Current Trend - 'The Big Remix,' A Cascade Of Mergers And Acquisitions: Economist Ben Gomes-Casseres

by: Harlan Levy


Mergers and acquisitions: a positive trend.

Without corporate reshuffling, we’re stuck.

Changing corporate domiciles to lower taxes now restricted.

Ben Gomes-Casseres is a professor at the International Business School at Brandeis University and author of "Remix Strategy."

Harlan Levy: What do you see going on globally with businesses?

Ben Gomes-Casseres: I call it the big remix. There is a reshuffling of assets going on, real productive assets, globally as well as in the U.S. We see that when we see mergers and acquisitions, large deals that were done. We also see it in things a little under the radar, where people are making deals with each other that are not full mergers, but are alliances and partnerships of various sorts.

It's a recombination of assets - the creation of new combinations. I see that everywhere - in tech, in old companies, in conventional companies now needing to get into various forms of technology - whether it's hardware or software or data analytics, or cloud usage, or the Internet of things. All these things are upending the traditional way of doing business. It's a disruption, which leads to the need to find new ways to do things outside of the boundaries of many of these firms.

H.L.: What are the implications for the U.S. and global economies?

B.G-C.: Those kinds of combinations can lead to innovation and the creation of new value. That happens a lot and will happen more and more. You see it in pharmaceuticals, digital media, and more and more in industrials, because we're adopting so many technologies.

There's also consolidation happening more and more in traditional businesses which are shrinking or hurting, often because of technological disruption.

Look at Staples' (NASDAQ:SPLS) and Office Depot's (NYSE:ODP) businesses, which are hurting because of online buying and other forms of the paperless office.

They sought to merge, but it was blocked. And you see such efforts not only in retail and big-box stores, but also in agriculture - Syngenta (NYSE:SYT), the Swiss seed company, and ChemChina, Dow Chemical (DOW) and DuPont (DD), and Bayer (OTCPK:BAYZF) and Monsanto (NYSE:MON). These are all consolidating in mature markets. There's a risk that you don't get creative energy and new products and services. Rather you may get more market power and more concentration of wealth. And the regulators are active, stopping big deals in their tracks. So it's an interesting time, with some combinations being productive and entrepreneurial and others being defensive and more likely to be antitrust problems.

H.L.: What did the failure of the Pfizer (NYSE:PFE)-Allergan (NYSE:AGN) merger tell you?

B.G-C.: It was presented to the world as a way to lower taxes, the tax inversion idea, whereby Pfizer would merge with Irish pharmaceutical company Allergan, and move its domicile to Ireland and start paying lower corporate taxes. That was blocked because those types of inversions were getting out of hand and produced new guidelines on whether you're allowed to move your domicile abroad. So it was a sign.

H.L.: What do you think of the Bayer and Monsanto merger effort?

B.G-C.: That one is in the monopolistic part of the economy. It's basically selling seeds and agricultural chemicals, and in that market there are very few competitors, including DuPont and Dow and Syngenta - all doing business in the U.S. and all the large agricultural countries.

What happens in such a field is that when two of those competitors start linking up, then there's an incentive for the others to follow suit. So the first shoe to drop was Dow and DuPont, which is still being worked on. And a number of maneuvers followed, so the other companies can gain scale. So far, it's ended up with Monsanto-Bayer and Syngenta-ChinaChem.

You see this kind of cascade of mergers and other forms of deals in a lot of industries where there are close competitors, like healthcare, when health insurers started getting together. We've also seen this in airlines and other industries.

H.L.: Is the merger and combination trend good or negative in terms of the global economy?

B.G-C.: In the end it is good. Of course, there is always good and bad in any kind of deal-making. The good ones are creating something new out of a combination, and the bad deals that are consolidating market power and raising prices on consumers and buyers. Both are happening, but if we don't have the reshuffling of assets, we're in a worse situation, because then we're stuck with the same ownership patterns of companies not having new ideas coming from combinations.

But overall the trend is good. At the same time, there is a role for the regulators to watch over the potential negative effects that could occur to consumers and competitors. You have to watch whether bigness becomes a curse. But bigness itself is not a curse if it serves better production or better efficiency or better creativity.

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