| Term Paper Title | Mergers |
| # of Words | 1078 |
| # of Pages (250 words per page double spaced) | 4.31 |
Mergers
If you read the headlines of major newspapers, especially the business section, you will find that many companies are planning to or already have merge with another company. A “company merger” is when one company buys another company so they work under one new name. “ In 1997, $908 billion worth of inter-corporate transactions were made, tallied by Securities Data, making 1997 a record year for mergers. So far the first half of 1998 has already seen $604 billion worth of deals (Dunlam), and still bigger deals like the Exxon-Mobil deal are being negotiated. As an economics student, I ask myself, are mergers good or bad for a nation’s economy? What does this do to unemployment and economic growth?
Let’s look at the SBC-Ameritech merger and analyze whether or not it’s good for a nation’s economy. SBC Communications Inc. plans to purchase Ameritech for $61 billion. If the deal is complete, SBC-Ameritech will have a great control in telecommunications. About 20 years ago, there was a Ma Bell monopoly company. It was broken up by the Justice Department because they felt it was holding back the economy and telecommunications. The monopoly controlled almost all of the phone service in the U.S., then was broken up into seven local phone companies called “Baby Bells” and a long distance carrier AT&T. Since the break up, competition increased which lead to a drop in prices, which lead to more subscribers and phone service. It’s obvious that competition is one of the important factors to economic growth.
SBC was one of the Baby Bell. It later bought Pacific Telesis, another Baby Bell, and is trying to buy Southern New England, another Baby Bell. If SBC purchases Ameritech, another Baby Bell, there will only be three of the seven Baby Bell companies left. Most likely SBC will try to purchase them too or SBC’s rivals GTE or Sprint will.
One of the concerns of SBC purchasing Ameritech is that it will be SBC third merger. Some major opponents of the SBC-Ameritech merger are companies like AT&T, Sprint, and politicians like Herb Kohl( D-Wis ). They argue that the merger will greatly reduce competition and give SBC-Ameritech a huge monopoly in telecommunications. They strongly urge the FCC to reject the deal because it will hurt consumers.
SBC and Ameritech argue that telecommunication is such a big industry and is growing enormously. With cellular mobile service, and fax service, and Digital Data trafficking, the telecommunications industry is booming. It is estimated that by the year 2010, Digital Data trafficking will account for 99% of all traffic minutes (Dunlan ). To keep up, communication networks need to increase capital, and company mergers are a way to keep up with telecom technology and the economy.
The FCC will decide whether or not the merger will go through. There is a good chance it will go through, but because SBC already owns so much and many people argue against the deal, the deal might not go through. Everybody will find out soon enough when it makes headlines.
Now let’s look at the Exxon-Mobil merger. Exxon plans to buy Mobil for $76.6 billion. If the deal is complete, it will be the biggest corporate merger ...Read entire document
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