What's behind today's oddball mergers?
Look at the gargantuan, gerrymandered service territories you would get with the latest pending merger deals: Exelon-PSEG, Duke-Cinergy, and Warren Buffet's bid to combine PacifiCorp with his MidAmerican Energy. Now ask yourself if they make any sense.
Some engineers say that merging two widely distant electric utilities, connected only by a highly tenuous contract path, betrays the mind of a "raving lunatic." But we've heard that before.
More than one M&A expert has told the Fortnightly the non-contiguous mergers of the late 1990s also appeared a bit screwy, with their physical and geographic obstacles to rationalizing labor, capital, operations, maintenance costs, technology, and assets.
One merger expert-involved in almost every major utility merger since the early 1990s, and speaking on the condition of anonymity-says a non-contiguous merger such as Duke-Cinergy would sacrifice as much as 10 percent of the savings otherwise available if the two utilities could claim a significant common boundary.
Yet many equity research analysts have said on-the-record that the gerrymandered mergers that built today's AEP and Exelon have in fact achieved a high level of efficiency, performance, and cost reduction.
No Strategy, No Problem
In his bestseller Good to Great, Jim Collins warns, "Two big mediocrities joined together never make for a great company.