At first glance, the age-old pursuit of big, bigger and biggest appears to be what's driving the most furious round of corporate megadeals in U.S. history.
But a desire to be biggest is not the only reason corporate dealmeisters are hammering together such blockbuster mergers as last month's $19 billion Walt Disney-Capital Cities/ABC Inc. alliance or last week's $10 billion linkup between Chase Manhattan Corp. and Chemical Banking Co.
The same can be said for June's $3.52 billion marriage between IBM Corp. and Lotus Development Corp., January's $14 billion tie-up of pharmaceutical giants Glaxo PLC and Wellcome PLC, and a possible $8.5 billion deal between Time Warner Inc. and Turner Broadcasting System Inc.
Sure, in each case the corporations created are among the largest in their industries. But the reasons for merging go far beyond an ego-driven desire to be the biggest kid on the block.
The real reasons behind what analysts say will be the biggest year for mergers and acquisitions in U.S. history can be summed up in two words: strategy and synergy.
"These companies are positioning themselves for the next century," said Richard Peterson of Securities Data Co., a leading provider of merger and acquisition information. "There are new industries and new markets opening up. And they need to be ready to access and serve them."
According to Mr. Peterson, U.S. merger activity is running at an unprecedented rate of $1.1 billion per day and is on a pace to exceed $400 billion -- far beyond the record $347 billion of last year and the previous record of $335 billion in 1988.
"The pace and size of these multibillion-dollar transactions has been otherworldly," said Eugenia Shephard, research analyst with Hoolihan Lokey's Mergerstat Review, which tracks mergers and acquisitions involving U.S. companies. "We are headed for a record year."
Indeed, $2 billion and $3 billion deals that would have been considered major even in the merger-mad late 1980s are dwarfed by the kind of megadeals the world is witnessing this summer.
Add to that the fundamental shifts taking place in such industries as banking and financial services, media and entertainment, pharmaceuticals and biotechnology, and computers and software, and you can see why companies in those industries are eager to acquire or merge with companies that offer complementary skills or a strategic advantage in related markets.
For example, in the banking industry, which Securities Data Co. says is leading the way in the current spate of corporate tie-ups with a historic high of 219 bank deals worth $35 billion through last week, alliances are not being driven by ego but by the need to compete with such companies as General Motors Corp., AT&T; and Charles Schwab.
In an era of deregulation, those companies are luring customers away from banks by offering better deals on an array of traditional bank products such as auto loans, checking accounts, credit cards and investments.
There are other reasons, too, not the least of which is the decline of U.S. banks in both domestic and international markets. In the United States, the banking industry's share of financial assets fell to 25 percent in 1993 from 40 percent in 1973, according to the Federal Reserve Board.
That fact is a key reason for the Chemical Banking Co.-Chase Manhattan Corp. hookup and for two other recent bank deals: the $5.4 billion merger of First Union-First Fidelity in June and the $5.3 billion alliance between First Chicago Corp. and NBD Bancorp Inc. in July.
"Larger banks are finding that in order to continue to grow and gain market share, they have to acquire other banks," said Mergerstat's Ms. Shephard. "Consolidation and the search for synergy is driving it."
Even though the new bank created by the Chase Manhattan-Chemical Bank merger will be the biggest bank in the United States and will have assets of $297 billion, it doesn't hold a candle to the top 10 in Japan, where the biggest bank (created by a merger of Mitsubishi Bank and the Bank of Tokyo) has assets of $876 billion.
Strategy and synergy interests also are behind the mergers taking place in the media and entertainment industry, says Tom Kichler, partner and director of Midwest corporate finance for Ernst & Young.
"Most of these are content and distribution-system mergers," said Mr. Kichler. "That is something that has popular appeal now. Media and entertainment people want to own both content and distribution of their product."
That's why you see Disney marrying up with Capital Cities/ABC and why Time Warner is talking to Ted Turner about acquiring Turner Broadcasting, adds Mr. Kichler.
It's a similar story in the global pharmaceutical industry, where a record number of consolidations are creating monster companies with vast global reach and enormous research-and-development capabilities.
The year began with Hoechst AG acquiring Marion Merrill Dow for $7.12 billion in January. That megamerger was dwarfed when Great Britain's Glaxo Holdings PLC acquired rival Wellcome for $14.3 billion. The most recent consolidation in the industry occurred last month when Sweden's Pharmacia AB acquired Upjohn Co. of Kalamazoo, Mich., for $6.8 billion.
"Consolidation is inevitable in an industry that demands that huge amounts of money be spent to develop new products," said Franc Gregori, an analyst with Paribas Capital Markets. "We are seeing the polarization of the industry into large players who can do most things for most people and niche players who will have significant strengths in certain areas."
What will all this merging and consolidating mean to the consumer? And how about workers?
Inevitably, say analysts, whenever you have a merger, you wind up jettisoning people. In the Chase Manhattan-Chemical Bank merger, for example, almost one-sixth of the combined work force -- 12,000 out of about 75,000 jobs in 39 states and 51 countries -- will be eliminated.
"I can remember in the 1960s when I was in college, big was bad," said Richard Reck, a partner in KPMG Peat Marwick's information, communications and entertainment industry practice. "Today, both management and shareholders are making a ton of money by creating bigger, more efficient companies. These companies are eliminating duplication and getting rid of thousands of employees. The stock market likes that sort of thing. So big is not so bad anymore. Big is good."