RALEIGH — Monday, October 27 seemed like just about any other fall day and start of the workweek. It rained a little. The morning air had the hint of a chill. Folks headed to work in moderate traffic. Other than a horrific rocket attack in Baghdad, the news of the morning was rather unexceptional.
Who knew that by the end of the day, several key industries would be transformed by the announcement of major corporate acquisitions or mergers? And who would have expected so many of these corporate reshufflings to involve North Carolina firms?
Health care, tobacco products, telecom, and finance were some of the sectors affected. Maryland-based UnitedHealth Group runs managed-care networks for two million customers in the Mid-Atlantic region, including the parts of North Carolina served by its Greensboro-based UnitedHealthcare of the Carolinas. On Monday it announced the purchase of Mid Atlantic Medical Services, which has another 1.5 million managed-care subscribers in the region.
Also in the Triad, venerable cigarette manufacturer R.J. Reynolds announced plans Monday to combine its American tobacco business with British American Tobacco’s U.S. unit, Brown & Williamson. These second- and third-largest cigarette manufacturers, respectively, will create a merged company with a third of the domestic market and a stronger competitive position against industry leader Philip Morris and the growing array of new, specialized firms. The new operation will retain its headquarters in Winston-Salem, which had recently been buffeted by hundreds of job losses at RJR. There are probably a lot of Triad folks, in the industry and outside it, who are feeling a little more confident about the prospects for this anchor corporation in Piedmont North Carolina’s ailing manufacturing sector. The merger is projected to generated half a billion dollars in annual savings, with much of the job eliminations on the Brown & Williamson side of the deal.
Speaking of ailing manufacturing centers, the Catawba Valley got a little good news Monday with the announcement that Hickory-based CommScope, a maker of fiber-optic cables for telecommunications, will buy the cable business of New Jersey’s Avaya Inc. CommScope suffered as many of its competitors did from the recent boom-and-bust cycle in fiber, but now there are some signs of life. Not only will the acquisition double CommScope’s market position, but also surprised Wall Street Monday by reporting a small profit rather than the expected loss.
Finally, and most spectacularly, Charlotte-based Bank of America announced Monday that it would purchase Boston-based FleetBoston Financial Corp. for $47 billion in stock. This would combine the nation’s third-largest and seventh-largest banks into the second-largest one, at least by deposits, and fill in some gaps that Bank of America had long sought to address in its market position in the Northeast. This continues an amazing string of mergers and acquisitions by North Carolina-based banks over the past 15 years or so, reflecting in part the influence of strong personalities and in part the state’s longtime policies. From the early 1800s on, North Carolina avoided the mistakes of many other states that had shackled competition in banking through excessive regulations. Its banks were allowed to compete statewide and to get into related fields of business such as insurance. As a result, when true interstate banking came along in the 1980s, North Carolina, bred to competition, were ready and willing to capitalize.
Are all of these mergers necessarily good news for shareholders, workers, and customers? It is impossible to say right now, and in fact it’s impossible to offer such a sweeping generalization. There will be winners and losers. And in a free-market economy, business leaders will make mistakes (or worse, when some put their own personal interest ahead of their responsibilities to shareholders and the law). Certainly some past mergers and acquisitions, pursued not for any legitimate business benefits but for securing stature or aggrandizement, have turned out to be unprofitable. But on balance, profit-seeking firms should be free to come together or break apart as they see fit. While some transactions may turn out to be errors, others will be successes. It is metaphysically impossible for government regulators ahead of time to know which is which, and they shouldn’t even try.
Naturally, all this business activity couldn’t have hit the news today without someone complaining. For example, I ran across the old stand-by: that mergers are bad news because they combine two corporate citizens that would otherwise support charities and sports teams in two different headquarters cities. I’m not sure this is inevitably true — and for what it’s worth the executives of B&A and Fleet deny any such intent — but the objection is also irrelevant. Corporations do not exist to perform or finance charity work or to subsidize the pricey sky boxes of sports-crazed executives. They exist to earn a good rate of return for their shareholders, period.
Gosh, someone should write a book about that.
Hood is president of the John Locke Foundation and publisher of Carolina Journal.