Outlook: Merger mania starts to run out of steam

IS MERGER mania turning to merger aversion? Well perhaps not quite yet. Too many City bonuses are riding on the present dash to consolidate - as well as some heady share price valuations. But for two of the present wave of giant mergers to turn to dust within the space of a couple of weeks begins to look eerily like a trend.

The backdrop to these two episodes is very different. With Glaxo and SmithKline, the story was about personal and cultural incompatibility; it was about different styles of management as much as who was going to run the show. With Reed Elsevier and Wolters Kluwer it was more to do with competition issues than anything else.

Reed was last night blaming Wolters, claiming it made unacceptable demands for a change in the terms of the deal. What really seems to have happened is Wolters began to believe the competition authorities were demanding too high a price in terms of asset disposals to make the deal worthwhile to its own shareholders. Attempting to renegotiate the terms with Reed may have been just a pretext for scuppering the deal.

So yes, these two mergers broke down for entirely different reasons. There is a theme here none the less.

Put at its most basic, the industrial case for consolidation is to build higher market share at lower cost. It wouldn't be wholly fair to depict this process as a cynical attempt to squeeze customers and employees for the benefit of shareholders. There's a bit more too it than than that. But this is certainly a part of it - if only because the commercial pressures on companies are all the other way right now.

Globalisation, rapid advances in information technology, and greatly enhanced competition is destroying margin as never before, creating unprecedented pressure for cost cutting consolidation. Unfortunately, or perhaps happily depending on your point of view, the competition and management issues involved seem to be getting too big to handle.

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