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Business Mergers


The biggest deal involves two consumer products companies. Procter and Gamble, based in Cincinnati, Ohio, is spending 57 billion dollars to purchase Boston-based Gillette, the maker of razor blades, coffee makers and batteries. Both companies say that by joining together they will be more efficient and have a bigger presence in the market. It will also lead to job losses, a usual consequence of mergers.

The other big merger is the acquisition of AT&T by one of its former subsidiaries. S.B.C. (originally Southwestern Bell Corporation), based in Texas, has 167 thousand employees. It is spending 16 billion dollars to acquire AT&T, the 100 year-old company founded by Alexander Graham Bell, the inventor of the telephone. AT&T at one time was the world's biggest corporation.

AT&T's demise began 20 years ago when the U.S. government forced an end to the company's monopoly position in the U.S. phone industry. The company was broken into several pieces with AT&T exiting the local phone business while retaining its long-distance services. Robert Crandall, a telecommunications expert at the Brookings Institution, says that choice proved to be a fatal mistake from which AT&T never recovered.

"That turned out to be exactly incorrect over the long haul," says Mr. Crandall. "Because the price and the cost of long distance service has fallen to a fraction of a cent a minute, at least the cost has, and as a result, there is not much to sell in the way of long distance services by themselves."

Mr. Crandall says only the airline industry has experienced more brutal competition than what has existed in for the past decade in telecommunications. Amid massive technological change and successive booms in cell phones, computers and the Internet, AT&T searched in vain for viable strategy. Greg Sidak, a lawyer and former telecommunications regulator, says AT&T compounded its problem by making still more bad choices.

Mr. Sidak notes, "AT&T (in the 90s) tried to figure out what businesses it should be back into. Should it get back into local service? Should it get into wireless (cell)? Should it get into computers? And along the way it made a lot of infamously disastrous business decisions."

Those decisions, says Mr. Sidak, now a scholar at Washington's American Enterprise Institute, included paying too much for a cellular phone company and moving into cable TV.

"They bet on cable as the last mile (access) to the customer," says Mr. Sidak. "And they paid $100 billion for two big cable companies. And they ended up selling them for half that."

Robert Crandall of Brookings says while many will regret the demise of AT&T as independent company, American consumers are better off than they were before the break up of Ma Bell. They have more choices and pay less for better service. But, says Mr. Crandall, there are losers.

Mr. Crandall says, "The pain is borne, as you mentioned, by the workers who get laid off along the way. As long as that's not too rapid a path, it's the sort of thing that happens every day, when we substitute robots for handheld welders at stamping plants in the automobile industry."

S.B.C., the buyer, says it hopes to cut 13 thousand workers from the merged company.

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