"Procter & Gamble, the consumer products company, reached an agreement yesterday to acquire the Gillette Company, the shaving-products and battery maker, for about $57 billion in stock, the companies said last night." NY Times.
This big deal raises two questions. (1) Is the deal good for shareholders? (2) Is the deal good for society?
We need to remember that management doesn't necessarily act in the best interest of shareholders. Shareholders only want their stock price to go up. Management may be motivated by (1) a contest to see who has the biggest cajones on Wall Street; (2) boredom (overseeing an historically sized mega-merger is more exciting for management than their regular jobs); (3) making a quick buck in order to cash in on their options, choosing a short term price spike over long term performance; or (4) increasing in their own compensation.
The theoretical synergy behind the deal is to increase the combined company's bargaining power with respect to its customers. This is a motivation that's not in the best interests of society because it's merely a zero sum game. The new company wins at the expense of its customers. Perhaps stores wind up carrying a P&G/Gillette product instead of a superior product manufactured by a smaller company locked out of distribution channels. Society is harmed.