The Downside(s) of Mergers & Acquisitions

roke and bankrupt almost mean the same thing, but for legal reasons companies rarely admit going broke. In fact, they always seem to go bankrupt because, as we all know, there are loopholes that make it less permanent and far less embarrassing.

After all, going broke implies incompetence, whereas bankrupt simply means there’s still money in the bank but just not enough to pay the bills.

Regardless of how you cut it, to me they both connote failure. Be that as it may, what’s even sadder about a company going broke or declaring bankruptcy is that some people usually end up losing their jobs through little fault of their own.

Companies that go out of business do so usually because of two reasons: poor and incompetent management, or a poor economy. Few other things factor in, but whatever you call it – broke or bankrupt – they both, again, often mean that someone, or a group of people, is going to be looking for work. And, unfortunately, it’s most often the people who least can afford it.

Mergers and acquisitions, like broke and bankrupt, are also two increasingly common, but equally scary, words that can result in people losing their jobs.

Initially, mergers and acquisitions don’t imply “failure” as I alluded to earlier, but they certainly carry an air of uncertainty with them, particularly for young professionals with one foot on the corporate ladder or, even more unsettling, for those seasoned pros near the top rung.

Mergers and acquisitions often serve as a “clearing house” or cleansing of the executive levels, because in many cases the newly merged or acquired company doesn’t necessarily need two CEOs, two COOs, two CFOs, two V-Ps of HR, two V-Ps of IR, and so on, and so on.

In other words, it’s often a long fall from the top of the corporate ladder for many people when companies merge or are acquired. Most often there’s usually only room for one person on that top step and like I suggested earlier, it’s usually the buyer or better manager who gets it.

In many cases, mergers and acquisitions are relatively small in terms of the monies and properties involved, but every once in a while something huge comes along that puts the business of a merger or acquisition into a whole new perspective.

Take, for example, the possibility of the Toronto Stock Exchange and the London Stock Exchange becoming one.

As most of the world knows, talks have been going on for months now about the possibility of a $6.9 billion deal that would merge two of the more powerful stock exchanges: a move that both Tom Kloet of the TMX, the parent company of the Toronto Stock Exchange (TSX), and Xavier Rolet, of the London Stock Exchange (LSE), are convinced will “help small to medium-sized companies get financing.”

Whether it will or not – and there are many who think it won’t – the underlying question in my mind is that if the merger goes through, who’s going to run the show?

As it’s spelled out right now, the deal would give the London Stock Exchange a 55 per cent stake in the combined entity, which would have operations and senior executives on both sides of the Atlantic.

By my math, that leaves the remaining 45 per cent with any say in the new company handled by TSX personnel, and that’s a far cry from the 100 per cent of decisions now being made from Toronto.

I have no idea how many “decision-makers” are employed by the TSX and the LSE now, but if this merger goes through Tom Kloet and Xavier Rolet are going to be facing some tough decisions when it comes to picking their respective team.

You think Nik Lidstrom and Jordan Staal had a hard time picking their squads during the recent NHL All-Star game, Kloet and Rolet are going to find it even harder picking from their teams of financial all stars.

As I said earlier, mergers and acquisitions can be scary words, especially for top executives who often become redundant in the overall scheme of things. Any fall from wherever on the corporate ladder is painful, but when it’s from the top, that really hurts!