A week ago, the Chairman of the Federal Reserve (the Central Bank) Ben Bernanke pointed out that the council's ability to address crises in the future partially depends on developing solutions that allow the regulatory bodies to break up failing big companies or liquidate them. In truth, this latest position by Bernanke seems to be in agreement with the trend of both partial and extensive mergers that took place, for instance, between major economic conglomerates worldwide, such as the alliance between the automakers Nissan and Renault, Daimler-Chrysler, and between British Airways and the Spanish carrier Iberia. Also, there are talks underway in many areas in the world for merger and acquisition of companies, albeit their number had began falling since 2008 and continued the same trend last year, compared to the peak level that such operations reached, which was 4500 billion dollars in 2007. In reality, the global financial crisis left its sombre marks on the major financial companies that had diversified their loans portfolios in return for quasi-illusory guarantees, by means of complex and non-transparent derivatives that eventually led to the recent bubble and the collapse of the world economy. Although the companies mentioned above did influence major non-financial companies, they cannot be alone blamed for the crisis. This is because the non-financial companies expanded in turn, whether by merger or acquisition, or by transcontinental investments by establishing branches, [representative] offices and by collaborating with other multinationals. This is in addition to investing in companies listed in stock markets, enabling them to be represented in the governing boards of those companies. However, these mergers were not successful, and came contrary to their stated objectives. Total or partial mergers or acquisitions are naturally aimed at dominating the markets by creating giant corporations that can ensure the competitiveness of their products, thereby dominating the local and international markets in terms of the compatibility between the quality of produced goods and their prices. This is because total or partial mergers or acquisitions help in reducing the costs of production and in selecting better raw materials at lower prices as well. They also help in spending more on research and development, which guarantees that products will be continuously improved and satisfy the ever expanding markets. But mergers and acquisitions differ in terms of their reasons and goals, and also according to the successive economic cycles of growth and recession. Up until the end of 2007, before they were shaken by the crisis and before they slowed down over the past two years, merger and acquisitions took place with the aim of creating giant economic groups that form a barrier against rival firms. However, other types of mergers that occur as a result of the repercussions of the crisis on a particular sector or company, may be motivated by the re-evaluation of the collapsed institution, such as the merger of the Bank of America and Merrill Lynch; otherwise, the collapsed firms become ‘up for grabs' for another rival company that is unaffected by the crisis. For example, we saw Chinese automotive companies buying global brands such as the British automotive group Rolls-Royce and the Swedish carmaker Volvo and others, due to the fact that the European famous brands were unable to survive, while the alliances Nissan-Renault and Mercedes-Daimler were aimed at unifying competition in the area of electric cars, in the face of other companies that are seeking to achieve the same goal. As for mergers in the international airlines sector, the goal behind them is to limit losses and reduce costs, after the sector faltered as a result of the global crisis that reduced the number of travelling customers. While it was the global financial crisis that motivated the mergers and acquisitions of the previous and current years, other causes will drive these transactions to expand in the future, in particular when many important economic sectors are affected by stagnation, not because of the crisis but as a result of global legislations that cannot be overridden. The most vulnerable sector as such is the pharmaceutical industry. Many researchers involved in this sector believe that it can no longer develop major new drugs, while its production has been limited to ‘flagship' drugs that were over the last twenty years a primary source of revenue, but which are now no longer protected by patent laws. Thus, the turn of the millennium saw the merger of Pfizer and Warner Lambert (89 billion dollars), and then with Pharmacia in 2003 and Wyeth in 2009. However, Pfizer, whose volume of business amounted to more than 71 billion dollars last year (the largest among pharmaceuticals), will lose the patent protection of Lipitor, its most popular drug, next year (its sales volume exceeded 13 billion dollars in 2009) and other important products that will lose their patent before 2015...this applies similarly to many other pharmaceutical companies, further affecting their economic positions. Despite the fact that merger and acquisitions expanded in tandem with globalization with the aim of achieving competitiveness and bigger revenues, many economic pundits believe that they are more likely to fail than to succeed, and according to these pundits, the rate of failure is usually 60 percent. In his book “Reasons in Frequent Failure of Mergers and Acquisitions” (2007), the American Thomas Straub summarizes the reasons of failure in three main themes: Strategic logic, overlaps and financial considerations. This is while others express views in favour of immunizing institutions against total or partial mergers, or in favour of stricter legislation. In absolute terms, the future of economic institutions seem to be wedged between the possibility of becoming giant companies through merger or acquisition, or dwarfing through breaking up.
