Alternative title: $%#tty-Group

Oh terrific: We are going to have two medium size piles, instead of one giant compost heap.

Is this going to be a good bank/bad bank split, or is it more accurate to say its a bad bank/worse bank ?

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Serious question: Can you name any mega-mergers that have actually worked as advertised? Outside of Oil/commodity firms (Exxon Mobil, Conaco Phillips, BP Amoco are just piles of similar resources), has ANY massive M&A conglomerate actually worked out?

Monster firms all seem to have similar problems: Clash of egos, disparate business lines, frictional corporate cultures.

The one successful example I can think of is Oracle — but they have mostly bought firms started by former employees.

Have any jumbo mergers actually worked out for shareholders?

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See Also:
Citigroup Reports $8.3 Billion Loss, Splits Into Two
Bradley Keoun and Josh Fineman
Bloomberg Jan. 16 2009

http://www.bloomberg.com/apps/news?pid=20601087&sid=aZXvO7Nbgs_E&

Citigroup Reports Big Loss and a Breakup Plan
MATTHEW SALTMARSH and ERIC DASH
NYT, January 16, 2009

http://www.nytimes.com/2009/01/17/business/17citi.html

Citigroup posts $8.29B loss, splits up the company
MADLEN READ
AP, January 16, 2009

http://www.google.com/hostednews/ap/article/ALeqM5i2PNpRzvc02u8Hv6VQVBeTamWXqgD95O9IHG6

Category: Bailouts, Corporate Management, M&A

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

39 Responses to “Splitty-Group”

  1. wally says:

    There is no reason for a large bank that continually loses money to even exist. Or a small one.

  2. Bob_in_MA says:

    “Can you name any mega-mergers, outside of Oil/commodity firms, that have actually worked as advertised?”

    I remember this being a lesson learned years ago with IT&T.

    Common sense dictates they almost never pay off, but corporate (& CEO) ego seems be a huge countervailing force…

    With an industrial conglomerate that fails, it’s tough luck for shareholders. But with a bank, it’s tough luck for tax payers…

  3. Chief Tomahawk says:

    Hey, I used to bank with city after I fled WaMu two years ago. Then with Citi collapsing last November, I fled to the warm, safe harbors of BofA, in hopes I can “keep the change”. After BofA, it’s the mattress….

  4. edhopper says:

    Barry, you obviously don’t understand the reason for the mega-mergers. What is this “benefit to stock holders” you talk about. The purpose of the mergers is to enrich the Executives and generate large fees for the entities that help enact it.

  5. Imelda Blahnik says:

    I can haz synergies nao?

  6. ben22 says:

    I can’t think of one, at least not any recent one’s. Maybe before my time when the executives were less worried about themselves and thought more about the company.

  7. haxen says:

    back to the 80′s

  8. bcasey says:

    This is what we get when we say things like, “the alternative is unthinkable.”

    1st point banks produce nothing.

    2nd point they gain their profit by taking interest in other’s ventures.

    3rd point they are supposed to provide liquidity to the markets.

    I said this when the bailout idea was first uttered, “why should we keep them afloat?” What do they bring to the table that is desirable at all? Last fall everyone pointed to the third point, but even then they had stopped providing liquidity. I argued that banks that do not lend are no longer banks. I still argue that point.

    We are flushing billions of dollars down the drain to fill the gullet of the blood sucking parasite on our backs, that is itself bleeding from self inflicted wounds.

    I’d like to see someone present a believable argument contrary.

  9. rww says:

    bcasey, me too.

  10. jason says:

    bcasey, bingo

  11. jason says:

    I just invested in a warehouse full of pitchforks.

  12. jason says:

    Vallejo, CA has chartered a name change to Citi, CA

  13. Bob the unemployed says:

    Before the internet bubble burst, cisco was pretty good at the assimilation of other firms.

  14. “I’d like to see someone present a believable argument contrary.”

    Sorry, no can do.

  15. Ben says:

    Gamestop and Electronics Boutique worked out very well. SBC’s purchase of AT&T and AT&T wireless for that matter ended up working out well even though they were considered bad deals at the time. Agree that good deals are few and far between.

  16. cjfsyntropy says:

    Imelda Blahnik Says: I can haz synergies nao?

