The blockbuster deals just keep coming and coming.
Citicorp and Travelers Group. Chrysler Corp. and Daimler-Benz. GTE Corp. and Bell Atlantic Corp. And now Exxon Corp. and Mobil Corp."This has been an unbelievable record year," said Bill Clark, chief operating officer of Mergerstat, a Los Angeles firm that monitors mergers and acquisitions.
So far this year, 149 mergers involving U.S. companies worth $1 billion or more have been announced, for a total value of $886 billion, according to Mergerstat. For all of 1997, by comparison, there were 110 such deals worth $359 billion.
So what's going on?
"It's worldwide competition," said Dennis Block, head of the mergers and acquisition practice at the New York law firm of Cadwalader, Wickersham & Taft. "To compete worldwide, you need a greater critical mass."
Also driving the consolidation among such big players, is the availability of currency in the form of stock to carry out such big deals and a generally favorable regulatory climate.
There is also a tendency within any given industry to follow the leader. Once one megamerger is unveiled there's instant buzz about others that could, and sometimes ultimately do, follow.
Still, big companies seek to join forces for many of the same reasons as smaller ones. They are looking for ways to boost revenues, cut costs, drive up earnings or all three. Buying another company can offer an instant array of opportunities: new markets; a channel for selling products to new customers; access to technology; or the ability to slash costs by eliminating duplication.
"Companies cannot afford to do everything on a home-grown basis," said Albert Viscio, a partner in the strategic leadership practice of Booz-Allen & Hamilton, a management and technology consulting firm based in Washington, D.C.
David Nadler, chairman of the New York-based Delta Consulting Group, which advises corporate executives on organizational changes, said changes -- including increased worldwide competition, access to more markets, new information technology and deflated commodity prices -- are so fundamental and so disruptive that even the biggest players are affected.
Technology allows corpora- tions to better manage far-flung networks and very large organizations. In some industries, such as telecommunications, it plays an additional role. Corporations want to pool resources so they can offer new, but expensive-to-bring-online technology to customers as quickly and cheaply as possible to as many markets as possible.
In October testimony to the Federal Communications Commission, Ivan Seidenberg, Bell Atlantic's chief executive, said a handful of large, global, full-service communications companies are emerging. He was commenting on Bell Atlantic's pending deal to merge with GTE.
To succeed, he said, each will need: global reach, a full range of services, strong high-speed data capabilities, financial strength and technological leadership. The planned merger, he said, is a reaction to changing technologies and rising consumer expectations.
Bob Varettoni, a Bell Atlantic spokesman, said last year's acquistion of NYNEX Corp. allowed the companies to roll out new data-transmission capabilities faster and cheaper than if each acted separately. For 1998, $450 million in expense savings and another $300 million in capital outlay savings are expected. Over three years, some 3,000 management jobs are slated to go.
Before the merger, Bell Atlantic served six states including Pennsylvania, while NYNEX covered in seven including New York and Massachusetts. Combining the markets allowed Bell Atlantic to offer cellular phone service that reaches across the whole Eastern Seaboard, Varettoni said.
Bell Atlantic also adopted NYNEX's marketing techniques for phone services such as caller ID and calling waiting. The result, Varettonti said, in the first 100 days, some 1.4 million new phone service features were sold systemwide.
On the whole, the telecommunications industry is going through tremendous consolidation because it was so fragmented, said Diego Veitia, chairman and chief executive of International Assets Holding Corp., an investment firm.
At Citigroup, formerly Citicorp and Travelers Group, the focus wasn't size, a spokesman said. The merger, announced in April and carried out in October, was the second-biggest, behind Exxon-Mobil, in U.S. history.
"We were never really driven by the desire to be the largest anything," said Citigroup spokesman Jack Morris. The merger "gives us a complete array of financial products and multiple distribution systems around the world."
Travelers operations were focused in the United States, while Citicorp was worldwide. Citicorp was the world's largest issuer of credit cards and offered banking products. Travelers' offerings included insurance and asset management. Now, Travelers' army of insurance agents can offer credit cards or banking services to its customers. And Travelers' products can be distributed abroad.
Over time, Morris said, $1 billion in new revenue is expected because of the merger.
James McTevia, chairman of the Michigan-based McTevia and Associates, which advises companies in transition, also pointed to another merger that plays off the strengths of each partner, the Daimler-Benz and Chrysler pairing that took effect in November.
Daimler-Benz, he said, has markets in India that Chrysler doesn't, while Chrysler is firmly entrenched in places such as South America and Mexico. Chrysler is far ahead in design technology, while Daimler leads in engineering technology, he said.
Also fueling megamergers is that federal regulators have largely been willing to let the deals go through -- even though corporations sometimes are required to sell off some assets.
Experts say no one should mistake a willing attitude as a sign the feds don't have the legal power to regulate the big billion-dollar deals.
John Solow, a professor of economic at University of Iowa who specializes in antitrust economics, said he believes regulators are generally asking the right questions when it comes to megamergers and competition issues. He said they are taking into account global marketplace pressures.
"I don't think we need to rethink the way we think about mergers," he said, adding that he doesn't believe the Clinton anti-trust officials have been asleep at the wheel.
But some critics of megamergers are concerned that even if the legal tools are there, they aren't being properly used.
James Brock, a University of Miami in Oxford, Ohio, and author of "Dangerous Pursuits: Mergers and Acquisitions in the Age of Wall Street," said many of the deals strike him as anti-competitive, he said, and don't perform well. And, he said, if these larger corporations such as banks fail, the country could face huge bailout tabs.
"It seems to me organizations the size of these merged organizations that we're seeing start to look eerily like central Soviet planning in the old communist system," he said.
Brock said the government is looking at the issue of anti-competitiveness too narrowly. Allowing large bank mergers after forcing divestiture of once-competing branches on the same street corner is an example, he said.
"My sense of it is they're asking far too narrow questions, and they suffer from a kind of tunnel vision," he said.
Federal regulators budgets and staffs are dwarfed by those of the big companies they are evaluating.
"I think it is very clear they're swamped," he said. "There's no question about that."
Distributed by the New York Times News Service.