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Another Merger, Another Loss for Free Enterprise

Dow Chemical and DuPont are on the verge of merging into one company. They will be known as DowDuPont. Together, they will become a $130 billion giant. Their top brass will tell you that this merger is wonderful. And they are correct. It is wonderful…for them. For the rest of the country and the world, it stinks.

I am not against mergers or acquisitions. Sometimes they are beneficial. This one is not. Since the announcement, Dow stock is up 25 percent, and DuPont is up 54 percent. Therefore, if you owned stock before the announcement, you just made a huge profit. We don’t know the names of all the stockholders in either company, but we do know the names of the key people in both companies. And they all had large stock holdings before their own announcement that drove prices up to huge personal gains for them. But that is just the beginning of more rotten things to come.

Their announced highest priority is to cut costs by $700 million. To achieve that goal they will need to terminate about 12,000 employees. Do these numbers represent a detailed analysis of marginal costs and marginal benefits within each company? Almost certainly not. To make that assertion would be tantamount to stating that both companies are about as poorly managed as they possibly could be. Who would employ 12,000 more people than are needed? Almost certainly, those 12,000 people are the sacrificial lambs in the merger objective of concentrating cash flows to pay for higher salaries and bonuses that will flow to the new top echelon of executives.

In the marketplace consumers will see higher prices from the reduction in competition. Yes, competition is the very essence of free enterprise. It is much better to have many companies competing for your dollars than to have fewer. Better products and lower prices flow to consumers when there is a lot of competition. A merger of giants is inherently anti-consumer, and anti-free enterprise.

The M&A boys will say that this merger will see three companies spin off in the future, each specializing in a different area. Maybe that will happen, and maybe it won’t. More likely it will not. Promises about the future are so much pie in the sky. We all live in the present where the big bucks are available. “Betting on the come” is what shysters do with other people’s lives and incomes, not their own.

A new giant corporation is another company that falls under the umbrella of “too big to fail,” and a new candidate for taxpayer bailouts when times get tough. We need less of them, not more. Just ask yourself: “Who is there to bail you out when your income falls?”

A new giant corporation is also first in line for new money injections into the economy by the Fed when they decide to stimulate the economy. But today’s giant corporations are not interested in investing in research and development, or in creating more jobs. They are interested in buying more companies, in stock buy backs, and in paying themselves new bonuses, and larger retirement packages. None of those activities helps the economy at all. The flat wages of all workers concurrent with huge productivity gains over the past 30 years shows clearly that big business is not interested in rewarding workers—those who create the profits. The ever-widening pay gap between themselves and workers is evidence in favor of these observations, and against all the stale rhetoric that mergers and acquisition promoters falsely propagate.

All mergers valued at $76.3 million and up must be approved by the Federal Trade Commission or the Justice Department. The purpose of such reviews is to assure that competition is not substantially lessened. But, in the words of the FTC in their latest Merger Review: “The vast majority of deals reviewed by the FTC and the Department of Justice are allowed to proceed after the first, preliminary review.” So much for oversight.

As the news of this merger dissipates, interest in it will also fall, thus allowing the merger boys and the boys at the top to implement their plans unimpeded by voices like mine. It is a tale being told again and again. Believing that it can go on indefinitely is like believing you can starve the chicken that lays the golden eggs while expecting that she will continue to produce those wonderful eggs for all time. Chickens lay, but they also excrete.