Posts filed under “M&A”
If they are too big to fail, make them smaller.”
-Nixon Treasury Secretary George Shultz about Fannie Mae and Freddie Mac
The operative expression about many of the bailouts we have seen — AIG, JP Morgan (via Bear Stearns), Goldman Sachs, Fannie/Freddie and of course Citibank — is “Too Big To Fail.”
Perhaps the better expression is “Too Big to Succeed.”
The idea of a massive, one stop financial supermarket is now under fire. Of course, the idea of ANY massive conglomerate has for the most part, been discredited. Unsuccessful monsters are usually the result of huge M&A deals, disparate business lines, frictional corporate cultures. Think AOL-TIme Warner, Citi-Travelers, Tyco, etc. Oracle has been one notable exception to this, but that is because they have mostly bought firms started by former employees, keeping the family relationship.
The most successful growth by acquisition strategies tend to be where a bigger company absorbs mostly smaller firms. Cisco and GE are the masters of this slow, small acquisition to round out product lines and technologies. They don’t disrupt the corporate culture, the acquired targets are thrilled for the windfall, the integration tends to go much more smoothly.
Indeed, when it comes to conglomerates, we tend to see a two-part cycle. During the first part, acquisitions, mergers, big combinations are all the rage. Its a giant ego stroke for the CEOs, and it generates lots of fees for the iBankers. The second half of the equation comes when the awful handiwork of the M&A binge needs to be unassembled. That generates criticism of the CEOs, and lots of fees for the iBankers.
With the components of CitiGroup being taken apart and returned to their original boxes, this is merely another typical cycle playing out. Where it might take an interesting turn in the near future is the recognition that these firms are too unwieldy to run, too complicated to manage risk, too big to succeed. That gives impetus to discouraging these mergers, mega banks, and loss of competition. Are shareholders, the economy, and the taxpayers better off with just three mega-banking centers? Or, are we all better served with dozens of mid-size and large banks, versus only a few behemoths?
I am in the camp that finds most of these giant mergers do not work very well. Just about everyone — excepting the CEOs and iBankers — fare better with more banks of a size below ginormous.
Over the past 10 years, Shareholders have voted against the mega-banking centers. The question for the next 10 years will be how the politicos and regulators, especially the Fed and FDIC — vote on the matter.
Pandit Dismantles Weill Empire to Salvage Citigroup
Bradley Keoun and Lisa Kassenaar
Bloomberg, Jan. 14 2009
Citigroup Ready to Shrink Itself by a Third
WSJ, JANUARY 14, 2009
Citigroup Plans to Split Itself Up, Taking Apart the Financial Supermarket
NYT, January 13, 2009
Every year, Doug Kass creates a list of forecasts. But these are not straight predictions; the basis of Kass’ column is that these are ideas that most people think are very unlikely, which that Doug believes has a better chance of occurring than the crowd does. Call them “Possible Improbables” Here’s the list: 1. The…Read More
Consider that one year ago Royal Bank of Scotland paid US$100 billion for ABN Amro. That seemingly impossible amount would now buy: Citibank $22,5 billion (74% down) Morgan Stanley $10,5 billion (-72%) Goldman Sachs $21 billion (-67%) Merril Lynch $12,3 billion (-77%) Deutsche Bank $13 billion (-71%) Barclays $12,7 billion (-71%) And still leave $8…Read More
Goldman Sachs Group Inc. will raise at least $7.5 billion from Warren Buffett’s Berkshire Hathaway Inc. and public investors in a bid to quell concerns that pushed up the Wall Street firm’s borrowing costs and hurt its stock.
Berkshire is buying $5 billion of perpetual preferred shares, New York-based Goldman said today in a statement. Goldman, which this week transformed itself from the biggest U.S. securities firm to the fourth-largest bank by assets, also plans to raise at least $2.5 billion by selling common stock in a public offering.
Goldman Chief Executive Officer Lloyd Blankfein is turning to Buffett, the billionaire investor and second-wealthiest American, to boost market confidence even though Goldman hasn’t reported a quarterly loss since it went public in 1999. The bankruptcy of Lehman Brothers Holdings Inc. and emergency sale of Merrill Lynch & Co. to Bank of America Corp. on Sept. 15 have fueled fears about firms that rely on bond markets for funding.