In recent times, merger mania has gripped America, as large companies have been consolidating at breakneck speed.
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Recent decades have seen the rise of “merger mania” wherein large companies have been consolidating at a breakneck speed, concerning policy makers and the general public alike. The latest proposed mega-merger between communications giant AT&T and the king of content, Time Warner (owns CNN, HBO) faces serious hurdles, particularly as President-elect Donald Trump promised to kill the merger during the campaign.

Today, it was splashed across the papers that lawmakers are “concerned” about the merger, which would not be the first high-profile merger attempt to fail in recent times.

Comcast tried to buy Time Warner Cable (confusingly, a completely separate entity from Time Warner) and that deal died because of consumer and government concern. Meanwhile, the proposed drug giant that would have been born from the Pfizer-Allergan merger met its demise as well.

The deaths of these recent deals don’t bode well for the future of mergers. While major mergers are still taking place, it appears we are entering an era where there is increased skepticism about mergers between mega-companies.

Why the anti-merger sentiment?

Some say mergers are not necessarily a bad phenomenon. There can be significant cost savings in combining companies, which benefits both consumers and shareholders.

On the other hand, there’s little doubt that nothing keeps us on our toes like good-ole- fashioned competition. Whether it’s in your personal life or in the world of business, we are a competitive species and calibrate our behavior to our surroundings. In a capitalist society, competition is needed for markets to function properly. This is why the latest round of merger mania has some people concerned that whole sectors of the economy are becoming less competitive and subject to concentrated influence in the hands of a few.

Corporate monoculture

We’re already living in the shadow of merger mania; look no further than the travel industry to see how consolidated the landscape has become.

 

If you go to a travel website to book a trip, perhaps you would visit Expedia, Orbitz, Travelocity, Homeaway, Hotwire, or Hotels.com. You might be shocked to learn that all of those websites now belong to the same company. A whopping 75% of the online booking market is controlled by one company.

If you’re looking to take to the skies, be aware that merger mania has left the United States with only four large airlines, and depending on where you live, you’re probably stuck with the airline that dominates your home airport.  

If you live in Atlanta, you’ll likely fly on Delta Airlines, as it controls almost 80 percent of the market share there. If you live in Charlotte, you’ll probably have to fly American (88 percent market share), in Baltimore you’ll be dependent on Southwest Airlines (72 percent market share), and in Houston you’ll be on United Airlines (78 percent market share).

Rental cars are also in the same boat. Despite all the colorful names and the endless lines of counters at the airport, the actual choices in the world of rental cars aren’t too numerous either. In reality, there are only really three major companies in this sector. Enterprise, National, and Alamo are one company (49 percent market share), Hertz, Dollar and Thrifty are another (20 percent market share), and Avis, Budget, and Zipcar are the third player in this industry (19 percent market share).

In the same way, there seem to be so many hotels to pick from like Ritz-Carlton, Marriott, Courtyard, St. Regis, W, Sheraton and Westin. Again, the pending merger of Starwood and Marriott hotels means that those brands will be owned by the same company. Also, Hilton, Embassy Suites, Doubletree, Waldorf-Astoria, Hampton Inn and Homewood Suites which are all owned by Hilton Worldwide.

Not just travel

Examples of merger mania go on and on. In the world of health insurance for example, we’ve seen Aetna merge with Humana, and Cigna merge with Anthem (Often known by the trade name Blue Cross/Blue Shield). That leaves us with few just a few dominant players in the health insurance marketplace.  

Similarly, your corner pharmacy is likely CVS or Walgreens, as they have come to control at least half the market share in every major U.S. city through a series of mergers. Hospitals and pharmaceutical companies have also been ground-zero for the latest chapter of merger mania. Democrats and Republicans alike are concerned about the lack of competition in the healthcare sector.

Takeaway

Today’s American economy has whole sectors where a handful of companies control a massive slice of a given market’s pie. As usual, there’s a lot of disagreement over what to do about the unprecedented amount of merger activity.

Overseeing merger mania is no easy task for the government; federal regulators have their work cut out for them. In the midst of all these mergers, the federal government will be required to sanction these deals and decide whether these proposed larger companies violate antitrust laws.

That’s not an easy call, as it’s often hard to evaluate what the long term effects of consolidation would be in different industries. Halting mergers may be seen as government overreach, while not doing anything may eventually lead to problems further down the road.

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Posted 12.07.2016 - 04:17 pm EST