As I checked my email today, I was touch that the president of one of the biggest corporations in the world remember to send me an email in the day of San Valentine…
” Subject: A Message from Tom Horton: AMR-US Airways Merger..
AAdvantage Number XYZ0000
Today is a historic day as American Airlines and US Airways announce plans to create the new American Airlines….”
Then I realized that it was just a corporate email announcing that two struggling companies were joining together to see if they could become a winning organization, and as you can imagine my enthusiasm quickly declined since I could not really understand what does it means really for us, the passengers that actually use their services. Does this means that suddenly their planes will take off in a timely matter, or that they will improve the quality of the peanuts and flat cola that they serve, or that the seats will actually become comfortable with more leg space and recline? Somehow I doubt that their merge has anything to do with any of my actual needs as a customer, and a lot to do with their needs as CXOs to keep their jobs, and enjoy their salaries, benefits, and guaranteed first class tickets.
Don’t take me wrong, I fully understand that mergers are actually in some cases a welcome shot in the arm for some companies, and that in some cases they could result in better products and services for the consumers but if we look at the history of mergers and acquisitions, that generally is not the case:
- The merge of Novell and WordPerfect – FAILURE
- The merge of AOL and Time Warner – FAILURE
- The merge of ATT & NCR – FAILURE
- The merge of Daimler and Chrysler – FAILURE
- The merge of Pennsylvania and New York Central railroads FAILURE
There are some reasons when a merge makes absolute sense, and for those CXOs attempting to increase their compensations by talking merger, here are some rules that should be kept into consideration:
A merger is a addition operation not a multiplication: In other words from basic math, it should look like (+ and + ) not a ( + and – ) or ( – and – ).. Two negative numbers together do not make a positive
- A merger will not increase intelligence or capabilities: To explain “1” the merge of two second class companies does not suddenly creates a first class operation, it only gives the CXO’s a bigger platform to make mistakes
- A merger will not magically fix problems: If the only objective is to save costs and improve efficiencies, the only potential way to do it is to actually go and fire redundant employee positions, and consolidate operations where it makes sense (basically you still keep the same problems, just merge them together and have less resources to fix them).
So what is my opinion about this merge:
- Quick reduction in available flights, routes, and capabilities.
- Quick increase in prices now that there will be less competing companies in the market.
- Less incentives for the companies to actually improve in the long run since they will be focused on the short-term problems created by the merge.
I may be wrong (and I actually hope I am) but if we follow history, most of these massive mergers fail for the same reason the original companies were failing. Joining together two failing companies does not makes a winning one. What do you think?
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- What an American-US Airways merger means for you (kansascity.com)
- American, US Airways approve merger (latimes.com)