“America is Dead? No, Corporate America is Back!”
Published in La Tribune
(France) on 11 September 2009
by Franck Dangeard (link to original)
(France) on 11 September 2009
by Franck Dangeard (link to original)
Translated from
by Corinna Russell.
Edited by Robin Silberman.
"America is not dead," replies Franck Dangeard – a former business manager who examined merger processes in finance and technology sectors – to those who declare its certain decline. The results are surprising: America is creating even stronger business giants while in Europe the creation of large worldwide groups seems to come up against resistance from all sides.
It is commonplace in certain European countries to think that the economic and financial crisis will permanently weaken the United States. The Cadbury takeover bid by Kraft is further proof that nothing is further from the truth.
Certainly, the political influence of the United States has declined after Bush’s years in power, the dollar is weak due to the trade deficit, finances at the state and national level are seriously in deficit, and the unemployment rate – which will undoubtedly exceed 10 percent for the first time since the 1929 crisis – will remain high for a long time. But deducing from all this a full scale weakening of the American economy shows a lack of awareness of the excellent process of adaptation currently underway within companies. For example, let’s take two very different sectors: finance and technology.
Firstly, finance. Since the summer of 2007, there have been an unprecedented number of mergers with the creation of five huge financial conglomerates, namely Bank of America, Citi, Goldman Sachs, JP Morgan and Wells Fargo, which, in practice, benefit from the cover of the federal government. It would be an exaggeration to say that the United States has created five additional Federal Reserve Banks, but it is not a totally inaccurate image!
JP Morgan has rediscovered the spark that it had one hundred years ago, after acquiring Bear Sterns and Washington Mutual. The acquisition of Merrill Lynch was difficult, but there is no question that Bank of America will come out of the crisis with renewed strength. On occasions, Citi gives the impression of being a "lame duck," but the calls for asset stripping are already less pressing; Wells Fargo offered Citi what it was asking for in the acquisition of Wachovia a total of seven times, without hesitation. And finally, Goldman Sachs is boldly exploiting the ruin of its competitors. All revived their profits by billions of dollars, their stock exchange prices have hit the roof and they have refinanced themselves on the markets that wanted to turn the page on the financial crisis.
Not only are these companies evidently too big to fail, but they will also profit from the new growth phase in the financial markets without even having to resort to the "casino finance" that took place from between 2002 and 2007. Even if that were the case, there would be all the more reason for it. In the technology sector, the phenomenon is identical, even though the drivers are different. The large American technology companies are experiencing the effect of the crisis to a limited extent. They therefore continue to accumulate considerable liquid assets and to invest in R&D. Furthermore, the collapse of market quotations means there are unexpected acquisition opportunities.
Five large groups, Cisco, HP, IBM, Microsoft and Oracle, in particular were able to seize these opportunities and create true vertical conglomerates, from hardware to software and from the business market to the mass market. These five groups, increasingly competitive with each other, are in the process of creating "ecosystems" where consumers and businesses can find everything they need but then become captives. Even Apple or Google, who have had striking success, give a sense of being outrun. Other companies thought they had a sufficient critical mass (5, 10 or 15 billion dollar turnovers, depending on their degree of specialization), and although leaders in their technological domain, they still need to completely rethink their strategy. The "steamroller" of one of the five conglomerates is perhaps on the verge of acquiring them too!
These two examples are far from the exception. It is the same for media, energy or even consumer goods, with Kraft’s takeover bid. The race for critical mass is perhaps not a goal in itself or a measure of success, but one cannot help but notice that whole sectors of the American economy are using the crisis as an opportunity to merge so that their companies enter the next phase, i.e. competition with an increasingly powerful Asia.
The contrast with what is happening in Europe is striking. Thanks to the States themselves, our banks are protected, with a few small exceptions. Their economic models, while resistant during times of crisis, probably do not have the same recovery capacity. In the technology sector, Nokia still plays among the big contenders, with an acquisition strategy which is identical in all senses. But the rest of the sector is marginalized and, furthermore, is of little interest to the Asians and Americans, who are content with gaining market shares.
