Mergers are like human marriages: Some work, some shouldn't be allowed

The Outlook

April 07, 1996|By Sean Somerville

LAST WEEK'S giant mergers in the health care and telecommunications industries were the latest in a string of megadeals.

Before Aetna Life & Casualty Co.'s $8.9 billion deal for U.S. Healthcare and Pacific Telesis Group's merger with SBC Communications Inc., came the Chemical-Chase banking merger and the Disney-Capital Cities media deal.

In a deregulatory atmosphere perhaps best symbolized by recent telecommunications legislation, mergers and acquisitions are likely to continue at a feverish pace.

Has the federal government taken a hands-off approach to mergers? Has enforcement of antitrust laws become lax? In the world of mergers and acquisitions, when does big become bad? And what does all this mean to consumers?

Howard Metzenbaum

Chairman of the Consumer Federation of America and a former Democratic senator from Ohio.

I don't think the Clinton administration is taking a hands-off approach. But I think they're having difficulty in making a case for the courts. We're seeing deals that are megamergers. But in some instances there's still a substantial portion of the community that is not part of the merged company.

So considerable competition remains out there and from the antitrust standpoint, it becomes more challenging. For the consumer, it is a problem. The American people are getting the short end of the stick.

I think health care is at the top of the list because it's insidious. You're getting more and more concentration. Doctors, nurses and technicians are in many cases at the mercy of HMOs. As a result, the American people are or will be suffering in the quality of health care they receive.

When you have monopolization, you are going to have higher costs to the American people. Companies are going to squeeze every dollar they can. Generally speaking, the telecommunications bill will result in higher cable rates and in all likelihood, higher telephone rates.

Lee Preston

Professor of business and public policy, University of Maryland

In general, there's been a much less aggressive approach to antitrust laws. There's been a decline in concern about problems of monopoly in the traditional sense for two very good reasons. One is the increasing importance of international competition. The other is the increasing importance of inter-industry competition. With dynamic competitive pressures like these, you become less concerned with structural monopoly problems.

You're generally not getting into a situation here where one firm can either set prices or determine the rate of change in an industry. But the recombination of the Baby Bells looks like an unwise move. Reducing the Baby Bells from seven to six will probably not make a big difference to consumers. But I think reducing them from six to three would.

Martin Sikora

Editor, Mergers & Acquisitions magazine

I don't think the Clinton administration antitrust people are particularly lax. I do believe regardless of administration, antitrust people are responding to and coming to grips with some of the realities that are taking place in the business world.

Given the expenses of products that have to be developed, staying profitable in a global economy and meeting the costs of financing, companies are required to be larger. Everybody wants to categorize these mergers. But you can't categorize them.

In defense, there are large deals being created because the pie has shrunk. In the case of banking, there are just too many banks. A lot are small and their ability to survive is dubious. The bigger banks feel that to get economies of scale, to develop technology and to compete globally, they need to be bigger.

Whether consumers should be concerned about this is an open question. Even though the new companies are large, if not giant, they don't appear to be in a position to diminish competition or achieve a dominance in the market.

Steven Salop

Professor of economics and law, Georgetown University Law Center

I think antitrust agencies are looking at the mergers very carefully and are trying to develop a practical response to each one.

The government is trying to facilitate restructuring in a way that increases efficiencies and doesn't hurt consumers.

What's driving the latest merger wave are two forces, technology and changes in the regulatory landscape. In order to bring us into the so-called digital age, a lot of changes have to be made. The telecommunications act is allowing cable to get into telephone and telephone to get into cable.

With respect to Aetna, the technology is HMOs. U.S. Healthcare is good at it. Aetna's not. What consumers should be concerned about is competition. Competition in health care and telecommunications mitigates and totally takes away concern about bigness.

Pub Date: 4/07/96

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