James Wilson's Epistle

Doug Henwood dhenwood at panix.com
Thu Feb 25 14:22:00 PST 1999


Rakesh Bhandari wrote:


>Not at all. We still have not explored the reasons for this mind boggling
>centralisation of capital, the significance of the deals being mostly in
>stocks, and the effects we can expect.

One effect is that almost certainly that if the deals go bad - most mergers underperform the averages both financially and operationally over the very long term - the losses (which may be just profits smaller than average) will be borne by stockholders. The mergers and restructurings of the 1980s were debt-financed, and left behind a burden when things soured from 1989-92, which led to record levels of corporate bankruptcy. Corporate debt is rising again, to finance stock buybacks, but it's not as bad as the late 1980s.

One reason that mergers don't do as well as their promoters hope is that they're ways of withdrawing capital from maturing industries. They provide the exit that Brenner said didn't happen today.

Doug



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