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Wheeling and Dealing

Mergers and acquisitions can make strategic sense for many companies: obtaining a new technology, filling out a product portfolio, gaining access to a new market, spreading overhead, and getting additional economies of scale, for example. But they can also be a tempting quick and easy way to improve the company’s appearance.

Greater size equates with justifying higher top-management compensation. Many of these business combinations also allow a company to show almost immediate increases in revenue or earnings. This kind of revenue or earnings comes more easily and much more quickly than squeezing greater profitability out of "growing the business" and finding ways to increase productivity. Mergers and acquisitions also became another personal revenue stream for executives, who often made millions for themselves upon closing these deals.

Many of the world-class corporate scandals and bankruptcies of recent years were in companies that appeared to demonstrate extraordinary growth but had little operational follow through. Two of the more obvious are Enron and WorldCom. For all its glamour and apparent growth, Enron was never able to run anything that was really profitable, and WorldCom had a reputation for poor performance. WorldCom and Enron, like many companies that had rapidly blown through many acquisitions, had enormous problems integrating them into their business operations.

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