    Buckminster Fuller correctly defined “synergy” to be “behavior of whole systems unpredicted by the behavior of their parts taken separately” (http://www.rwgrayprojects.com/synergetics/s01/p0100.html). Yes, big mergers will generate synergies, but that doesn’t imply big profits. It could be that the unpredictable behavior will be big losses and big failures!!!

    Synergy should not be a buzz word that turns thinking off. It should be a word that makes you think: what unpredictable behaviors of this merger will manifest?

  17. cfischer says:

    Ed hopper is exactly right. A giant CEO salary looks less giant if the companies doubles it revenue. If it can’t double it’s revenue from growth, it can merge to do it.

    Large mergers destroy value. I don’t know how many times this needs to be empirically proven before it becomes common sense, although, as Ed hopper also eluded to, there are lots of powerful forces that have a vested interest in perserving the myth that mergers are a good thing.

  18. ellidc says:

    The other ones that come to mind are Boeing-McDonnell Douglas, Lockheed-Martin, and Northrup-Grumman although they are all in a unique kind of market.

    I think JP Morgan Chase kind of worked too in terms of making the whole more than the sum of the parts, although the jury is probably still out on that.

  19. johnbougearel says:

    got through the registration process

  20. Robertm73 says:

    PG and Gillete seems to be working out.

  21. David Merkel says:

    Scale acquisitions almost never work, unless they are done near the bottom of a bear market to rescue a dud company that is overlevered. After that, a lot of bodies get shed, as costs get taken out.

    Intelligent managements do small tuck-in acquisitions to gain technologies, marketing channels, products, etc. Then they use those to grow organically.

    Dumb managements focus on capital structure — buybacks, leverage policy, etc. The best management teams are willing to lag a little during boom times, because they don’t over-lever, and keep a rainy day fund on hand.

    But, aside from defense, energy, and maybe PG, I can’t think of any big mergers that have worked. As for JPM, I suspect that one will get hit as well.

  22. Todd says:

    Merger of equals are rarely if ever successful. I can’t think of any.

    Merger of perceived equals can work as long as one company remembers who really bought who or the stronger company truly takes over.

    BofA and NCNB – NCNB got a nice name change, last time I checked most of their execs were running the show after 5 years, not BofA.

    SBC and AT&T – Baby bought MA – This hasn’t been completed long enough, but if you notice the SBC people are running the show. SBC tight fisted expense control will win out esp in this economy.

    Acquisitions by the big fish eating little fish work best of all, as long as the big fish doesn’t turn to an acquisition diet only. Cisco in the late 90′s went to an almost all acquisition diet and has suffered ever since.

    I’ve always noticed that mergers in the late part of the boom cycle always tend to overwhelm information technologies ability smoothly integrate the two entities. Part of the inefficiencies of the merger.

  23. donna says:

    Oracle is evil and destroyed the development of relational database systems. They suck ass. Bloated, awful systems that are expensive and hard to maintain instead of cheap, easy to use systems that can be altered and updated easily. Sucky company, horrible man as CEO.

  24. wally says:

    I expect to see:
    “Wall Street moves higher on news of multiple failures, frauds, collapses and bailouts”

    It is pretty easy now that we are here to see why 1929 was followed by several years down. People just cannot accept reality immediately.

  25. ben22 says:

    Todd,

    The point you make about CSCO is key, when you have no organic growth, that’s a sell. It wasn’t just the internet bubble that popped this stock, though that was a big part of it, weren’t they trading at some mulitple of US GDP at some point?

    I will say though, it looks like CSCO’s purchase of linksys was a smart one. They got them cheap.

    I’ve heard some people say they like CSCO now but I still wouldn’t buy the stock though, no dividend either. Also, I’m not sure them and linksys counts as a mega merger or if some of the others mentioned above count as mega mergers.

    When I think mega merger I think more like AOL/Time Warner or something.

    The Lockheed, Boeing stuff mentioned above I’d relate more to oil, so maybe it just shows in some industries this works but in most it’s just a bad idea.

    the PG/Gillete deal was also a good one, I’d agree with that.

  26. aguynamedbry says:

    While not specifically a merger – it looked like one with much of the senior management staying on and working well together – In 1994 Boston Scientific bought SciMed for over $800M. At the time a large acquisition in their industry, and seemed to be a net positive for the next decade or so.

  27. Mannwich says:

    They work for executive management of these companies and maybe the shareholders over the short term but hardly any of these ever work long term.

