Globalisation generates unprecedented wave of mergers

(story to be published in tomorrow’s issue, March 17)

Few days have passed since General Motors and Fiat groups, true symbols of world auto industry, sealed their historic alliance, while the international media continues to analyse the implications of this accord. The steamroller of globalisation, whose irreversible progress leads to the elimination of economic and commercial barriers, is accompanied by an unprecedented wave of mergers and industrial concentrations. Practically, from telecommunications and cars to the aeronautics industry or the banking field, no sector was left outside the merry-go-round of alliances. The sums handled within such operations are increasingly larger as the phenomenon of concentration involves trusts whose turnover overshoots in many cases the Gross Domestic Product of a country such as Romania. In May 1999, the merger between US operators SBC Communications and Ameritech “weighed” 72.4 billion dollars. The beginning of 2000 brought however an even bigger alliance, between the two giants Time Warner and AOL, whose value is almost twice the value of the previous one. Finally, several weeks ago, the takeover of group Mannesmann by British rival Vodafone AirTouch, was concluded for a sum worth over 180 billion dollars. Under these circumstances, total value of mergers and acquisitions concluded this year is expected to exceed by far the level of 798 billion dollars registered in 1999. There are two forces behind this increasingly accelerated process of consolidation. On one hand, the rough competition on the world market forces companies to make efforts in order to cut down costs and this move is possible provided their production volume is large enough. Perhaps the race for achieving this “critical mass” is most obvious within the sector of car industry. The expansion of Volkswagen group enabled it to save important sums by using a limited number of platforms for its entire portfolio of makes. On the other hand, the same competition forces large Western trusts to expand their presence on new markets and the conclusion of an alliance is often the most secure way to reach this objective. To give only an example, the marriage with Nissan granted Renault not only access to the Asian market, but also the long-term possibility of entering the North American market, where the Japanese carmaker is already well implanted. To reasons exposed above, another one could be added: concluding an alliance in good time, under favourable terms for both sides, is an efficient way of defending against potential hostile takeover bids coming from the part of a foreign “predator.” This piece of logic, accompanied by an important dose of nationalism, has lately led to an acceleration of the concentration phenomenon at a national level. This can explain the recent merger between Deutsche Bank and Dresdner, which gave birth to a German banking super-fortress, engaging at the same time the “kick-off” of another fusion, the one between group HSBC and Commerzbank. Almost simultaneously with the new evolutions that unsettled the German and European banking landscape, Japan witnessed a three-way alliance that led to the second largest bank of this country. The same plan, to create some “national champions” within the key sectors, capable of fighting on the world scene without any complexes, urged the French government to back up mergers between groups Aerospatiale and Matra, Elf and TotalFina or the alliance between banks BNP, Societe Generale and Paribas (which eventually collapsed).