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Strategies & Market Trends : Mish's Global Economic Trend Analysis -- Ignore unavailable to you. Want to Upgrade?

To: mishedlo who wrote (52926)	6/28/2006 11:24:51 PM
From: Chispas	Respond to of 116555

"Record mergers mean more job cuts" - We're on pace this year to break the record for mergers and acquisitions, with the value of deals projected to top $3.5 trillion, according to The Wall Street Journal. This is decidedly good news for the shareholders and executives of the companies being acquired. The same cannot be said for rank-and-file employees. According to Challenger, Gray & Christmas, the outplacement firm best known for tracking layoff activity, a nasty side effect of an uptick in M&A activity is "increased likelihood of a surge in merger-related job cuts." One immediate benefit to a merger is the ability to strip away a huge layer of overhead, such as one of the two headquarters. As Challenger chief executive John Challenger predicted, "A reduction in payrolls is virtually inevitable, particularly in high-priced deals." Merger activity had calmed down in recent years, after a slew of deals crashed through prior records in the three years through 2000. But last year brought renewed life to the M&A circuit, padding wallets from Wall Street to penthouse offices nationwide. The flip side was a near doubling in the number of M&A-related job cuts, to 122,979 in 2005 from 65,810 in 2004. This year M&A activity has picked up more steam. The most recent news hit Monday with the announcement that Johnson & Johnson would acquire Pfizer's consumer products unit for $17 billion and that Phelps Dodge would acquire two Canadian miners for $40 billion. So far this year, M&A job cuts are at about 40,000, and layoff announcements overall have been trending downward. But momentum is sure to pick up as some of the more recently announced deals march toward completion. "Companies want to quickly regain profitability following a large outlay associated with a merger," Mr. Challenger said. "Often the most efficient way to do that is to eliminate all of the redundant positions created by the transaction." I have some personal experience with this. Credit Suisse Group acquired Donaldson, Lufkin & Jenrette at the peak of the dot-com era in 2000. A mere 18 months later, I was among the few DLJ survivors at Credit Suisse. But I saw up close the strange phenomenon of human nature in which very smart people forget the mantra to buy low and sell high, and instead buy at the peak. I think we'll look back on the present commodities boom with a curious eye on some very expensive acquisitions that marked a similar top. dallasnews.com