Peter J. Solomon

Founder, Chairman, and CEO

Peter J. Solomon Co. Ltd.

New York, New York

There are four explanations for the current merger-and-acquisition phenomenon. First, some mergers are driven by changes in government policy - for instance, policy changes in health care that are altering the distribution and payment systems of health services. To defend their positions in this field, companies congeal. Second, mergers often occur from a need to be a bigger countervailing power. As retailers get bigger, they put more demands on product companies that must meet their terms - and often, their size. Third, some mergers are driven by price reductions. And a fourth kind of merger, those within the banking and airline industries, are made because the companies need to be able to follow clients around the globe.

So everyone is getting bigger. The real question is not whether companies are getting "better" - that's a hard term to define - but whether they're becoming more efficient. Sometimes being bigger can yield better efficiency. For instance, we just advised Office Depot to buy Viking Office Products. This merger would allow Office Depot to move into the international market quicker than it could on its own, and to open a new line of direct selling. I think that makes them better and more efficient.

The downside of getting bigger is becoming more bureaucratic. It takes a great management team to prevent this. Many mergers fail because it takes a lot of work to merge cultures successfully. People run out of energy, systems, information, or talent. When you reach a certain size, you can outgrow your ability to be innovative. But at that point you can rely on market force. And force can overcome innovation for a hell of a long time.

Peter J. Solomon (pjs@pjsolomon.com) was a managing director of Lehman Brothers Inc. and played a role in the merger of Lehman Brothers with Kuhn Loeb to form Lehman Brothers Kuhn Loeb - acquired, in 1984, by Shearson/American Express. Solomon was chairman of the merged company's mergers- and-acquisitions department before leaving to found Peter J. Solomon Co. Ltd., which provides investment-banking services to companies.

Joanne Lawrence

Managing Director

JT Lawrence & Co.

London, England

Most companies merge for strategic reasons - a need for geographical presence and scale. But most mergers are not executed strategically. A major reason for the high rate of merger failures is a failure to create a new culture. So the question is not, "Is bigger better or worse?" but, in the end, "How does the big company run itself?"

The key to a strategic merger is to create a new culture. This was a mammoth challenge during the SmithKline Beecham merger. We were working at so many different cultural levels, it was dizzying. We had two national cultures to blend - American and British - which compounded the challenge of selling the merger in two different markets with two different shareholder bases. There were also two different business cultures: One was very strong, scientific, and academic; the other was much more commercially oriented. And then we had to consider within both companies the individual businesses, each of which had its own little cultures.

To make the merger work, we found that we had to develop an attitude that says, "This is a new company. Things will be different." Then we had to represent that symbolically in everything we did - from the vision and behavior of the leaders down to the logo of the new company on each employee's paycheck.

Joanne Lawrence (jt__lawrence@compuserve.com) played a key role, as vice president and director of communications and investor relations at Smith Kline Beecham, in the 1989 merger between the U.S.-based pharmaceutical company SmithKline Beckman and the Beecham Group, a diversified consumer-oriented company headquartered in the United Kingdom. This merger was one of the most successful and largest transatlantic equity swaps in business history.

Who Will Want to Work with Them?

David Dorman

Chairman, President, and CEO

PointCast Inc.

San Jose, California

Mergers are very tempting. For a CEO, the financial logic of merging is often irresistible, especially in the telephone industry. When I was CEO of Pacific Bell, we realized that it almost didn't matter who we combined with - be it with one of the other Bells or with GTE. Just by merging, we could eliminate about $1 billion a year in annual expenses while creating very powerful operating and strategic synergies, providing global reach, and increasing overall scale. So the math is pretty powerful.