Last fall, some students with AT&T and Cingular noticed
their cell phone reception was getting better.
In the coming months, others may soon notice their Coors Light
beer bottle may be sporting a new Molson Coors logo.
Both changes, while seemingly unrelated, are the results of
recent corporate mergers ““ a phenomenon which may be back in
vogue.
At the end of the 1990s, industry experts and business
executives alike said they believed the era of corporate merging
was over. Yet recent events reveal the flood gates may be opening
once again.
“It’s been noticed by folks. … There’s been
enough of a pick-up that the Federal Reserve said they’re
worried about risk-taking conditions being too prevalent,”
said Michael Bazdarich, a senior economist for the UCLA Anderson
Forecast.
The way in which the recent surge in mergers impacts the job
market is among the main questions UCLA students may have.
The new Molson Coors Brewing Company announced Friday that it
would be shutting down its Memphis brewing factory and laying off
410 employees as part of its new business plan. Company executives
said they would try to help employees find new jobs.
“The beer business today is incredibly competitive and,
unfortunately, tough decisions like this one must be made to
compete and grow,” said Leo Kiely, chief executive officer of
Molson Coors Brewing Company, in a press release.
But while labor markets are becoming increasingly tight and
competition is on the rise, Bazdarich said the recent mergers are
more a “reflection of the economy, than a driver of
it.”
This “reflection” speaks volumes within the
telecommunications industry, which is leading the way for the
phenomenon.
In yet another merger within the industry, Verizon
Communications Inc. announced Monday that it would be merging with
MCI Corporation. Verizon will be paying $6.75 billion for the
second-largest long-distance provider in the nation.
“This is the right deal at the right time,” said
Verizon Chairman and CEO Ivan Seidenberg in a press release on
Monday.
“We have the opportunity to reach an agreement at the
right price that works for both companies and at a time when MCI is
gaining momentum. It is a natural and logical extension of
Verizon’s strategy to transform our company to serve growth
markets and offer broadband technologies,” Seidenberg said in
the press release.
The conditions for mergers and acquisitions have become more
favorable recently, industry experts say, with low interest rates
and an economy that is recovering.
The current low interest rates may be providing incentives for
shareholders to push for mergers since they don’t have to pay
as much interest as they would have a few years ago.
The state of the economy also plays a role in how inclined
companies are to merge and engage in takeovers.
“The economy is picking up and we’ve had better
growth of late. It’s tough to do a merger when the economy is
not doing well,” Bazdarich said.
For most mergers, the economic environment at the time is key.
Specifically, CEOs and stockholders desire an atmosphere of
financial maturity.
When a company is new and in its prime, like the
telecommunications industry was 10 years ago, executives may feel
self-sufficient and independent, Bazdarich said.
“Meanwhile, time marches on and companies get old … You
start to see companies merging just to stay alive,” he
said.
This concept of “survivorship” is just one of the
environmental indicators which can lead to the decision to join
together. As innovations and vibrancy decline within the industry,
companies look to branch out in new ways.
The hope, industry experts say, is that once companies merge
they’ll be able to expand their products and
marketability.
“It leverages successful business relationships and builds
on the strategic and cultural fit between our two companies,”
said Eric Molson, chairman of Molson Coors Brewing Company, of his
new merger in a Feb. 9 press release.