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Companies combined or bought other
businesses at record levels last year. Almost four
trillion dollars in deals worldwide represented an
increase of nearly forty percent from the year
before. So far in January, merger and acquisition
activity has remained strong.
In the airline industry, US Airways this month
raised its recent offer to buy Delta to ten billion
dollars. If that goes through, there could be other
airline deals coming.
General Electric has recently added some new
manufacturers to its mix of businesses.
But in the biggest deal of last year, AT&T merged
with the telecommunications company BellSouth. That
deal in the United States was valued at
seventy-three billion dollars, not including debt.
The satellite radio industry has had increasing talk
of a merger between XM and Sirius, the two major
companies. But the head of the Federal
Communications Commission in Washington said this
week that one company could not own both operating
licenses.
With all the deals last year, investment banks did
well. Goldman Sachs advised on more than four
hundred mergers -- valued at over one trillion
dollars. Citicorp and Morgan Stanley were not far
behind.
A merger is when two or more companies combine their
operations. Generally the combined company is able
to negotiate lower prices with suppliers because of
its bigger size and market. Jobs are sometimes also
cut in mergers to save money.
The idea is to increase the value of the combined
company for shareholders. But that does not always
happen. Some experts suggest that only one merger in
three creates big gains for shareholders. At the
same time, mergers can reduce competition, resulting
in higher prices.
The simplest way for companies to combine is through
an acquisition. One company buys another. A hostile
takeover is when the target company did not invite
or approve an offer to its shareholders.
Last year, the world's biggest steelmaker, Mittal of
India, succeeded in buying all the shares of its top
competitor, Arcelor of Luxembourg.
Companies may take a large part or a small part in
guiding the policies of the businesses they acquire.
Investor Warren Buffett is known for buying
controlling shares of stock in companies but leaving
their management teams in place. He says he is not
interested in companies without established
management. |
