Doug Davidoff
Today, the announcement came that Pfizer is buying Wyeth for $68 billion. While the normal spin is taking place about synergies, and how 1+1=3; the fact of the matter is that this mega-merger is being fueled by the dominant driver for mergers of these types – weakness.
Pfizer has lost its way. It no longer creates value, its drug pipeline has weakened and it has become increasingly commoditized. The executives depend on the short-term value of the stock for their wealth, so what’s the easiest way to get Wall Street to believe you have a plan? Buy something.
While I have not studied this merger in any depth, I have no problem making the prediction that this merger will further dilute returns for stockholders. The more effective strategy, albeit a much tougher path, would have been to get back to basics and to focus on solving unique problems for unique people. It may have meant that Pfizer needed to cut old, traditional lines of business to focus on real opportunities for growth. Throw this merger in with Bank of America’s acquisition of Merrill Lynch, and of Citigroup’s purchases, or AOL’s purchase of Time Warner.
This merger is further proof that the reason we are suffering the recessionary environment we are in has far more to do with traditional companies inabilities to create value. Steve McKee, who writes the blog When Growth Stalls, has had some interesting takes on recent mergers, and I’m sure he’ll have something worth reading on this one.
I find it interesting that most mergers (at least the one’s that make the news) are driven from a position of weakness. Those mergers rarely, if ever, work. Mergers from strength can work. The interesting point is that strong companies don’t feel the need to merge nearly as much, and as a result find the path of creating value is from more effective.
What should a reader of this blog do now? Make sure you are creating value. To help you do so, you can take The Value Creation Audit™. If you’d like a copy – just send me an email, or leave a comment.