Perspective

M&A: good or bad?

By Masako Yamada

For the past month or two, I'ｖe noticed the Japanese media dedicating a lot of coverage to the president of Livedoor, Takafumi Horie. He may be changing the face of mergers and acquisitions in Japan, but he is still a small fish in the international pond. "Horiemon" is an unknown in the United States, where we have plenty of homegrown moguls of our own, such as Bill Gates, Ted Turner and Donald Trump. Now, compare him to Silvio Berlusconi. Not only is Berlusconi Italy's prime minister and head of public affairs, he also owns the country's three main private TV channels, Italy's largest publishing house, its largest advertising agency, its largest daily newspaper, as well as real estate, a soccer team, and retail stores. Now that is newsworthy.

I once briefly considered a career in finance and looked into working in M＆A. I know little about business, but as a consumer, I have plenty of experience. When I entered college, I opened an account at a Boston bank called BayBank. A few years later, it merged with Bank of Boston and was called BankBoston. Several years after that, BankBoston merged and became Fleet. This year, Fleet has merged with Bank of America to form an institution that now spans the entire nation.

Exasperated that the city of Boston was dominated by one bank, a friend of mine defiantly chose to open an account at a small local bank that targeted Chinese-American customers, even though she wasn't Chinese and it was very inconvenient for her. I believe Americans are naturally suspicious of monopolies, and this suspicion is not recent. The Sherman Anti-Trust Act was written over 100 years ago. As consumers, we like to have a choice of media perspectives, a choice of banking options, a choice of restaurants and a choice of computer operating systems. We like to feel that we have control in our lives. Many individuals also possess an entrepreneurial spirit, so there is an underlying current of wanting to support (or indeed, become) a small company fighting a corporate Goliath.

For example, I like to shop at a natural foods store that has a wide selection of organic foods, and I'ｖe also joined an organic co-op where produce is delivered every week directly from the farm. The food is more expensive than the food at the local supermarket, but I choose to shop there. The modern-day hippies who go to these places are not only interested in eating healthily, but are often in favor of promoting sustainable living.

The problem is I know we also benefit from large conglomerates. The natural foods store has an interesting flyer that points out that many organic brands have been acquired by international food chains. Those all-natural yogurts may have started out being made by hand on a family farm, but now, they are probably made in a Danone factory. This isn't necessarily bad if it means more people can buy organic yogurt because the distribution is better and the costs are lower.

Since I started working for a large corporation, I'ｖe started to better understand the business rationale behind M＆A. Again, the discussion has many sides. On a positive note, M&A enables a company to acquire new features that would otherwise take years to develop. The combined skills can enable a company to do new things. On the other hand, it also allows companies to cut costs by laying off redundant employees. Entire departments are often slashed when there is an overlap between merging companies.

There is no easy answer to the question of whether large conglomerates are good or bad. I'm an individual consumer who demands to be heard, but I'm a perpetrator of the capitalist machine. I become more powerful when my company acquires other companies, but I'm powerless against my own job disappearing along with such mergers. It's easy for us as TV-watching individuals to vilify those who seem to have too much power, but I believe it's important for us to take a good, hard look to see how our own actions are feeding economic trends.

Shukan ST: April 1, 2005

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