Fission, fusion, mergers, money


News Corp. media Rupert Murdoch has made an unsolicited, megabucks offer to buy Dow Jones, the parent company of the Wall Street Journal ( here is a summary of the offer).


Why? Does he anticipate synergies between the buttoned-down Journal and the body-pierced MySpace. Probably not.


Paid Content offers Murdoch’s rationale for the deal but let’s ignore the stated intent behind the deal and look instead at an essay posted a few weeks ago on CJR Online, an outgrowth of Columbia Journalism Review.


The article is critical of the cheer-leading tone that typifies media coverage of mergers. It cites research by Mark L. Sirower, a managing director of PricewaterhouseCoopers’s M&A strategy practice and a visiting professor at New York University’s Stern business school. One excerpt says:

Reading some—maybe most—stories about blockbuster deals, the reader could understandably come away with the impression that something good just happened, particularly for the acquiring company. Um, that’s not the case. In fact, in probably two out of three cases, shareholders of the acquiring company should wear black armbands.

“Acquiring firms destroy shareholder value,” writes Mark L. Sirower in The Synergy Trap: How Companies Lose the Acquisition Game. “This is a plain fact.”

So what gives? Are corporate execs stupid? I doubt it. In fact they are so hecka smart they have figured out newfangled ways to liberate vast amount of moolah with little or no risk to themselves.


Corporate execs are trained in the scientific principles of economics, a field of study focused on the making of money.


In the old days, in order to make money a business had to buy materials, employ people, make products and sell them. All of these steps are strewn with risk and who likes that.


So economics, being a dismal science but not a dumb one, studied other disciplines and found in particle physics and atomic energy a risk-free way to make big bucks. To wit, the modern mega firm can liberate vast amounts of cash by either fusion — putting two companies together — or fission — breaking them apart when the incongruity of the deal becomes apparent.


I realize this analogy offers the unfortunate connotation that there may be some destructive fallout from either thermonuclear (corporate mergers) or nuclear (corporate breakups) blasts, but economics has an easy answer for this. It is called the externalization of costs. In other words, if the deal irradiates the ground around it for thousands of year, the company goes bankrupt and dumps the cost onto whomsoever. Hence, a risk-free way to make money.


N ow, if you accept this pseudo-scientific explanation of merger physics, the question then becomes: why is merger coverage so reflexively positive? Are reporters dumb? Again, I doubt it.


But they have a problem. If they accepted this view of mergers, what could they write: In a deal that has two out of three chances of failing . . . What is the next paragraph?


So instead they must assume that this deal is the one in three that will work and, with prose proportionate to the dollar amount involved, zing off something like: In a deal destined to make chickens recite Shakespeare and change the course of the Nile . . .