The High Cost Of Synergistically Unlocking Shareholder Value

from the have-fun-with-it dept

Exactly a week ago, we wrote about the latest round of companies breaking apart to "unlock shareholder value" and noted that it often came very soon after the conglomerates were built on mergers that were talked up on "synergies" of having these companies together. We cynically pointed out that the real reason this happens is that Wall Street makes a lot of money on both ends. They get fees for merging companies, and for spinning off pieces. But how much? Business columnist Allan Sloan (who we doubt was inspired by our original piece, but we can hope) set out to find out just how much money is being paid to investment bankers for "advice." He looks at two companies: Tyco and Viacom -- both of which have bought a bunch of companies and recently spun off some companies as well, and figures that we're talking about hundreds of millions of dollars. Different organizations he talks to give different answers, but it's clearly an awful lot of money for the same bunch of advisors to basically tell these companies the exact opposite of what they told them a few months earlier.

Reader Comments (rss)

(Flattened / Threaded)

  1. identicon
    Mousky, Jan 17th, 2006 @ 12:52pm

    Cynical is correct

    It's too easy to blame "Wall Street". How about blaming people like Carl Icahn? Or is he part of "Wall Street"?

    reply to this | link to this | view in thread ]

  2. identicon
    Howard, Jan 17th, 2006 @ 1:29pm


    When GM bought EDS, and spun them off (at a "loss") a few years later, they saved enough on reduced benefits for the workers that they transferred to the EDS division to pay for both transactions several times over, including the money that they paid Ross Perot to go away and shut up (neither of which he actually did). My guess is that a lot of "mergers" are done for hidden agendas.
    Violins and accessories for sale

    reply to this | link to this | view in thread ]

  3. icon
    Derek Kerton (profile), Jan 17th, 2006 @ 5:30pm

    Re: Let us not forget

    Let's not forget that boards and top executives typically offer themselves "bonuses" and "incentives" for successfully completing a merger, or a divestiture. I never could figure out how selling a company merited a bonus, but apparently it's quite an amazing accomplishment.

    And, yes, Icahn is part of the Street.

    reply to this | link to this | view in thread ]

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