Is a merger best?

Is this herd-mentality going to save the region from the natural course of the economic downturn?
Is a merger best?
By Conrad Egbert
Sat 04 Jul 2009 04:00 AM

It's amazing how most things in the region happen all at once. It's so basic and so fast. But is this herd-mentality going to save the region from the natural course of the economic downturn?

Mergers are events that most of us witness once in a while, but it seems to have now become the latest trend.

Last month, Nakheel announced it would merge with DMCC in response to the steep market downturn.

Then Emaar followed suit just last week, by announcing it was set to merge with three Dubai Holding-owned developers Dubai Properties, Sama Dubai and Tatweer.

A few days later, Abu Dhabi based ANC Holdings along with its partner Flag Holdings bought a 51% stake in themed contracting company Amusement Whitewater and formed what they're now calling a "turnkey solution".

And what's more, I hear a couple of more mergers are on the way soon.

The ANC-AWW tie-up was, however, a little different. Fantasy leisure projects are not high on anyone's agenda currently, leaving AWW without work, so with ANC Holdings' willingness to shell out the money, it was a match made in Abu Dhabi.

The downturn has so far seen property prices tumble more than 50%, billions of dollars worth of projects cancelled and thousands of people lose their jobs. But is merging really the answer?

Mergers seem a good idea for small companies that aren't too successful or when the result of the merger will increase the worth of all companies involved.

But with the current financial situation, companies need to take a closer look at the reasons and expected results of merging before they go ahead.

Most importantly, one needs to assess the motives of all parties for the merger; the financial situation of the companies that are merging and if their coming together will make them stronger. But if even one of them is in trouble, then it will drag the other ones down and that's when a merger goes bad. The most well known example is General Motor's acquisition of Fiat and Saab in 2000 where GM ended up losing more than US $6 billion.

I'm not saying these mergers will end up in trouble, but going by the way things have been done in the past, it does raise some concern.

Let's just hope that the homework was done, and done well.

Conrad Egbert is the editor of Construction Week.

For all the latest construction news from the UAE and Gulf countries, follow us on Twitter and Linkedin, like us on Facebook and subscribe to our YouTube page, which is updated daily.

Subscribe to our Newsletter

Subscribe to Arabian Business' newsletter to receive the latest breaking news and business stories in Dubai,the UAE and the GCC straight to your inbox.