is a bias worth recognizing when ripping + dumping a quote of theirs into your blog post.
Overall, impressive amount of effort into this one -- will be interesting to see how the gov't // business clash we are bound to see in the next decade shakes out.
An outstanding 4-part (so far) Fox-Nation video – “Who is Hunter Biden”
It details the corruption and monstrosity of US president and his family. Obama organized coup in Ukraine and Biden as his VP was a de facto governor of that beautiful country, selecting and removing its government members, judges and heads of the industry.
US has three main exports – coups, corruption and weapons – in democratic Ukraine it exported, at enormous profits for many US politicians and their children (Pelosi, Kerry, etc.), -- it exported ALL three – introducing enormous corruption while -- “fighting corruption”.
The documentary failed to show Biden infamous speech in Senate celebrating his new Draconian law for drug use “which no judge will be able to overturn or soften” – while his son, “the smartest businessman he ever knew”, was consuming for a decade hard drugs at rate of $40K/month or higher.
Brilliant analysis Matt. Not sure if merger is the word but what about the hedge funds Blackrock/Blackstone buying up and monopolising the housing market (turning housing into a ‘commodity’ asset class which must yield ever greater returns for investors) - clearly the effects of this on would be home buyers and community landlords/tenant relations is not good for society? And by the way, they have come over here to Ireland and doing the same - new housing developments are ‘already sold’ off the plans to Wall Street (who can borrow at super favourable rates) - forcing a buy to let culture run by huge hedge funds.
I would love to see a piece on Feld Entertainment. It seems to me that they have a lot of control over the motor sports industry and have strong armed competition out of the market.
Thank you for this awesome piece. For decades I have seen mergers kill businesses, lay off employees and grow the legal and consultant professions. And for what? I think of the airlines - today's service is a great example of how mergers didn't help the consumer.
I remember the big department store merger in the 1980's when Robert Campeau from Canada came in and did a bid for Federated department stores. Macy's and Campeau got into a bidding war and the stock went from approximately $45 per share to $75. It was dubbed "Store Wars". They ended up splitting the pie - both Macy's and the new Federated were overleveraged and ended up in bankruptcy within the following two years. Campeau borrowed 97% of the funds for his prize purchase. As the author states, these never work out.
I was disappointed to see the CVS-Aetna merger and so many others. I didn't realize it was the lax laws but thought it was more about the financing.
These mergers are a problem in so many ways. Our corporations are so big they own our politicians. We have an oligarchy where they collude together their power over us. Glad to see it will be curtailed in the future, but how do we break up these monstrous monopolies that are working with China?
Matt, I actaually just finished Goliath and I also want to get your thoughts on a correlation I made. Not that long ago I saw your extensive interview with Michael Tracey and I believe one of the points that you made was that we don't confront China with force but as a liberal democracy. It seems that these tech monopolies such as Facebook, Amazon, Google, Apple, Microsoft, are their mini versions of the China govt..basically a dicatorship and more loyal to China than to the United States. And like that retweet that said (Sony and Nintendo are fucked
(even though Nintendo isn't fucked but they basically are regardless )The Japanese govt is really strict with mergers and acquistions. My corrleation would be we need to be Nintendo and not cave into pressure and adopt antitrust policies similar to Japan and become that so China does fear and respect us. Also I think that if there was any company to become the anti-monopolist of video games it would be Nintendo because they're the Japanese version of Disney and they do have IP but like Joe Biden they have to want to weild that power. I know this is a lot to take in but I am a fan of your work as a premium subscriber.
Great article Matt. The flip side of how mergers often destroy value was an aspect I had been thinking of and glad you addressed. There is more there and there has been numerous investment analysis studies over the years establishing that point. M&A's negative impact on competition, pricing to customers, shareholder value, employment, and innovation while benefitting a small number of people is staggering. Keep up the excellent work.
There are some cases where companies are tangled in agreements that don't benefit them in the long run, and if they want to improve their tech by joining with another strong company, everyone complains. Whose benefit is it to drown the original company who set the bar for so many others? S curves are part of the evolution of companies.
Great piece! Hopefully some federal judges should read this!
Another problem with the AT&T-Time Warner merger is HBO really went into the shitter.
"Disaster all around, predicted by most people, except Judge Leon."
When very intelligent people do obviously stupid things which happen to provide a financial windfall to a small number of people, it's natural to wonder about corruption of one sort or another.
Shining the light on the dark corners and funky transactions will scatter the critters to the crevices but what they also need is a good dose of Raid (or its competitor if there is one). The company that owns Raid was convicted of price fixing in France and was subject to a RICO lawsuit in the US and probably doesn't work on corruption anyway, so it will fall to organizations like the FTC.
Excellent article as usual, thanks. Don't forget to add railroads to your list of monopolies-throgh-mergers: https://ritholtz.com/2011/09/the-battle-of-the-rails/
Don't forget, mergers always suck for employees of the company being merged. Hope you did not get too attached to those benefits and better start the job search just in case.
"And AT&T-Time Warner is the rule, not the exception. Big mergers rarely work out, even for shareholders. Financial analysts Taiki Morita and Nick Schmitz recently looked at all 268,350 mergers in CompuStat from 2000-2021, and found that 'corporate acquirers in the US generally tended to underperform the market. And the bigger the deal, the worse the returns. The firms in the 10th decile generated a -23% premium relative to the market in the subsequent year.' In other words, the government enforcers trying to block the merger had a keener sense of the interests of AT&T shareholders than Judge Leon or the CEO of either AT&T or Time Warner."
