At a glance
As Albert Foer, the president of the American Antitrust Institute recently said: “Merging companies always say that they’ll save money and bring down prices. But the reality is that they often end up with monopoly power that allows them to exert incredible pressure in whatever way they like.”
Is this fair? Not always. When activity occurs, industries get disrupted. Yet often there are beneficial knock-on effects that stem from M&As which are quite unintended.
It’s arguable that Australia’s huge beer-brewer mergers of the 1980s led to a diversity of beers which were hitherto unimagined by the consumer. Software mergers among South-East Asian gaming and tech firms have improved competition and given gamers and geeks hours of fun.
The following are six examples of M&As that had an effect on the end-users. They may not have been the biggest or the best known, but John and Jane Citizen were definitely part of the mix.
1. Disney and Pixar
When this marriage was first mooted, many foretold of some kind of cultural misalignment, but what actually happened? Cultural diversity. Why not Mickey and Nemo, Pinocchio and Toy Story, Cinderella and Cars?
The nuptials were mutually beneficial – Pixar could now afford to finance two films a year with the marketing and promotional power of Disney behind it. The movie-going public has never looked back.
From a strategic point of view it was also a no-brainer. Both companies have now avoided future competition and increased their market power. This one has often been touted as the best example of a win-win for company and audiences alike.
2. Apple and PA Semi
Apple’s 2008 acquisition of semi-conductor maker PA Semi for US$278 million may have got lost in high-tech hook-up history, but if you look at the genesis of the iPhone and the iPad, it was one of the smartest moves of the day.
The purchase served several purposes – Apple knew it was up against a growing array of Android phones and part of the competition would involve battery life. It could not optimise power consumption unless the processors were designed specifically for Apple’s products.The buy allowed it to develop an in-house chip design and not pay others (like the behemoth Intel) to do the job. Ever since, it could be argued, consumers of Apple products have been the ultimate winners.
3. St George and Westpac
When Westpac bought St George Bank in 2008, bigger brother Westpac said it would preserve the identity of the smaller lender, which had started out as a local building society in Sydney’s southern suburbs.
Even though Westpac was always at pains to explain that St George was a separate brand, not everybody bought the spin. Many St George customers were also shareholders – and suddenly they owned Westpac shares, not St George shares. Westpac knew by 2010 that it had to win back its family oriented, community-minded St George customer base.
The narrative since has been along the lines that St George was big enough to succeed, and yet small enough to be a nice corporate citizen. Customers have stayed loyal and St George has become a strong growth centre for Westpac.
4. Didi Dache and Kuaidi Dache
These are taxi apps owned by the Chinese internet monolith Alibaba (it owns Kuaidi, which roughly translated means “Speedy Taxi”) and the company’s most bitter local rival, Tencent. Why are competitors merging products?It’s probably because they fear Uber is on the prowl for market share in China – and everywhere else. Their other great local rival is Baidu, which has bought into Uber.
China watcher and investor Neil Flynn says that when Uber entered the market with its private driver model, even the most bitter rivals saw sense and merged.
“Instead of haemorrhaging cash and outdoing each other, they could invest and develop a private driver service to rival Uber.”
As Flynn explains, with China’s increasingly gridlocked and choked cities, any innovation and improvement stemming from the merged entity should be for the common good.
5. Bond Brewing and Castlemaine TooheysWhen Bond Brewing bought Queensland’s Castlemaine Tooheys in the early 1980s, it ignited a war of parochialism. Queenslanders, it was famously said, wouldn’t give a XXXX (Castlemaine’s signature brand) for anything else.
Many thousands of drinkers, disgusted by the “sell-out” of their local beer to the Bond behemoth, flocked to the new and upcoming brand owned by hotelier Bernie Powers.
Power’s Lager burst onto the market, and while it didn’t ultimately survive, it started a revolution.
Boutique and craft brewers emerged from the backstreets to do their own thing. Bill Taylor, who was working at Castlemaine in the 1980s, believes the era’s corporate shenanigans led to a consumer win.
“I think from the consumer’s point of view it’s opened up the country. There’s a wider variety of beers available to the consumer – all that occurred and opened up the markets.”
6. Bonus: Penguin and Random House
The 2013 merger of book publishing giants Random House and Penguin was big, but have book readers (and writers) benefited? It’s difficult to say. The enlarged group says it can now take on the power of Amazon.com, invest on a much larger scale than each partner could have separately, and offer greater diversity of content. But many in the business doubt it.
Small boutique publishers will not be able to compete on price with such a behemoth. One of the big problems in the music business, for example, is that the dominant labels offer few openings for new artists, preferring mega-stars over unproven performers, however talented.
The same is suspected of a big publishing merger – diversity is likely to be the biggest casualty.
We're keeping our eye on this one...