What Are Motives Behind Mergers?

The reports in the Los Angeles Times indicate there will be an ongoing stream of company mergers. For example, Wells Fargo Bank is attempting a hostile takeover of First Interstate Bancorp.

The message these companies try to give the public is that these mergers are necessary to reduce costs, become more competitive in individual markets and therefore remain profitable. Workers are laid off to create these cost reductions.

If Wells Fargo is successful in its takeover of First Interstate, perhaps 5,000 Californians will be laid off.

What really motivates these companies to do these mergers, to make these layoffs?

Be honest, executives. Does your motivation to pursue mergers and lay off workers really have to do with reducing costs so your company will remain competitive? Does it instead have a lot more to do with your personal net worth?

A company president not satisfied with an annual salary of $500,000 to $1 million can generate many times this amount by laying off workers, which causes Wall Street to reward that activity by increasing the price of stock, and that can result in many millions of dollars to the president when he or she exercises stock options.

BILL MEYER

Walnut