If the merger looks likely to be approved, it won’t be the last in the telecom and entertainment sectors, and the consequences could hit home. One likely target for acquisition is Bellevue-based T-Mobile.
It’s tempting to react to megamergers such as AT&T’s $85 billion bid for Time Warner by not reacting at all.
Here we go with more games by the 1 percent. Big money for the dealmakers. Corporate musical chairs on the way to creating one big entity, call it Umbrella Corp. It might conceal resident evil, but what does it have to do with me?
Quite a bit, actually.
For example, if the merger looks likely to be approved, it won’t be the last in the telecom and entertainment sectors, and the consequences could hit home. Last week Reuters surveyed Wall Street analysts who said Bellevue-based T-Mobile would be the likeliest next target of an acquisition.
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With its strong growth in subscribers and revenue, “The takeout target over the next 12 months has got to be T-Mobile,” according to New Street Research analyst Spencer Kurn.
Reuters listed potential suitors as including Comcast, Dish Network and Mexican telecom company America Movil.
AT&T tried to buy T-Mobile in 2011 but the Justice Department filed a lawsuit to block the deal. If a new takeover should succeed, say goodbye to the talent-and-capital magnet of a major headquarters, as well as most of those employees.
In 2013, T-Mobile employed 4,800 locally. A corporate spokeswoman last week declined to give today’s figures or otherwise discuss merger speculation.
Were it not for mergers, the Seattle area might have developed into a mighty cellular communications cluster. Industry pioneer Craig McCaw based his cellphone company in Redmond, and it was way ahead of the competition until the old AT&T bought it in 1994.
A later McCaw venture was Clearwire, headquartered in Bellevue, which grew into the fifth-largest wireless internet provider. It went away last year after — you guessed it — being acquired by Sprint.
Interestingly, the old McCaw Cellular Communications provided the backbone that makes today’s AT&T one of the top wireless companies, with more than 130 million subscribers. But that doesn’t take away the opportunity costs of what might have been here. AT&T is headquartered in Dallas.
Not every merger is bad. They are essential for a functioning market. But since the 1980s, “merger mania” has been a prominent, continual and often damaging part of the economic landscape.
At first it was sexy. T. Boone Pickens was featured on an iconic Time magazine cover with cards and poker chips, headlined “The Takeover Game.” An oilman first, rather than just a financier, Pickens shook up the complacent world of big oil companies. His critiques of entrenched management had some merit.
But as the job losses from takeovers and attempts mounted, corporate raiders became villains. They were epitomized by Michael Milken of Drexel Burham Lambert, who was the face of junk bonds and leveraged buyouts. These deals destroyed firms that in some cases had taken a century to build, and all for short-term profits going to a few.
Although Milken pleaded guilty to securities fraud in 1990, the mergers and acquisition business had become too lucrative to go away, especially in the era of laissez faire economics.
The consequences have included most American cities losing their prized local companies; increasingly concentrated industries; market dominance verging on monopolies; and millions of well-paid jobs lost or not created.
The importance of this last point must be stressed. Mergers “work” by shedding jobs, part of the “synergy” euphemism. Even then, studies show that most mergers don’t deliver the promised benefits. According to a KPMG report, 83 percent “were unsuccessful in producing any business benefit as regards shareholder value.”
Why do they continue? Because the corporate elite and Wall Street gain so much, not least of which is political power to keep the party going. Thanks to the arguments of Robert Bork and other “Chicago School” scholars, antitrust enforcement fell into a long slumber after 1981. To risk oversimplifying, the effect on consumer prices became paramount, not the consequences to the public good and competition.
The Obama administration has been more aggressive in blocking megadeals but it still allowed the hyper-consolidation of the airline industry with American-US Airways, and Comcast’s acquisition of NBCUniversal.
AT&T is counting on the logic of the Comcast approval, and plenty of lobbyists, to sway regulators its way.
Another company argument is that the merged entity would be more innovative. This is almost certainly not the case.
Big mergers require attention to pay off debt, lay people off, shut down suddenly redundant operations and dance to the tune of Wall Street’s six-shooters.
Innovation requires investment and patience, as one of AT&T’s worse nightmares, Amazon, could teach. Breakthroughs also come from startups, but fewer of these are surviving or growing.
AT&T, whether the old Ma Bell or the rebranded one acquired by “Baby Bell” SBC, has never been good about cloaking desperation. That is, after the 1982 breakup of the Bell System which at its height employed 1 million Americans in good jobs.
In 1990, AT&T spent time and treasure making a hostile takeover of NCR, a well-run company and the most prized headquarters of Dayton, Ohio (I covered this deal). Ma Bell was desperate to get into the computer business, NCR’s specialty. The deal ultimately failed and NCR was spun off, but abandoned Dayton. That human cost again.
Once again, AT&T is trying to buy its way out of trouble — slowing growth, high debt and a rapidly changing media and technology landscape.
Facing bipartisan opposition and widespread pushback by consumer-advocacy groups, this megamerger might hit the wall. Then, if only America could find its way out of the bigness complex.