Mergers are for Suckers.

Author: Michael Pascoe
Publication: Sydney Morning Herald
Date: 9 December 2008

Most people think they are better-than-average drivers, which, by definition, most people can't be. Call it a mass delusion.

Takeovers and mergers are generally like that too - a source of delusion for the key players.

Various studies over the years have found most big corporate takeovers/mergers are failures as far as the acquiring shareholders are concerned - but that doesn't stop the moving and shaking boards, CEOs and fee-hungry advisers all proclaiming that their takeover is different.

But there is one player who never loses in a big takeover - the CEO of the taker or takee. The quickest and easiest way to receive a multimillion payout (without the slight opprobrium of being sacked for incompetence) is to be taken over. Next best is to do the takeover, which enables the CEO's remuneration consultant to argue for a pay rise on the basis of greater responsibility.

Then there are the great urgers of modern capitalism, the investment bankers and advisors whose very existence is fed by doing the deal, not the long-term outcome. Corporate Australia is littered with the skeletons of takeover mistakes that nonetheless made an army of urgers rich.

And therein lies one of the under-examined aspects of M&A mania - the moral hazard whereby key players in the process make vast profits even if shareholders lose.

There are occasional exceptions - Vince Gauci's brave and wise fight against Xstrata's bargain basement takeover of MIM - but most CEOs happily stay in step with their boards, take the money and move on to the next game. Some seem serially successful at being corporate prey.

And it's not as if the CEO class is unaware of the dangers of moral hazard. For example, in the middle of the rescue of AMP, the then CEO, Andrew Mohl, stuck out his hand for a few million more as compensation for the fact that AMP would be smaller and, therefore, his pay packet less huge. Well, you wouldn't want him to be tempted to not sell assets that needed to be sold.

The urgers are another problem again. CEOs and chairman are constantly duchessed and propositioned by very personable investment bankers who profess to want nothing more than to find ways to add shareholder value. Or something like that.

And CEOs and chairmen are forever on the lookout for some bright "company making'' deal i.e. they are willing buyers of the urgers' wares. Never mind that the urgers only real concern is to keep the fee flood flowing.

Which brings us to the brouhaha de jour, the bemusing Qantas-BA merger talks. There's been plenty written about this dubious proposal, so much that there was little surprise in seeing Alan Joyce backpedalling yesterday.

But there's been little more than a passing wry observation about the role of the fee suckers, UBS and Macquarie. Yes, it is bemusing that Macquarie has gone so quickly from being Allco's Qantas raiding partner last year to sleeping inside the tent as Qantas' adviser on the BA deal, while UBS has switched from the Qantas camp to the BA side at the same time.

It's a lot more than bemusing though - it's outrageous. It raises doubts about the competency of the Qantas board and management that they would wear such nonsense - unless, of course, that the Qantas hierarchy is so culturally attuned to the merger that they would sleep with anyone to achieve it.

Let's pause to remember that one of the early signs that Macquarie's love of money wasn't quite healthy was the way it jumped camps from being Email's trusted advisor to advising Email's hostile raiders in 2000 - and doing it with a no-holds-barred vengeance at that, complete with serving dawn writs at Email directors' homes.

There was a time when it was thought a gentleman didn't do that sort of thing, that the long-term relationship and honour mattered more than the quick killing.

Now nothing can be taken for granted, including the moral hazard of urgers and CEOs being fabulously rewarded when shareholders are not. Maybe that's what they mean by "win-win''.
End story.

Greed, greed, greed. That's all that I can add to this story.