Tuesday, October 30, 2007


That's one of the great buzz-words of business. Synergies. Every merger is justified by the "synergies" it will create.

Way back in the 1970s, the golden age of conglomerate creation, no one bothered with this claim. There was a prevailing idea that a large corporation should be a balanced portfolio all by itself, so that the simple unrelatedness of the businesses brought under a single corporate roof was enough justification for the deals.

But then, that was the era of the Warren Court, and the early years of the Burger Court. Antitrust law seemed to make almost any combination between two businesses that weren't utterly unrelated the object of suspicion.

The judicial and political climate is quite different now. Companies claim synergy for their mergers both because "conglomerates" got a bad reputation back in the old days and because they now feel confident that they can claim synergy without bringing down on their heads adverse consequences.

This all brings us back to BEA Systems and Oracle. They're both software companies. They are even direct competitors in some parts of the vast category of product. Still, in a software world dominated by Microsoft, one can make a case that smaller players need to combine -- that this is pro-competitive -- because the process may creates an effective competitor, a counter-balance to that Big Kahuna.

Oracle's CEO Larry Ellison almost said this (not in terms of public policy, of course, but in terms of his own vision of the market's future} in a conference call in late August.

"Microsoft, with their middleware, a lot of which is embedded in Windows, Microsoft being the number 1 player, IBM being the number 2 player, and Oracle being the number 3 player in middleware. We passed all the other niche players. We really separated ourselves from the niche players. BEA, we’re almost twice as large as BEA right now, BEA is shrinking in terms of new license sales. So, it’s come down to the same big three, but we’re growing dramatically faster than our competitors and our target really is to beat IBM because it’s very difficult to measure the size of Microsoft’s middleware business because so much of it is embedded in Windows."

He stoops to conquer. You'll notice that he was recently belittling that "shrinking" company he more recently has sought to buy. Not shrinking so fast as to have nothing to offer, I guess.

Contemplate the activities of belittlement on the one hand and attempted ingestion on the other. Do those activities display any (what's the word I want here?): synergy?

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