by Michael Renner
Vital SignsWorldwatch Institute
2000
The trend toward corporate consolidation gained significant momentum in 1999, when the value of worldwide mergers and acquisitions reached a new record of $3.4 trillion (in 1998 dollars).(1) This was an astonishing 40-percent increase from the previous record of $2.5 trillion--established only in 1998.(2) Since 1980, the annual value of mergers has risen 100-fold, reaching a cumulative $15 trillion.(3) In 1999, more than 32,000 deals were announced, triple the number of 10 years earlier and more than 30 times as many as in 1981.(4)
In a sign of globalization gathering pace, the dollar value of mergers across national boundaries rose even more strongly than that of all mergers, almost doubling to $1.1 trillion in 1999.(5) While cross-border mergers were typically below 20 percent of the value of all mergers in the early 1980s, today they represent 33 percent.(6) The number of cross-border deals valued at more than $1 billion rose from 35 in 1997 to 89 in 1998.(7)
Mergers are held to increase shareholder value and boost corporate efficiency. But evidence suggests that these expectations are not always fulfilled.(8) From a broader vantage point, there is concern that mergers and a proliferation of strategic partnerships among corporations are leading to a greater degree of market concentration in many industries, giving a few producers an undue amount of influence on the market.(9) Market power often also translates into political influence.
Large corporations have enormous influence on how billions of people work and live. In recent years, for instance, concern has risen about the push by biotech firms to manipulate the genetic makeup of food and plants, about media giants' control over the way we learn about global events, about highly mobile companies weakening labor's bargaining position, about civic culture coming under the sway of corporate advertisements and sponsorships, and about industry lobbyists influencing the outcome of elections and legislation. Ultimately, consolidation trends may threaten democratic norms, labor standards, human rights, and environmental quality.(10)
The current merger frenzy is such that yesterday's record-shattering deal looks almost quaint today. In 1998, the biggest announced acquisition--Exxon's purchase of Mobil--was valued at $86 billion."(11) In 1999, the telephone giant MCI Worldcom proposed to buy its rival Sprint for $108 billion.(12) Early 2000 saw the announcement of the two largest combinations ever--between America Online and Time-Warner for $165 billion, and between Britain's Vodafone Airtouch and Germany's Mannesmann for $183 billion.(13) The merger record of 1999 is on track to be surpassed in 2000: the total value of announced deals just 11 weeks into the year is $864 billion--closing in on the total for 1995.(14)
Recent deals have established new behemoths in such diverse parts of the economy as telecommunications, pharmaceuticals oil, automobiles, and paper.(15) In 1999, one third of the worldwide merger value was concentrated in just three sectors. The telecommunications industry, with $569 billion, was by far the leader, followed by commercial banking ($377 billion) and radio and television broadcasting ($246 billion).(16) Among cross-border deals, telecommunications, too, is the leader, followed by the metals, oil and gas, and chemical industries.(17)
Liberalization and privatization of telecommunications assets in many countries have triggered an endless series of takeovers.(18) For example, if the announced merger between MCI Worldcom and Sprint is approved, it will be the culmination of 18 successive mergers over the past two decades, 11 of which were multibillion-dollar combinations.(19)
The media industry is being thoroughly reshaped by the growing integration of entertainment, news, publishing, and communications companies and by the rapid rise of the Internet and digital communications.(20) Just nine corporate giants now dominate the world media market.(21)
Companies in Western Europe and North America are by far the most active in acquiring firms elsewhere; firms from all other regions of the world, including even Japan, are comparatively small players. Developing-country enterprises play a minuscule role as buyers, although they have been important takeover targets during the 1990s.(22)
Thomson Financial Securities Data reports that $487 billion worth of mergers, or 14 percent of the total in 1999, involved so-called hostile takeovers--offers that had initially been rejected by the target company.(23) At more than four times the value of hostile deals during the previous peak year, 1988, this marked yet another record for 1999. Corporate raiding had been rare outside the United States, but is now spreading elsewhere: more than one third of the dollar volume of all European mergers in 1999 involved hostile acquisitions.(24)
Mergers in the 1980s were largely financed through 'leveraged buy-outs'--borrowed money--and acquired firms were often cannibalized. Today, mergers involve stock swaps rather than cash transactions. Bloated stock market values have made deals of previously unimagined size possible.(25)
But the current cascade of mergers is also sustained by the broad trend toward privatization of state-owned companies and public infrastructure, deregulation, and the liberalization of trade, investments, and capital markets.(26) In an age of globalization, the size and geographical reach of a firm are seen as ever more crucial to success. Increasingly, firms either achieve this objective by observing others, or they get swallowed up by competitors.(27)
Cross-border mergers have been the main driving force of foreign direct investment (FDI) in recent years. This means that a considerable portion of private capital flows goes simply to changing ownership of existing factories and other businesses.(28) While some acquisitions imply a long-term investment commitment, others may be little more than a prelude to asset-stripping--retaining the most valuable parts of a company and closing or selling off other parts.(29)
The tidal wave of cross-border mergers implies that transnational corporations (TNCs), particularly the largest ones, will continue to expand their already strong role in world trade. Intra-firm trade--that is, the flow of raw materials, components, finished goods, and services from a subsidiary of a corporation in one country to another subsidiary in a second country--now accounts for roughly a third of world trade.(30) The proportion rises to two thirds if what the World Investment Report 1999 calls "arm's-length trade associated with TNCs" is included.(31)
Through mergers and other FDI flows, transnational corporations can supply domestic markets in numerous countries through a growing web of local factories and offices. At $11 trillion in 1998, sales of foreign affiliates of transnationals easily surpassed total world exports of $6.7 trillion.(32) During the past decade, these sales have grown more strongly than either total world output or world trade.(33)
1. Value of mergers based on data received from Carrie Smith, Thomson Financial Securities Data, Newark, NJ, e-mail to author, 28 January 2000. These and all other merger data are concerned with announced, not actually consummated, deals. Since some intended takeovers do not go ahead because they are called off by the companies involved or challenged by governmental oversight bodies, there may be a slight difference between announced and actually completed mergers. This discrepancy, however, is too small to invalidate the trends and order of magnitude of the data discussed here.
