Muddling Mergers

Mergers are in the news. Delta and Northwest are getting together. Circuit City wants to buy Blockbuster. And Microsoft is courting Yahoo. What do all these mergers have in common? Formerly great companies are trying to combine operations to save costs. But if the top line doesn’t grow, the combination isn’t likely to add any value.

Consider today’s airline merger. It wasn’t so long ago that these giants were in Chapter 11. Now, they hope that by bringing their computer systems together they’ll save some money. Good luck. Or the retail-rental ensemble: Years ago Circuit City was one of the great companies out there. Now the other retailers are eating its lunch.

Studies show that only about half the mergers out there work. Unless the combination finds a way put new breath into its product, the combined company is likely to be uninspired.


Douglas R. Tengdin, CFA
Chief Investment Officer
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