Stop The Insanity Bus!
I'm getting off! Even this is too crazy for me. This daily speculation in the press about who is going to buy whom next is absolute stupidity. Yet, it is driving stocks up and down. The markets are now home to Gamblers Anonymous dropouts.
I've written on here about Daimler and Chrysler potentially de-merging and it now appears to be gaining traction. But, what is this of a GM-Chrysler merger? Are you kidding? Right on queue, Daniel Howes has chimed in with the only sane journalism I've seen regarding this story. If the GM board approved that deal, they should all be jailed for crimes against shareholders. Not really but this deal isn't going to happen if I still live in a world of reality. It doesn't stop the Wall Street spin machine from going into high gear. GM has limited ability to raise capital at anything other than junk levels and has spent the last year selling off assets to raise survival cash. Chrysler has no international operations, a dead product line, inferior products to GM, a bloated organization, a different culture and an ugly product pipeline. What would GM gain other than additional financial obligations, distractions from the focus they need and a glitch to slow down their own turnaround efforts? Why do I even see this type of gibberish in the press? More importantly, who are these dummies trading large amounts of stock on rumor? Look at the volume on the Daimler chart above. Gamblers are driving volume up 5, 10, 20 times normal volume on these rumors. It's now a form of short term investing which seems quite profitable. Or, should I say profitable until it is no longer profitable. People say there is a general bearishness in the markets? Bearishness is when there are BusinessWeek cover stories stating equity investing is dead not dummies pumping up stocks on every rumor reported by the paparazzi financial press.
The bottom line? There has been study after study performed and most mergers fail to deliver promised results. The failure rate is even greater amongst mergers of equals or near equals because of the extremely difficult job of integrating cultures as well as leadership roles. A problem that doesn't exist when Cisco, as an example, buys a small company to fill a strategy or technology gap. (John Chambers, the CEO of Cisco, gets mergers. They've done hundreds and they are usually quite small. He is on the record of stating that large mergers do not typically work.) If I were Toyota, Honda or Ford, I would be hoping for a merger. Energy focused inward on integrating cultures and reducing bureaucracy while I have an opportunity to beat GM like a drum by focusing my energy on product and customers.
The failure rate is almost assured amongst two weak companies such as Chrysler and GM. Two wrongs do not make a right yet the mergers and acquisitions crew on Wall Street doesn't care as long as they get their fees. We have evidence of this in the sellout that created DaimlerChrysler in the first place. A merger of equals with extremely different cultures. That deal was driven by greed and egos and never should have happened. It resulted in Daimler entering markets they knew nothing about and still don't. Daimler has never adjusted to the highly competitive, rapid paced business model at Chrysler. Daimler has the good fortune of an iconic brand in Mercedes yet they don't understand speed to market, rapid innovation and the flexible manufacturing principals required in a lower margin business. How do I know? Let the results speak for themselves. Frankly, it is my opinion they don't have a clue how to compete with Toyota or Honda. Ultimately, this will likely cause great turmoil in Daimler's core luxury business unless they adapt.
"Most mergers fail to add shareholder value-indeed, post-merger, two-thirds of the newly formed companies perform well below the industry average."
—HARVARD MANAGEMENT UPDATE
I've written on here about Daimler and Chrysler potentially de-merging and it now appears to be gaining traction. But, what is this of a GM-Chrysler merger? Are you kidding? Right on queue, Daniel Howes has chimed in with the only sane journalism I've seen regarding this story. If the GM board approved that deal, they should all be jailed for crimes against shareholders. Not really but this deal isn't going to happen if I still live in a world of reality. It doesn't stop the Wall Street spin machine from going into high gear. GM has limited ability to raise capital at anything other than junk levels and has spent the last year selling off assets to raise survival cash. Chrysler has no international operations, a dead product line, inferior products to GM, a bloated organization, a different culture and an ugly product pipeline. What would GM gain other than additional financial obligations, distractions from the focus they need and a glitch to slow down their own turnaround efforts? Why do I even see this type of gibberish in the press? More importantly, who are these dummies trading large amounts of stock on rumor? Look at the volume on the Daimler chart above. Gamblers are driving volume up 5, 10, 20 times normal volume on these rumors. It's now a form of short term investing which seems quite profitable. Or, should I say profitable until it is no longer profitable. People say there is a general bearishness in the markets? Bearishness is when there are BusinessWeek cover stories stating equity investing is dead not dummies pumping up stocks on every rumor reported by the paparazzi financial press.
The bottom line? There has been study after study performed and most mergers fail to deliver promised results. The failure rate is even greater amongst mergers of equals or near equals because of the extremely difficult job of integrating cultures as well as leadership roles. A problem that doesn't exist when Cisco, as an example, buys a small company to fill a strategy or technology gap. (John Chambers, the CEO of Cisco, gets mergers. They've done hundreds and they are usually quite small. He is on the record of stating that large mergers do not typically work.) If I were Toyota, Honda or Ford, I would be hoping for a merger. Energy focused inward on integrating cultures and reducing bureaucracy while I have an opportunity to beat GM like a drum by focusing my energy on product and customers.
The failure rate is almost assured amongst two weak companies such as Chrysler and GM. Two wrongs do not make a right yet the mergers and acquisitions crew on Wall Street doesn't care as long as they get their fees. We have evidence of this in the sellout that created DaimlerChrysler in the first place. A merger of equals with extremely different cultures. That deal was driven by greed and egos and never should have happened. It resulted in Daimler entering markets they knew nothing about and still don't. Daimler has never adjusted to the highly competitive, rapid paced business model at Chrysler. Daimler has the good fortune of an iconic brand in Mercedes yet they don't understand speed to market, rapid innovation and the flexible manufacturing principals required in a lower margin business. How do I know? Let the results speak for themselves. Frankly, it is my opinion they don't have a clue how to compete with Toyota or Honda. Ultimately, this will likely cause great turmoil in Daimler's core luxury business unless they adapt.
"Most mergers fail to add shareholder value-indeed, post-merger, two-thirds of the newly formed companies perform well below the industry average."
—HARVARD MANAGEMENT UPDATE
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