Saturday 2010-11-13

Deals of the Century by Charles Geisst

Geisst recaps the major mergers and acquisitions of the 20th century.

The obligatory nod to popularism...
The key to the bankers' success was access to the large sums of capital necessary to help the companies expand. Since the capital depended upon a small group of financiers, the entire process smacked of crony capitalism. Money needed for expansion was concentrated in the hands of a few who were neither elected to their jobs nor accountable to anyone for the way they practiced them.
-- Introduction
It is a peculiar fact that past history clearly show that the merger movement is very much stimulated by good times, particularly a bull market in stocks, while there is a marked tendency for consolidations to decrease in number under the reverse conditions when one would think economy were most needed.
-- Introduction, from 1931 The Magazine of Wall Street
After over 150 years of merger deals, M&A still clung to the new math of synergy. After the principals in a merger had been paid and the investment bankers and lawyers subtracted their fees, there might still be some value left for shareholders in the new merged company. To date, the record has not been strong in this respect.
-- Introduction
The Lincoln Highway (and the railroad projects before it) sound like they might have had some sad stories behind them. Good thing the government had eminent domain and guns.
The boom (building the Lincoln Highway) almost did not occur. Henry Ford refused to lend his support to the project. Local farmers in the prairie states often tried to sabotage it, considering it an invasion of their livelihoods.
-- Chapter 2, Driving to the Store
In 1913, Ford reported profits of 25 Million USD on capital of only 2 Million USD.
-- Chapter 2, Driving to the Store
The full quote makes Ford sound less like an idiot.
"History is more or less bunk," he growled. "It's tradition. We don't want tradition. We want to live in the present, and the only history that's worth a tinker's damn is the history we make today.
-- Chapter 2, Driving to the Store
One bit of financial analysis that investors adopted during the conglomerate craze was the ubiquitous price/earnings ratio, or PE. Wall Street analysts began touting the ratio, or multiple, as the best way of determining a company's price relative to other companies in its industry sector. The higher the ratio, the more expensive the company, and vice versa. The calculation was simple and the PE became the investor buzzword of the 1960s.
-- Chapter 4, Roll Over, Euclid
These managements need shaking up, they're horrendous. They take money from the peasants [stockholders] and then hire mercenaries [lawyers] to protect their castle, mainly by browbeating the peasants. So we attack the castle.
-- Carl Icahn, Chapter 5, Visigoths versus the Legions
I boldly predict that we will continue to see problems with the banking industry...
In response to severe problems within the banking industry, in 1980 Congress passed the Monetary Control Act, designed to phase in deregulation of interest rates over a six-year period. Previous Fed restrictions on the amount of interest banks were allowed to pay on their savings accounts eventually would be abolished in favor of market rates...
Another pane in the window was opened in 1982 when Congress passed the Depositary Institutions Act, better known as the Garn-St-Germain Act. Thrift institutions had been fairing poorly under high interest rates, and the purpose of the act was to allow them to purchase a broader (read riskier ;) array of assets to complement their traditional holdings of residential mortgages.
-- Chapter 5, Visigoths versus the Legions