Are Two Companies Smarter than One?

If well-managed, the merger will take the best existing methods from both companies, and improve their efficiency when doing what they both already know about. If brilliantly managed, diversity of research in new areas will not be severely impacted, and duplication and other wasted effort will be reduced.

In reality most mergers fail on both counts, and the initial reorganisations result in at best an equivalent relationship between cut costs and lost opportunities that you would see if you were to force the same proportion of cost cutting in the separate companies. In the short term, mergers usually result in increased administrative overhead - efforts to avoid this resulting in paralysis.

The surviving top managers will of course benefit, as their remuneration is effectively tied to turnover.

Cynical, maybe, but often borne out in practice - which is why I nearly always vote my shares against such mergers.

Since these companies are in a very specialized market thatalready suffers from a lack of competition, the customers will suffer. Service will go down, prices will go up. Shrinking of materials offered will occur and the availability of commodities will be another thing to artificially manipulate to drive up profits at the detriment to the markets.

Your notion that there is a lack of competition, customers will suffer and all the rest of your fortune telling is fruitless.

Competition is the only way in which companies are forced to improve their offerings. Look at the decrepit 70's 80's and 90's US automotive industries.

Dow and Rohm Haas are two companies that are in a constant mode of improvement and innovation. Both companies also have a history of superb customer service.

When a company provides superior products and service should it not profit?

The problem is I don't believe that in the very near future you will see two separate companies.

The Dow Chemical Company bought Rohm & Haas in an effort to change their image and show Wall Street that they are a specialty company and that their stock price should reflect that.

At heart Dow is a commodities company. There is also a very strong culture within Dow that strongly resists change and that if you aren't Dow you aren't worthy. If you weren't aware Dow stands for "Do it Our Way".

In the beginning of the effort to purchase Rohm & Haas Dow communicated that they appreciate how Rohm & Haas runs their business and works with their customers and that Dow would not interfere with their business. In fact Dow stated that the Rohm & Haas name would survive. Today that has all changed. Dow has now purchased Rohm & Haas, the Rohm & Haas name has now gone into the history books and Dow is playing a key role in how Rohm & Haas is structured and how the business is run. This is typical Dow SOP. That very strong culture within Dow mandates that any new company that is bought by Dow become Dow. Because of this the industry will no longer see two separate entities they will only see The Dow Chemical Company.

Competition suffers. Customers suffer.

Life goes on. Just a little lower standard.

And chief execs continue to be voted their increased salaries and bonuses for running larger companies.

good post