Mega-Mergers

by:

“Mergers and acquisitions.” It’s a term we hear often, and usually just like that, with both “mergers” and “acquisitions” lumped together, like one long word. But really, there is a fine difference between a merger and an acquisition.

An acquisition is when one company takes over another and clearly establishes itself as the new owner. A merger, on the other hand, happens when two companies, usually about the same size, agree to go forward as one company, rather than two separately owned and operated.

Okay, enough with the definitions. When two companies combine, whether it’s a merger or an acquisition, it not only affects the companies themselves, but the customers they serve. Here are some well-known company combos over recent years, and how they’ve affected their customers.

They're not married-- er, merged-- yet, but these two companies are certainly trying to make a case for their union.

T-Mobile and AT&T have not exactly merged—yet. Chances are, if you turn on the news these days, you’ll see at least one story about the pending merger between T-Mobile and AT&T. (If you haven’t already heard enough about it, click here!) The reason it is still pending is because the Justice Department has filed a lawsuit, blocking the merger from happening. This is much to the consternation of both AT&T, who, if the merger went through, would become the largest wireless network in the US, and T-Mobile, who has seen a sharp decline in business lately.

What would this mean for customers? This acquisition would cost AT&T a reported $39 billion, but, as the Justice Department points out, it would probably cost costumers a lot too. James Cole, the Deputy Attorney General of the Justice Department, says the combination would “result in tens of millions of consumers all across the US facing higher prices, fewer choices, and lower quality products.”

As with any market, the more competitors there are, the less a service is likely to cost. T-Mobile is known for lower-cost and more innovative plans than its competitors, and if they were to combine with AT&T, that competition would be gone.

These canoodlers eventually called it quits, but they were a hot couple for a while!

America Online and Time Warner Cable merged in 2001, and was, not only the biggest merger to date in the U.S, worth a reported $162 billion; but was also “one of the biggest failures in merger history,” according to PBS. Today the companies are two separate businesses once again, but they did manage to take a $99 billion loss in 2002.

What did this mean for customers? Well the idea was that Time Warner would reach tens of millions of new customers by tapping into AOL, and AOL would use Time Warner’s high-speed cable lines to deliver Time Warner’s branded magazines, books, music, and movies. But what happened was, AOL’s growth stalled and then pretty much dwindled, after the dot-com bubbled burst. In the end, there was no huge effect on Time Warner’s customers, or even the dwindling number of AOL users.

What says "Power Couple" better than two gas & oil giants coming together in a tour de force.

Exxon and Mobil merged in 1999 to the tune of $82 billion, and changed the petroleum industry forever. Today, they are at the top of their game, turning record profits and even withstanding accusations of corruption when gas prices rose in recent summers.

What did this mean for customers? Before the two powerhouses in the oil industry could combine, the FTC “insisted on extensive restructuring… to preserve competition and protect consumers from inappropriate and anticompetitive price increases” (FTC Chairman, Robert Pitosfsky.) So what did that really mean? Exxon and Mobil had to sell off 2,431 gas stations, mostly in the northeastern US, California, and Texas; and they also stopped selling diesel fuel and gasoline in California under the name Exxon for 12 years. In short, several customers and employees alike lost their gas stations in 1999.

Mergers aren't just about squashing the competition; They can expand services. Citi and Travelers went for the banking and insurance one-two punch.

CitiCorp and Travelers Group merged in 1998, creating what is today called CitiGroup. Although it was presented as a merger, really it was more like a stock swap, since Travelers purchased all of Citicorp’s shares for $70 billion and issued 2.5 new Citigroup shares for each Citicorp share. Basically, after the merger each company’s shareholders owned 50% of the combined company.

What did this mean for customers? Originally, the merged company’s main goal was to create one-stop financial shopping for more consumers, offering Citicorp’s traditional banking, consumer finance, credit cards, in combination with the insurance and brokerage services form Travelers and its units. And they certainly did gain “more consumers.” In combining, the two companies have become one of the world’s largest companies and banks in the world, with over 200 million customer accounts in more than 140 countries. But, according to a New York Times article, these may not be the happiest of customers, with the “bloated costs” and “outmoded technology” that came with the merger.

This little piggy had the market. This little piggy had none. This little piggy acquired the other, and then laughed HeHeHe all the way home.

NationsBank and Bank America combined in 1998, though, in this case, it was an acquisition. NationsBank bought the smaller Bank America Corp for a reported $64 million, and created what is now Bank of America. Bank of America has grown in power over the years, and in 2008, with their acquisition of Merril-Lynch, they became a serious force in investment banking.

What did this mean for customers? To protect against what were perceived to be “monopoly dangers,” federal regulators insisted that thirteen branches be shut down. This left many towns with just one bank and no options. Also, as with most bank mergers, customers experienced “raised fees,” “impersonal attitude,” and “changed personnel,” from their previous banks; and in the end, many of them switched banks.

 

Are you a T-Mobile or AT&T customer? What do you think about the potential merger between the two, in light of these previous company combos?

Sources: AmericanBanker.com, NYTimes.com, Money.CNN.com, CSMonitor.com, Investopedia.com, BillShrink.com, CNN.com, Scribd.com

More in News & Insights