  28. BrianSJ says:

    Pfeffer and Sutton’s ‘Hard Facts, Dangerous Half-Truths and Total Nonsense’ http://tinyurl.com/6ux9bg
    has – as usual – the lowdown.
    “Study after study shows that most mergers – some estimates are 70 percent or more – fail to deliver their intended benefits and destroy economic value in the process. A recent analysis of 93 studies covering more than 200,000 mergers published in peer-reviewed journals showed that, on average, the negative effects of a merger on shareholder value become evident less than a month afte a merger is announced and persist thereafter.”

    Cisco gets a good write up as an exception.

  29. Ramstone says:

    “PG and Gillete seems to be working out.”

    This. always my goto for the exception to the rule.

  30. KidDynamite says:

    if CitiHoldings includes the consumer lending arms, but Citicorp includes the retail bank – how does that work?

    doesn’t the consumer lending arm lend out the deposits from the retail bank?!??!

    how can those two arms not be in the same entity?

  31. Ken says:

    wally wrote: I expect to see: “Wall Street moves higher on news of multiple failures, frauds, collapses and bailouts”

    I worked out some time ago that business reporting is a game of Mad Libs, where there are only two blanks:

    Stocks were ______ today on ________

    For the first blank, pick “up” or “down”, depending on what actually happened. For the second, choose any news item of the day. It doesn’t even need to be financial.

  32. VennData says:

    Splittist!

  33. callistenes says:

    The old Philip Morris.

    Tobacco + Beer + Cheeze Whiz = Solution to aging baby boomers outliving benefits.

  34. larry says:

    I work in telecom, and mergers there could be seen as a matter of industry consolidation for funding future technologies and networks.

    There’s Sony Ericsson in handsets, Nokia Siemens and Alcatel-Lucent in infrastructure. Then there are the US services providers with SBC/BellSouth/Cingular/AT&T, BellAtlantic/GTE/Verizon/MCI/Alltel, Sprint/Nextel and T-Mobil/VoiceStream.

    Jury is out on the infrastructure/equipment vendor mergers. On the service provider side, Sprint Nextel certainly is a mess.

    I also worked in the defense industry, mergers there were driven by the end of the Cold War and technology.

  35. rcohen770 says:

    AlliedSignal bought out Honeywell (and kept the latter’s name). Didn’t that one work out OK?

  36. retrogrouch says:

    Let’s see, so they’re to big to fail, so the answers becomes to allow them to merge? (And use bail out money in the process.)

    It’s sort of like trying to fix a consumer demand collapse based on too easy credit and credit over extension by freeing up lending.

  37. omersade says:

    Well, this is a tricky question. All of the folks here ignore the real question which no one can answer: “what would have happened without the M&A deal?”.
    Main problem is that sometimes M&A transactions are necessary from competitive and other reasons. Sometimes the price of not making a deal is to lose to competition without even trying. There is an inherent contradiction is the argument that M&A deals are so bad — eventually they are being approved by the share holders (market economy – remember that? or did too much government intervention made all of us forget?). So saying that “there is no successful M&A” is same as saying “all of us are stupid all the time”. Personally, I tend not to agree with “market stupidity”.
    M&A is hard. It requires a combination of many skills, luck, timing etc. to work — that doesn’t mean it is always the worse option for equity holders. Also, we should look at M&A and especially mega-M&A in a long term view.

    Example: HP and Compaq. A well libeled 2001 deal. 7 years later, the decision does not look that bad. Fiorina had to give up her seat but could they be as strong as they are today without it?

    Another one: Chase and Bank One. We left to see but it seems pretty good.

    Some others to look at:
    NewsCorp and Dowjones
    Google and DoubleClick

    Any how — yes, M&A deal is not easy to execute. Yes, they are driven too many times by too large egos, golden parachutes and other non relevant considerations. But, that does not mean that they are always wrong.

  38. WilliamBanzai7 says:

    Private equity firms are the new massive M&A conglomerates.

  39. Broken says:

    So Citi becomes Citicorp and Citi Holdings. All the bad debt goes into Citi Holdings to be bailed out with TARP before they shut down. Citi Holdings is a rather ironic name- “Citi left Holding the Bag” is more accurate. Meanwhile, CitiCorp goes on with no bad debt or accountability whatsoever.

    Nice deal, can I have one?