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This year has seen a wave of heavyweight M&A deals. More than $2.5trn in mergers have already been announced in the first half of 2018 and the surge shows every sign of continuing. But buyers beware, warns Rana Foroohar in her column. It’s worth remembering that more than half of all mergers actually destroy shareholder value.
The problem is particularly acute when the two companies in question have different corporate cultures. Some, such as that of Jeff Bezos’s Amazon, can be classed as “tight”, with top-down hierarchies driven by the very precise demands of the manufacturing and logistics industries. Others, such as Whole Foods, which Amazon acquired last summer, have much looser cultures that encourage experimentation and tolerate rule breaking. The ructions that can occur when incompatible cultures merge are nearly always bad news for investors, says Rana.
Standing up to Trump
The EU’s most pressing concern these days is neither the eurozone nor the refugee crisis but the threat posed by US president Donald Trump, argues Wolfgang Münchau. On both military security and trade, there is a clear path for the bloc to present a united front.
In an era of resurgent authoritarianism, Russia and China are experimenting with what Christopher Walker of the National Endowment for Democracy, calls “sharp power” — an approach to foreign affairs that prioritises censorship and manipulation to sap the integrity of independent institutions in targeted countries.
Taking the long view
Shareholders get the companies they deserve, writes banking consultant Simon Samuels. If they are too obsessed with short term performance updates they rob companies of the ability to invest in activities where the payback is over years, not months or weeks.
What you’ve been saying
Less is, well, less . . . — Letter from Dr Michael Woodward:
Not for the first time, your correspondents use “x times less” when, I think, they mean “1/x as much”. In “The world’s most valuable hot desk” (The Big Read, July 4) it was suggested that WeWork’s $20bn valuation could be “eight times less”. So that’s minus $140bn then?
Comment by Mozart on The US Midwest will suffer in Donald Trump’s trade war:
Trump’s core voters, including many in Ohio don’t care what governor Kasich or anybody else tells them. Trump is their dear leader and like every self respecting cultist, they are willing to disregard their own personal and economic well-being and go down with the ship. This type of behavior has been observed many times in recent history. I have never met a true Trump believer who admitted that anything was wrong with Trump. It’s the closest the US has come to Maoism: a fanatical devotion to a leader, no matter how flawed that person is.
Who will guard the players in the fintech arena? — Letter from Ray Ferguson:
Led by digital natives at the forefront of today’s innovations, fintech is built on modern cloud-based online platforms that are, like all systems, open to the risk of hacking. The lead time necessary for regulators to familiarise themselves with the ever-advancing technologies means that they cannot close the gaps fast enough to protect customers effectively and prevent criminal infractions. On the other hand, the speed at which fintechs are advancing also leads to the thought that perhaps it is through fintech solutions that regulators (in both the traditional finance and fintech space) could improve on their operations to remain one step ahead.
Chinese risks to global stability are overblown
Domestic demand slowed in May, but easier fiscal and monetary policy can prevent a recession
Investors must allow companies to focus on the long term
Acting on the now affects activities where the payback is over years, not months
Russian and Chinese sharp power puts democracies in peril
Authoritarian regimes in Beijing and Moscow are asserting control over the realm of ideas
Trump is a threat to EU security and prosperity
Boosting resilience means higher defence outlay and cutting the current account surplus
Culture clashes loom after a rush of company mergers
M&A deals between groups with different corporate norms can be bad news for investors
The FT View: Chequers summit points the way to a softer Brexit
The UK has put forward proposals that should receive a fair hearing in Brussels
The FT View: Nato’s continuing credibility is in America, and Trump’s, interest
Washington must be unequivocally committed. Europe should contribute more
The Big Read
The Big Read: ‘A good living but a rough life’: trucker shortage holds US economy back
Some 70 per cent of goods are transported by road, but a shortage of drivers and soaring demand could put a brake on growth