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Indulgent Corporate Super-sizing

March 13th, 2004 · No Comments

In the go-go years of just four years ago, American corporations were feeding heavy at the trough, super-sizing themselves with enormous acquisitions and mergers. Two of the biggest mergers of that not-so-distant era were AOL Time Warner and Vivendi Universal. Both were hailed in news accounts as revolutionary deals and a boon to all. Steve Case, the young AOL executive who became chairman of AOL Time Warner, even announced the deal as “a big meal to serve.” Indeed, and one which everyone wished they had never eaten.

Since the AOL Time Warner merger in 2000, which formed the world’s largest media company, the corporation posted the largest annual corporate loss ever ($100 billion), its president was fired, it dropped the embarrassing AOL part of its name, and new CEO Richard Parsons vowed to do “no more silly deals.”

In the Vivendi Univeral merger of 2000, which combined a French utility/mobile phone company and the U.S. media and entertainment conglomerate in what was billed as Europe’s answer to AOL Time Warner, the resulting megacorporation more than lived up to the comparison. By 2003, Vivendi Universal had posted the largest annual corporate loss ever in France (more than $25 billion), its CEO was fired, and then it completely unraveled as it sold off its Universal entertainment assets to General Electric.

But today, despite the fact that once corporate heavy-eaters like executives Dennis Kozlowski (Tyco International), Bernie Ebbers (WorldCom), and Jeffrey Skilling (Enron) are now deposed and embroiled in legal battles, many news reports are again cheerleading the big mergers and acquisitions.

For example, responding to a wave of acquisitions and proposed mergers, including the competition between Vodafone and Cingular for AT&T Wireless, CNNfn correspondent Maggie Lane gushed on February 16 that “Mega-mergers are back in vogue and Wall Street couldn’t be happier.”

Two days later, after the $41 billion merger between Cingular and AT&T Wireless was announced, CNNfn anchor David Haffenreffer remarked “Wall Street and corporate American both applauded the news of Cingular’s takeover of AT&T Wireless.” In fact, many news reports interpreted the spate of mergers (which included the J.P. Morgan-Bank One merger and Comcast’s bid to acquire Disney) as a measure of a strengthening economy.

Tess Vigeland of the public radio program “Marketplace” interpreted the mergers as a repeat of the boom years of the 1990s: “The economy’s better, the stock market’s better and I think there’s also this sense that a lot of bad things that have happened–the dot-com collapse, all the corporate scandals–they’re getting washed out of the system, or at least they’re under control.”

Fortunately, some reports–mostly in the print media–reminded readers that the megamergers are more likely to be evidence of megalomaniacs than a robust economy. Some corporate executives just love to build empires, and the fastest way to get big is to gobble up a competitor. Yet, this isn’t always a happy meal. In fact, as the New York Times reported on February 25, more than half of all mergers actually damage the value of corporation.

Not only do stockholders pay for the executive folly, but so do consumers (for instance, can anyone think of a bank merger that lowered costs and improved service?), and another group of people nearly invisible in all of the merger stories: the workers. Employees of the companies are typically mentioned only obliquely in terms of cost-saving synergies. In reality, thousands of jobs are cut because mergers result in heavy debt loads and someone has to pay the price.

Perhaps because the certainty of so many job cuts doesn’t jibe with the notion that the economy is improving, news media stories typically neglect to consider the fate of the workers. In the Cingular case, only the Seattle Post-Intelligencer even attempted to calculate the number of jobs that would be eliminated due to the merger–an estimated 12,000-15,000 positions.

Unfortunately, the cautionary tales and alternate perspectives on mergers are hard to come by. Back at CNNfn on February 17, Financial Editor Myron Kandel and two anchors marveled at how the front page headline of the New York Times that day incorrectly indicated that the British company Vodafone would buy AT&T Wireless. A few hours later, after newspapers had gone to press, AT&T instead closed the deal with Cingular. The Times was “really caught flat-footed by the late Cingular bid” Kandel said, adding with a touch of self-congratulation that CNN, their web site, and wire services announced the finalized merger in the early morning hours.

But, although CNN got the scoop, they–along with nearly every other news organization–failed to give us the whole story on this and other recent mergers.

Tags: Journalism Ethics · Media Economics · Television News

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