Takeovers & ideology

"Murdoch nears victory in fight for Dow Jones" was the headline in today's dead tree FT. The Times used the same metaphor - "News Corp wins $5.6bn battle" - as did CNN: "News Corp wins fight."
This is a common trope. But there's something sinister about it.
Put it this way. Before Murdoch made his move, Dow Jones' share price was averaging $35 for months. Murdoch's paid $60 a share. This means he reckons he can make Dow Jones worth at least 70% more, by a mix of superior management and synergies with existing operations.
This is an amazingly bold claim. This survey (pdf) of mergers - which is more favourable than many - says:

Most transactions are associated with results that are hardly consistent with optimistic expectations. Synergies, efficiencies and value-creating growth seem hard to obtain.

The winner's curse tells us that bidders often pay too much. And Richard Roll famously pointed out (pdf) that many takeovers owed more to hubris and overconfidence than to business logic.
So, economics suggests other possible headlines: "Murdoch set to come a cropper", "News Corp overpays".
Why, then, is the story headlined as a victory in a battle? Why should the chance to pay perhaps well over the odds for something be considered a victory?
Could it be that what's happening here is an ideological function? In using the language of gladiatorial combat, the MSM is glamorizing business "leaders" - not just Murdoch: as I say, it's a common theme. It presents them as heroic figures, when in fact the truth is that they are insecure little men who might not really know what they are doing.

Comments

[Will Williams]

Aside from the media kow-towing to someone who may be their boss after the next takeover, it's sinister for one organisation to gain more and more control over the MSM

[Bob B]

The received wisdom about financial capital markets and M&A characterising the American and British model - compared with the alternative models of bank-based capital markets (as in Germany) or the Japanese structure of cross-holdings of shares and close relations between customers and suppliers in supply chains - is that financial capital markets are more effective at disciplining failing management - other things equal.

The currently prevailing evidence seems to favour the American and British model because of better overall economic performance but that is not the only relevant debate going.

There is another continuing debate about the respective merits of the common law systems of England and America compared with Code Napoleon systems of much of mainland Europe.

Any reflections, Chris?

[Surreptitious Evil]

Victory? Yes, there was a battle and he won.

Pyrrhic? Quite possibly - you make an interesting generic as well as specific point - but that is one of the problems. People generally, when they enter into a competition or struggle do their (possibly quite limited) rational bit before they join - then it is just a matter of alpha-male overcommitment.

S-E

[dearieme]

He's an old man in a hurry, Mr Murdoch.

[cityunslicker]

This is a fine article Chris. In many ways a good parallel for the way the Israel/Palestine peace process is always descibed. it is always, dying or losing life; as if ti is some sperate being and not just a contiuing round of negotiations. This imagery is in itself very misleading and that is why it is a similar analogy to this one in the business world.

[Rick]

So much for rationality in business.

Like many corporate leaders, vanity wins out every time. Murdoch just loves the headlines, even though the merger will probably never deliver.

When I asked one senior executive why his company had merged with another, he answered "Why not? After the merger, they got a Big 4 firm in to construct a case to 'prove' that there were all these 'value drivers' for the merger.

I think that's called post-hoc rationalisation.

I often hear it said that most mergers fail. How they can fail when success was never defined in the first place is an interesting question.

[Mark Wadsworth]

"many takeovers owed more to hubris and overconfidence than to business logic"

Make that "most takeovers" and you've just about summed it all up nicely.