Ho-Hum

By Tom Peters

The GE and RCA merger grabbed business headlines for days at year end. I shall miss RCA. It is sad indeed to see a once-proud name disappear forever into the belly of a much larger beast. Other than that personal emotion, my reaction is: ho-hum.

What is the likely outcome of the merger? It certainly will not increase America’s ability to compete. The major divisions of each corporation are far beyond the size at which scale economies of any sort can be achieved. Besides, the only really shining star from a profitability standpoint in the RCA portfolio is NBC—and unfortunately the U.S. long ago decisively won the world battle for most hours of vacuous television programming.

Yet the merger will probably do little harm. It’s one more step down the path to inevitable consolidation of America’s manufacturing base, but there’s little exciting in either company that could be messed up. GE’s world dominance in technology has long been on the wane. One of its finest accomplishments recently is in the area of financing—the creative development of General Electric Credit Corp. (which now accounts for 15 percent of GE’s profits). GE’s other super achievement is having perfected the art of tax loophole exploitation—the extraordinarily lucrative purchase of unprofitable companies’ tax loss carry-forwards.

The history of mega-mergers is grim indeed. A thorough 1985 study by McKinsey & Co., the consultants, damned the merger movement in general, and found that most merged companies resulted in almost unrelieved poor performance.

The saddest news is that such a large acquisition (mainly for cash) is a woeful admission of defeat. That is, GE is implicitly saying that it couldn’t find any internal growth opportunities for $6 billion that were better than buying this recent basket case, RCA. What a commentary on Thomas Edison’s company!

But there is one beneficial result of the event. At least GE didn’t spend the money buying young, vital companies! Bill McGowan, MCI’s chairman, responded to the merger by saying, “It will save me from hearing the rumor about GE buying us.”

And I am glad GE didn’t buy MCI. GE’s last major acquisition of a dynamic company—Calma, the then top computer-aided design company in the world—has not panned out. GE is, of course, in good—or bad—company here. United Technologies, Exxon, and many others have learned the perils of big, inert entities swallowing fleet-of-foot enterprises. The good news, then, is that things could have been worse.

One kudo that surely is well deserved goes to Thornton Bradshaw, RCA’s chairman. I join many others in applauding his efforts to bring RCA back from the brink of disaster to a position which was appealing to GE. Only three years ago, as Bradshaw began his tenure as chairman, a Fortune magazine poll voted RCA as one of the worst-managed corporations in America.

The last word goes to Don Kendall, PepsiCo’s chairman. Kendall’s exciting company was recently featured in a profile in the New York Times. The major thrust: $10 billion PepsiCo is confident enough about its skills and talent pool to eschew the acquisition route and invest its money in internal growth opportunities. The day after the GE-RCA deal, Kendall was quoted in the Wall Street Journal, “I don’t see anything constructive at all in GE and RCA getting together.” Amen.

(C) 1985 NOT JUST ANOTHER PUBLISHING COMPANY
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