I think you have your finger on the pulse of an antitrust push in the US that will definitely change the rules of the M&A game, but I want to point out that this stat is a bit misleading:
1. Morita and Schmitz are only talking about the subsequent year's equity premium, which is a silly way to think about M&A. Large-scale consolidation can take years, and per your "Adam Hates Everything Example," can be catastrophic if rushed.
2. You quote in a way that does not make it clear what Morita and Schmitz mean by the 10th decile (they're talking about asset growth). The snapshot you strategically pull from their research is one row of a comprehensive table they offer, and it is the lowest decile of asset growth, so an outsize amount of destruction to equity premium in the short-term is to be expected. Concrete example: If I am a big pharma company, and I lay out a ton of cash on an early-stage exotics company with 0 drugs in its pipeline but massive potential for a breakthrough on a new type of therapy, my cash burn is high and the assets I will amass if the deal clears low, so the subsequent year will be rough for equity premium even if it is the strategic choice for shareholders in the long-term. That is not to say CEOs should get to play blackjack with shareholder money, but merely to illuminate the fact that being in the 10th decile of asset growth is tied to a hit to equity premium in the near term and does not imply value destruction apriori.
3. The article being quoted here is about comparing Japanese and American M&A in light of a few reports from companies like Bain that insinuated that Japan is worse at M&A. Clearly, the authors have a reason to read the conclusions of their research with a slant, which is a bias worth recognizing when ripping + dumping a quote of theirs into your blog post.
Overall, impressive amount of effort into this one -- will be interesting to see how the gov't // business clash we are bound to see in the next decade shakes out.
Matt, Thanks for continuing to fight for business competition! Bill I am happy the Government is now seriously fighting against monopolies.
An outstanding 4-part (so far) Fox-Nation video – “Who is Hunter Biden”
It details the corruption and monstrosity of US president and his family. Obama organized coup in Ukraine and Biden as his VP was a de facto governor of that beautiful country, selecting and removing its government members, judges and heads of the industry.
US has three main exports – coups, corruption and weapons – in democratic Ukraine it exported, at enormous profits for many US politicians and their children (Pelosi, Kerry, etc.), -- it exported ALL three – introducing enormous corruption while -- “fighting corruption”.
The documentary failed to show Biden infamous speech in Senate celebrating his new Draconian law for drug use “which no judge will be able to overturn or soften” – while his son, “the smartest businessman he ever knew”, was consuming for a decade hard drugs at rate of $40K/month or higher.
Is there a way to hold a company accountable for broken "Promises" made during a merger hearing? You'd think it'd be perjury or something.
Brilliant analysis Matt. Not sure if merger is the word but what about the hedge funds Blackrock/Blackstone buying up and monopolising the housing market (turning housing into a ‘commodity’ asset class which must yield ever greater returns for investors) - clearly the effects of this on would be home buyers and community landlords/tenant relations is not good for society? And by the way, they have come over here to Ireland and doing the same - new housing developments are ‘already sold’ off the plans to Wall Street (who can borrow at super favourable rates) - forcing a buy to let culture run by huge hedge funds.
Talk about disastrous mergers, I was part of the creation of the Department of Homeland Security, a merger from hell for 22 federal agencies.
I would love to see a piece on Feld Entertainment. It seems to me that they have a lot of control over the motor sports industry and have strong armed competition out of the market.
Thank you for this awesome piece. For decades I have seen mergers kill businesses, lay off employees and grow the legal and consultant professions. And for what? I think of the airlines - today's service is a great example of how mergers didn't help the consumer.
I remember the big department store merger in the 1980's when Robert Campeau from Canada came in and did a bid for Federated department stores. Macy's and Campeau got into a bidding war and the stock went from approximately $45 per share to $75. It was dubbed "Store Wars". They ended up splitting the pie - both Macy's and the new Federated were overleveraged and ended up in bankruptcy within the following two years. Campeau borrowed 97% of the funds for his prize purchase. As the author states, these never work out.
I was disappointed to see the CVS-Aetna merger and so many others. I didn't realize it was the lax laws but thought it was more about the financing.
These mergers are a problem in so many ways. Our corporations are so big they own our politicians. We have an oligarchy where they collude together their power over us. Glad to see it will be curtailed in the future, but how do we break up these monstrous monopolies that are working with China?
Matt, I actaually just finished Goliath and I also want to get your thoughts on a correlation I made. Not that long ago I saw your extensive interview with Michael Tracey and I believe one of the points that you made was that we don't confront China with force but as a liberal democracy. It seems that these tech monopolies such as Facebook, Amazon, Google, Apple, Microsoft, are their mini versions of the China govt..basically a dicatorship and more loyal to China than to the United States. And like that retweet that said (Sony and Nintendo are fucked
(even though Nintendo isn't fucked but they basically are regardless )The Japanese govt is really strict with mergers and acquistions. My corrleation would be we need to be Nintendo and not cave into pressure and adopt antitrust policies similar to Japan and become that so China does fear and respect us. Also I think that if there was any company to become the anti-monopolist of video games it would be Nintendo because they're the Japanese version of Disney and they do have IP but like Joe Biden they have to want to weild that power. I know this is a lot to take in but I am a fan of your work as a premium subscriber.
Best,
Dan
Great article Matt. The flip side of how mergers often destroy value was an aspect I had been thinking of and glad you addressed. There is more there and there has been numerous investment analysis studies over the years establishing that point. M&A's negative impact on competition, pricing to customers, shareholder value, employment, and innovation while benefitting a small number of people is staggering. Keep up the excellent work.
There are some cases where companies are tangled in agreements that don't benefit them in the long run, and if they want to improve their tech by joining with another strong company, everyone complains. Whose benefit is it to drown the original company who set the bar for so many others? S curves are part of the evolution of companies.