Still, Media Maneuvers didn't pay much attention to the new Audit until recently, when it offered a series of disconnected, wandering observations on a subject dear to our hearts — deals — and the reporters who cover them. The Audit's basic premise is this: Most deals stink. Business reporters know this, they even write about it, but they have "never internalized" it, so they cheer for deals anyway because deals are career builders. This helps lead to even more deals, which, despite being mostly bad for shareholders, "apparently do result in a net positive for society, albeit a marginal one." (How's that work?) The Audit wants you to know, however, that it "has nothing against deals," it's just that "in probably two out of three cases, shareholders of the acquiring company should wear black armbands."
Let's begin with the statement that most deals fail. To back this up, The Audit quotes from Mark Sirower's book, "The Synergy Trap: How Companies Lose the Acquisition Game": "Acquiring firms destroy shareholder value. This is a plain fact." (The same quote appears on the book's Amazon.com page.)
We won't dispute these numbers, although Sirower's book did come out a decade, or two M&A cycles, ago. But we've been at this long enough to know that declaring deals good, bad or indifferent is much more complex than The Audit would have us believe. For one thing, what's the measure of a deal's success? Share price? And if it is, how long after a deal is closed should you measure it? A year, two years, five years? What's the cost of not doing deals at all? And if deals are so bad for acquirers, what do we make of the buyout folks who seem to be minting money?
In fact, Sirower's book was written not to condemn mergers (he heads PricewaterhouseCoopers' M&A strategies practice, after all) but to help investors and corporates distinguish likely successes from likely failures. That, of course, is a near-Herculean task, dependent on everything from where we are in the cycle to how skilled a company is at due diligence and integration. But that's the task The Audit seems to want reporters to complete on Day 1.
Indeed, The Audit's evidence that "the business press loves the deal" amounts to excerpts from three recent first-day stories in The Wall Street Journal, The New York Times and the Financial Times. Though rather anodyne to us, The Audit contends they use "overheated language." A WSJ piece on Barclays plc's play for ABN Amro Holding NV, for example, credits the deal with "unleashing" a "long-awaited" wave of bank mergers in Europe that will "reshape the industry as the continent's financial giants yield to the lure of size and global scale."
Feverish yet? Neither are we. Especially since the WSJ's Heard on the Street column warned the next day that investors who have been bidding up European bank shares in anticipation of consolidation "would do well to be skeptical." So much for blindly loving deals.
A few years ago — say 1999 or 2000 — we might have agreed with The Audit. The media adored deals then, best exemplified by all those big merger "scoops" that were strategically leaked to the WSJ in exchange for good placement and generally positive stories. The Audit hints that this is still going on — it lists the "business press infrastructure" and the "public-relations infrastructure that manages major deal announcements" as factor behind "the unproductive deal churn." But we haven't seen a rash of really egregious placements for years.
In fact, after the bubble burst, the media, fueled by hedge funds, activist shareholders and governance gurus, turned decidedly hostile toward deals — think Gretchen Morgenson. Perhaps it is going easier on deals now; as the market goes, so goes the media, which is the real sin here. But a love affair? Maybe The Audit would like every merger story to include a boilerplate noting that two out of three deals fail. That would be both overheated and stupid.—Yvette Kantrow
