Activity in mergers and acquisitions was reaching a fever pitch in 2014 and 2015. This was hardly a coincidence. Between slashing jobs and avoiding taxes, M&As have been a favorite corporate strategy.
The impact of this hollow and troubling strategy on employment trends may prove to be profound. Moreover, it feeds into the greater consolidation (i.e. monopolization) of the economy and the Too-Big-To-Fail (TBTF) mindset.
M&As Laying Off Workers
One of the common consequences of merger deals or corporate takeovers is the eliminating of thousands of jobs. As large companies consolidate their resources, jobs invariably get wiped out in the process. For instance, as part of Nokia's acquisition of Alcatel, the struggling telecom giant plans to lay off 1,300 workers in its native country of Finland alone. The company hasn't divulged how many other jobs might be lost at its other global operations as a result of the deal. Worldwide, Nokia employs over 100,000 people.
This same scenario plays out across the corporate landscape wherever mergers and acquisitions are occurring. There are 1.1 million employees who work for the companies involved in last year's 10 largest M&A deals. If the pattern of layoffs holds true, this implies that 10% of those workers (110,000) will be out of a job as a result of these deals.
Here's a list of the top 10 mergers and acquisitions in 2015:
- Pfizer merges with Allergan worth $160 billion
- Charter Communications acquires Time Warner for $78.7 billion
- Dell acquires EMC Corp for $67 billion
- Anthem acquires Cigna for $54.2 billion
- Berkshire Hathaway acquires Precision Castparts for $37.2 billion
- Aetna acquires Humana for $37 billion
- Avago Tech acquires Broadcom for $37 billion
- Energy Transfer Equity merges with Williams Companies worth $32.6 billion
- Ace acquires Chubb Corp for $28.3 billion
- AbbVie acquires Pharamcyclics for $21 billion
Mergers and Acquisitions as Tax Inversions
Blue-collar employees are hit especially hard by these developments. It's not just honest workers that suffer due to M&As. These maneuvers are also used for tax purposes—i.e. tax avoidance. This unduly punishes the rest of the taxpayers.
The authorities are belatedly making strides to combat these tricky tax inversions (rather than simply lowering the egregiously high U.S. corporate tax rate). The Department of Justice (DOJ), for example, is actively seeking to block the 2014 merger between Halliburton and Bakers Hughes, the second- and third-largest oil companies in the world, respectively. The deal was worth $35 billion at the time.
Fox Business reports that the DOJ lawsuit "would land near the top of the list of major mergers contested under the Obama administration, a list that includes legal challenges to AT&T Inc.'s planned acquisition of T-Mobile USA and General Electric's planned sale of its appliance business to Electrolux AB, both of which were abandoned."
It would mark the department's most notable flexing of its enforcement muscles since Comcast abandoned its planned acquisition of Time Warner Cable a year ago in the face of opposition by the department and the Federal Communications Commission."
The consolidation in the oil industry, like other major mergers and acquisitions, unavoidably "reduce[s] competition, leaving customers with fewer and more expensive options," drawing the condemnation of antitrust regulators in Australia, Brazil, and Europe in addition to the U.S.
There are other examples, as well. Last year's largest M&A deal between pharmaceutical firms Allergan and Pfizer is now actually being abandoned (much like the Comcast-Time Warner and AT&T-T-Mobile takeovers) because of the scrutiny from the DOJ.
Here are the 10 largest M&A deals thus far in 2016:
- Shire PLC acquires Baxalta for $32 billion
- Apollo acquires ADT Corp for $15 billion
- Tyco merges with Johnson Controls worth $14.35 billion
- TransCanada acquires Columbia Pipeline Group for $13 billion
- Fortis acquires ITC Holdings for $11.3 billion
- Sherwin-Williams acquires Valspar for $11.3 billion
- Tianjin Tianhai acquires Ingram Micro for $6 billion
- Abbott acquires Alere for $5.8 billion
- Markit merges with IHS worth $5.5 billion
- Nextar acquires Media General for $4.6 billion
The opinions and forecasts herein are provided solely for informational purposes, and should not be used or construed as an offer, solicitation, or recommendation to buy or sell any product.