Many investors woke up over Memorial Day weekend to find that Charter Internet was launching a $55 billion bid for Time Warner Cable, a mega-merger that will fundamentally change the landscape of the Internet Service Provider sector. Had Fiat-Chrysler CEO Sergio Marchionne gotten his way, the Charter/TWC marriage wouldn’t have been the only mega-merger of discussion.
Reportedly, Marchionne personally reached out to General Motors’s CEO Mary Barra about the possibility of joining the two companies. Barra, and therefore GM as a whole, was apparently not interested in the idea and rejected Marchionne’s advance without putting the idea through the wash, but it shows that Fiat-Chrysler is shopping around and doesn’t want to sit still.
Marchionne has long been a proponent of consolidation in the industry. For a man in his position, this shouldn’t come as a huge surprise, as a successful merger could mean a substantial windfall for the high levels of brass in both companies. Fiat-Chrysler already owns the Jeep, Dodge, Ram, and Chrysler brands in the U.S., as well as Ferrari, Maserati, Fiat, Alfa-Romeo, and Lancia abroad. Such a merger, however, would be seriously detrimental for just about everyone else.
Massive mergers and acquisitions are generally paraded as being highly beneficial to the consumer while also allowing the business to run more efficiently (thus pleasing the shareholders), but history indicates that this has rarely been the case. The United-Continental merger has created one of the most ragged-on airlines of recent years outside of the budget space, the Mobil-Exxon merger created a hydra-type monster in the oil and gas business that fundamentally altered how competition in the segment works, and companies that have spent decades buying up businesses and brands (think Procter and Gamble or GE) are now finding themselves shedding assets as fast as they accumulated them to slim down and be more responsive to market shifts. HP’s attempted acquisition of Autonomy is now used as a textbook example of a mega-merger fuck-up.
It’s hard to say what a GM and FCA merger would have looked like. On paper, it would create the largest automaker in the world, but that doesn’t guarantee that it would be the best. As the above examples indicate, bigger isn’t always better. There would be a colossal amount of redundancies to be eliminated, dealer networks to be consolidated (to say nothing of the manufacturing side), and the financial tangling would be on a level so complex that Enron’s accountants would probably advise against it.
For Marchionne, he sees consolidation as a means of eliminating “waste” from two giant businesses, which can run more efficiently with their powers combined. However, once merged, consumers lose competition, suppliers lose pricing power, and the new monolith — now among the most powerful companies in the industry — loses the interest in innovating because it now has substantial cash flow without it. Barriers to entry for startup companies would only grow higher and more difficult to clear.
“I think it is absolutely clear that the amount of capital waste that’s going on in this industry is something that certainly requires remedy,” he said on a conference call last month. “A remedy in our view is through consolidation.”
His calls for consolidation aren’t baseless. Under his command, he orchestrated a turnaround of Fiat S.p.A., and later its merger with Chrysler Group. Sales under the new company have doubled in the U.S., lending credit to Marchionne’s bigger-is-better approach. For him and many others, the business case is an easy one to make. But for consumers, it’s a field best left as diverse as possible lest we create a Comcast of the pavement.