In Europe, the creation of large worldwide groups seems to face resistance from all sides: politicians who support "their" companies and not those of their neighbors; employees and trade unions who fear being purged; public opinion and the press who analyze mergers in purely Manichean terms and consider them abnormal; and government bodies and top managements who, in the "witch hunt" climate, do not seem to have the courage to implement suggestions made by a clear-sighted analyst.
It is commonplace in certain European countries to think that the economic and financial crisis will permanently weaken the United States. The Cadbury takeover bid by Kraft is further proof that nothing is further from the truth.
Certainly, the political influence of the United States has declined after Bush’s years in power, the dollar is weak due to the trade deficit, finances at the state and national level are seriously in deficit, and the unemployment rate – which will undoubtedly exceed 10 percent for the first time since the 1929 crisis – will remain high for a long time. But deducing from all this a full scale weakening of the American economy shows a lack of awareness of the excellent process of adaptation currently underway within companies. For example, let’s take two very different sectors: finance and technology.
Firstly, finance. Since the summer of 2007, there have been an unprecedented number of mergers with the creation of five huge financial conglomerates, namely Bank of America, Citi, Goldman Sachs, JP Morgan and Wells Fargo, which, in practice, benefit from the cover of the federal government. It would be an exaggeration to say that the United States has created five additional Federal Reserve Banks, but it is not a totally inaccurate image!
JP Morgan has rediscovered the spark that it had one hundred years ago, after acquiring Bear Sterns and Washington Mutual. The acquisition of Merrill Lynch was difficult, but there is no question that Bank of America will come out of the crisis with renewed strength. On occasions, Citi gives the impression of being a "lame duck," but the calls for asset stripping are already less pressing; Wells Fargo offered Citi what it was asking for in the acquisition of Wachovia a total of seven times, without hesitation. And finally, Goldman Sachs is boldly exploiting the ruin of its competitors. All revived their profits by billions of dollars, their stock exchange prices have hit the roof and they have refinanced themselves on the markets that wanted to turn the page on the financial crisis.
Not only are these companies evidently too big to fail, but they will also profit from the new growth phase in the financial markets without even having to resort to the "casino finance" that took place from between 2002 and 2007. Even if that were the case, there would be all the more reason for it. In the technology sector, the phenomenon is identical, even though the drivers are different. The large American technology companies are experiencing the effect of the crisis to a limited extent. They therefore continue to accumulate considerable liquid assets and to invest in R&D. Furthermore, the collapse of market quotations means there are unexpected acquisition opportunities.
Five large groups, Cisco, HP, IBM, Microsoft and Oracle, in particular were able to seize these opportunities and create true vertical conglomerates, from hardware to software and from the business market to the mass market. These five groups, increasingly competitive with each other, are in the process of creating "ecosystems" where consumers and businesses can find everything they need but then become captives. Even Apple or Google, who have had striking success, give a sense of being outrun. Other companies thought they had a sufficient critical mass (5, 10 or 15 billion dollar turnovers, depending on their degree of specialization), and although leaders in their technological domain, they still need to completely rethink their strategy. The "steamroller" of one of the five conglomerates is perhaps on the verge of acquiring them too!
These two examples are far from the exception. It is the same for media, energy or even consumer goods, with Kraft’s takeover bid. The race for critical mass is perhaps not a goal in itself or a measure of success, but one cannot help but notice that whole sectors of the American economy are using the crisis as an opportunity to merge so that their companies enter the next phase, i.e. competition with an increasingly powerful Asia.
The contrast with what is happening in Europe is striking. Thanks to the States themselves, our banks are protected, with a few small exceptions. Their economic models, while resistant during times of crisis, probably do not have the same recovery capacity. In the technology sector, Nokia still plays among the big contenders, with an acquisition strategy which is identical in all senses. But the rest of the sector is marginalized and, furthermore, is of little interest to the Asians and Americans, who are content with gaining market shares.
In Europe, the creation of large worldwide groups seems to face resistance from all sides: politicians who support "their" companies and not those of their neighbors; employees and trade unions who fear being purged; public opinion and the press who analyze mergers in purely Manichean terms and consider them abnormal; and government bodies and top managements who, in the "witch hunt" climate, do not seem to have the courage to implement suggestions made by a clear-sighted analyst.
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