2. Smith, op. cit.note 1.
3. Ibid.
4. Ibid.
5. Ibid.
6. Worldwatch calculation, based on ibid.
7. U.N. Conference on Trade and Development (UNCTAD), World Investment Report 1999 (New York: 1999).
8. 'Faites Vos jeux,' The Economist, 4 December 1999.
9. Growth of strategic partnerships discussed in UNCTAD, op. cit. note 7.
10. Joshua Karliner, The Corporate Planet (San Francisco, CA: Sierra Club Books, 19971; Jerry Mander and Edward Goldsmith, eds., The Case Against the Global Economy (San Francisco, CA: Sierra Club Books, 1996); William Greider, One World, Ready Or Not (New York: Touchstone Books, 1997).
11. Steve Lohr, Behemoths in a Jack-Be-Nimble Economy,' New York Times, 12 September 1999.
12. Laura M. Holson and Seth Schiesel, 'MCI to Buy Sprint in Swap of Stock for $108 Billion,' New York Times, 5 October 1999. The takeover proposal was subsequently valued at $130 billion.
13. Saul Hansell, 'America Online Agrees to Buy Time Warner for $165 Billion; Media Deal is Richest Merger,' New York Times, 1 January 2000; Edmund L. Andrews and Andrew Ross Sorkin, '$183 Billion Deal in Europe to join 2 Wireless Giants,' New York Times, 4 February 2000.
14. Thomson Financial Securities Data, 'YTD Market Totals,' viewed 16 March 2000.
15. Hansell, op. cit. note 13; Lawrie Mifflin, 'Viacom to Buy CBS, Forming 2d Largest Media Company,' New York Times, 8 September 1999; Andrew Ross Sorkin and Melody Petersen, 'Glaxo and SmithKline Agree to Form Largest Drugmaker,' New York Times, 18 January 2000; Melody Petersen, 'Pfizer Gets its Deal to Buy Warner-Lambert for $90.2 Billion,' New York Times, 8 February 2000; Andrews and Sorkin, op. cit. note 13; Allen R. Myerson, 'Exxon and Mobil Announce $80 Billion Deal to Create World's Largest Company,' New York Times, 2 December 1998; Keith Bradsher, 'Capacity Glut Likely to Spur More Auto Mergers,' New York Times, 14 November 1998; Edmund L. Andrews, 'The Gossip of Europe: Talk About Mergers Surrounds Automakers,' New York Times, 17 February 2000; Claudia H. Deutsch, 'Another Big Paper Company Acquisition,' New York Times, 23 February 2000.
16. Smith, op. cit. note 1.
17. Ibid.
18. Thomson Financial Securities Data, 'The World is Not Enough,' press release, 5 January 2000.
19. 'The Path to the MCI Worldcom and Sprint Merger,' New York Times, 7 October 1999. The merger has been challenged by the U.S. Federal Trade Commission and by the European Commission's antitrust office; Edmund L. Andrews, 'European Regulators Frown On a Combined MCI-Sprint,' New York Times, 22 February 2000.
20. 'The Net Gets Real,' The Economist, 15 January 2000; 'European Media: Flirtation and Frustration,' The Economist, 1 December 1999; Janine jaquet, 'The Media Nation: TV,' The Nation, 8 June 1998; 'The New Global Media' (special issue), The Nation, 29 November 1999.
21. Robert W. McChesney, Rich Media, Poor Democracy (Chicago: University of Illinois Press, 1999).
22. UNCTAD, op. cit. note 7.
23. Thomson Financial Securities Data, op. cit. note 18.
24. 'Europe's New Capitalism: Bidding for the Future,' The Economist, 12 February 2000.
25. UNCTAD, op. cit. note 7; Louis Uchitelle, 'As Mergers Multiply, So Does the Danger,' New York Times, 13 February 2000.
26. UNCTAD, op. cit. note 7; Uchitelle, op. cit. note 25. 25.
27. McChesney, op. cit. note 21.
28. Not all cross-border mergers are financed by foreign direct investment (FDI), and data are lacking to establish a clear relationship between crossborder mergers and FDI worldwide. In 1998, 90 percent of investments by foreign investors in the United States went to finance mergers and acquisitions. In the same year, the value of cross-border mergers in South, East, and Southeast Asia accounted for 16 percent of total FDI inflows. UNCTAD, op. cit. note 7.
29. UNCTAD, op. cit. note 7.
30. Ibid.
31. Ibid.
32. Affiliates'sales from ibid.; world exports from "World Trade Stable in Value" in this volume.
33. UNCTAD, op. cit. note 7
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