I used to love a good Knickerbocker Glory when I was a child (it’s an over-the-top ice-cream based dessert, if you’ve never heard of the culinary version of the term). Only much later in life did I realise that it more than likely bore its name as a result of New York’s larger than life Knickerbocker Trust, which crashed and burned in the Panic of 1907. Likewise, it was years after having first heard the term ‘Doozy’ in Groundhog Day that I learnt from a colleague in New York that it was actually short for ‘Duisenberg’, a maker of over-the-top luxury cars that was born in the wake of the 1907 Panic, only to founder in the aftermath of the next Great Crash, of 1929.
So I can’t help but wonder whether any of my grand-children might one day be eating Egg Strata in a London restaurant without realising that it originally got its name from the 2013 merger between Glencore and Xstrata (forgive the parental nostalgia, but this is the first piece I’ve written since the birth of my latest son, Ben, last week!).
It wouldn’t be the first time in financial history that a great corporate takeover or merger of equals turned out to be remembered in history more for the wrong reasons than the right ones. In dendrochronology, it’s the unusual patterns in tree rings that betray the stresses and strains of the systems around them. In financial history, in contrast, it’s the unusual (and sometimes ill-fated) mergers and acquisitions that often do the job.
Take the 1999 merger-that-wasn’t between MCI Worldcom and Sprint, or the ill-fated 2000 takeover of Germany’s Mannesmann by Vodafone, or even the 2001 mega merger of equals between AOL and Time Warner. Look around them, and there was the boom and bust of the Dotcom bubble. Go forward to 2007 and it was the fight over Dutch bank ABN Amro that was a good sign of the froth in global financial markets (little did it know it at the time, but the UK government ended up the biggest loser). Most recently, I couldn’t help but notice the sudden travails of Glencore, frantically trying to scale-back its capital expenditure plans and debts in the wake of further share price falls (the stock is now down 75% from its 2013 IPO price) and renewed price weakness in some of the key commodities markets it does business in. Did it make a good case for christening a Commodities Bubble, I wondered?
Glencore CEO Ivan Glasenberg may still be in his job, but the fate of most of the other senior executives in the sorry stories above was a decidedly mixed bunch (past compensation aside). At Mannesmann, Klaus Esser did get to keep his out-sized takeover bonus, but only after a lengthy and acrimonious trial in the German courts. Meanwhile, less than a year after the final AOL Time Warner merger took place, the deal’s architect (and the new company’s first CEO) Gerald Levin was out of a job. Over at the Royal Bank of Scotland, it was his job and his knighthood that CEO Fred Goodwin was forced to surrender. But even worse was to befall Worldcom CEO Bernie Ebbers, otherwise now known as inmate #56022-054 in the Oakdale Federal Correctional Institution as a result of the accounting irregularities he was subsequently found culpable of.
Did any good come of any of these mergers and acquisitions, if not to the shareholders concerned? Well, at least fine art prices remain high, I suppose (many of the senior executives in question were avid collectors), while the philanthropy business is still doing rather well. You could even say that we aren’t worrying about running out of oil anytime soon, though on the other hand we are a bit more worried about running out of planet as a result of all the drilling that’s taken place.
At least Ivan Glasenberg’s still got his job over at Glencore, for now. Give it twenty five years, though, and perhaps at least some of us will be eating Egg Strata for breakfast. How will yours be? Sunny Side Up, or Over Easy?