While scanning the news this morning, I noticed that Cingular posted a $497M loss.
Cingular closed its $41 billion purchase of AT&T Wireless in late October, a move that gave the Atlanta company about 5 million more subscribers than previous market leader Verizon Wireless, a joint venture owned by Verizon Communications Inc. and Vodafone Group PLC.
Over the last few months, Cingular has said it will cut about 7,000 jobs and announced plans to sell certain assets to meet merger-related regulatory requirements as it restructures to absorb AT&T's network and customers.
I started wondering about mega-mergers and the people and circumstances driving them. Even though financial, job, and even customer losses are expected, the goal is to make more money. Most mergers have the potential for great things for a company. Companies merge to unify resources and share intellectual property. Like everything else, is there a point when a merger is too big? Can there be a formula to ensure the merger is successful for the company?
Who benefits directly the most from a mega-merger? That would be the executives since 7,000 employees getting laid off are certainly not benefiting. I'm going to assume based on industry history that customers are not going to benefit; they are simply numbers on the pro forma and both AT&T Wireless and Cingular had nationwide coverage. If you are a subscriber, you now one of 49.1 million customers. You have a better chance of winning the lottery than getting good, individual customer service from the new behemoth. Shareholders may benefit in the short term, but after the market settles, customer attrition, and the golden parachutes open, I would expect that the stock will settle down to something close to both companies' original share prices.
I'm not against people making money. However, executives who plan and execute mega-mergers are their own driving force. They are involved for short-term personal gain. I respect leaders who have the long-term goals of the company in mind. Cingular is no longer nimble and will eventually have to answer to a younger, faster company. They are setting themselves up to be slow to respond to the market. The entire banking industry is full of mega-mergers that have shaken out. Now these banks sit around trying to figure out how continue to grow in saturated markets. In the end, the banks fight over market scraps, the employees have unrealistic expectations for growth, and customers talk about how bad the customer service is. These banks then try to go back and institute plans to make employees happy and customers even happier. Trying to retrofit a positive culture long after the mega-merger is nearly impossible since the culture came directly from the merger.
Executives will serve the company better by passing on mega-mergers when there is much to be done to improve long-term profitability and stability.
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