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Monday, 17 January, 2000, 16:12 GMT
Do mergers ever work?

Mannesmann workers defy bid Mergers have been getting bigger - and more controversial


By the BBC's business correspondent Jonty Bloom

In the dying days of last year Vodafone Airtouch, the British mobile phone company which didn't even exist 20 years ago, announced the world's largest ever takeover bid.

Glaxo-SmithKline merger
It was a hostile attempt to buy the German telecoms giant Mannesmann, worth 82bn ($130bn).

It is a massive deal, but its status as the world's largest didn't last a month.

AOL/Time Warner Special Report
In the first weeks of this year AOL, an internet company, announced that it is to merge with the entertainment group Time Warner, itself the result of some pretty massive mergers.

That deal is worth 158bn.

And now SmithKline Beecham and Glaxo Wellcome have announced a merger of the two companies that will create a 114bn drugs giant.

Massive concentration of wealth

If that is too many figures and company names to juggle with I apologise, but if you want to grasp the significance of all these mergers and takeovers there is just one more number that may help it all hit home.

If the mergers currently on the table go ahead, three companies - BP Amoco, Vodafone Airtouch and Glaxo SmithKline - will between them account for one-third of the value of the FTSE 100 share index which is made up of the 100 biggest companies in the UK.

That's a massive concentration of wealth and power for just three companies in the UK to have, but the fact is that we aren't just talking about the UK.

All three of these companies are global giants and that's one of the major reasons for their creation in the first place. They have all outgrown their home market and feel the need to expand by mergers and acquisitions so that they can compete and even triumph on the world stage.

They may be right because in that sort of battle size does matter. It enables you to win customers and new business while keeping costs down and still fund the billions necessary for research and development.

Mega merger mania

But all these takeovers are leading to a feeling of mega merger mania.

Certainly some mergers are a perfect fit of two companies which complement each other's strengths, have obvious benefits and enable the companies to make massive economies of scale.

But many mergers seem to have little to do with that. It is sometimes hard to shake off the impression that some managers just like the idea of being in charge of ever bigger conglomerates.

Certainly bankers, lawyers and accountants make a fortune from such deals and shareholders can often make a quick killing from the premium that the bidder is willing to pay for their shares in order to take control of the company.

Fashion also plays a part. This year creating giant internationals is all the fashion, pretty soon breaking up such massive dinosaurs and creating small, lean companies which are close to their customers will be all the rage.

It's just part of the way that stock markets work. They encourage change and reorganisation, are ruthless to the badly run or just complacent, and will back anyone with a record of doing things better.

After all, only this morning the head of the London Stock Exchange admitted that in three years' time his organisation will have ceased to exist.

Gavin Casey knows that the exchange, which has been criticised for being slow to adopt new technology, will have to merge with other markets if it is to stay ahead of its rivals like Nasdaq, a US stock exchange specialising in high-tech companies, which have been faster at attracting business.

It seems the ruthless logic of the free market will soon even apply to the market place itself.

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See also:
19 Nov 99 |  The Company File
Vodafone mounts 79bn hostile bid
10 Jan 00 |  Business
The AOL - Time Warner merger
28 Dec 99 |  Business
The insatiable merger appetite
29 Nov 99 |  Business
'Most international mergers fail'
27 Sep 99 |  The Company File
The UK's biggest takeovers
28 Sep 99 |  The Economy
Mergers boost world investment
18 Aug 99 |  The Company File
Why bigger is not always better
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