Cramer on Another Busted Merger That Promised Too Much

Aetna-U.S. Healthcare. Another shotgun marriage, demanded by the mutual fund industry, performed by the butchers in research and mergers and acquisitions, bites the dust.

Hardly a week goes by when some health care giant doesn't implode. The air is full of mea culpas about how difficult it is to merge two companies. The Times says USHC was a "harder fit." The Journal points to integration problems as the culprit.

Wrong!

These deals made sense only on paper. They made sense because the mutual funds demanded growth at any price. They made sense because the health-care-analyst-mergers and acquisitions complex stood to reap huge fees if these deals got done.

They made sense to the managements that had incentivized themselves with stock options struck at higher prices, prices they thought could only be reached in time by growing faster and bigger in giant fell swoops rather than in steady consistent chunks.

Coram Health looked like it made a ton of sense at one time. So did Apria Health Care. So did Boston Scientific, for that matter. And United Health. And Humana. All of these companies decided that the incremental organic growth that would have come naturally didn't please their mutual fund-analyst constituents. They heard the siren song of trebling growth where ever they went: health care conferences, one-on-ones with Fidelity, meetings with Wall Street analysts.

But did anyone say that growth comes with a price? Did anyone say that sometimes these cultures don't mix well? Or that merging two entities takes entirely different skills from managing growth? Did anyone tell these companies the downside? That once they disappoint they will become the objects of scorn and hatred, of downgrades and delayed openings and order imbalances?

I have studiously avoided most of these Jiffy-Pop merged entities and for several years suffered the consequences of less than Liquid-oxygen propelled performance, while still beating the averages handily. I had to hear these stocks be flogged endlessly on the backend, by greedy analysts who took their vig while helping to arrange these travesties.

I don't hear any cheering for these entities now.

Oh, and one more thing. Don't expect me to buy when you announce that you are breaking up and divesting yourself of your merged divisions. I didn't like you in your gorge phase; the purge phase is just as unredeeming.

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Random musings: I hate corrections. In the 3000 odd stories I have written since 1973 I have had only one correction box, that of a story that I did in 1981 for the New York Times that missed a Wendy's split. The error was a serious one: it showed Wendy's as underperforming when it would have outperformed when adjusted for the split.

I remember my great editor, Nathaniel Nash, trying to cheer me up as I literally sobbed on the phone when I discovered the error. I had a reputation for making no errors, and now I had violated it. When I told him that I was suicidal over bringing disrepute to the Old Grey Lady he held my hand and told me horror stories about bad errors to put things in perspective. I was not cheered, but I did carry on (unfortunately, Nathaniel perished in the plane crash that took the life of Ron Brown over Serbia. He was the nicest editor I have ever had, a true gentleman.)

So, I was apoplectic when I got the call from Sara Lee last week taking me to task after I had said that they would be laying off people from their restructuring. How I got this information was the way all information is passed down on Wall Street. My backchannels told me that the de-verticalization of Sara Lee would end up costing a ton of jobs, as the people in these factories could expect to be "downsized."

Wrong! Despite Wall Street scuttlebutt otherwise, SLE was in my face immediately saying that no jobs would be lost. When I told them that I had read into the charges taken -- not all of which were for goodwill -- they insisted again that no lay-offs would be made. When I pointed out that Wall Street analysts are saying privately that jobs would be lost, Sara Lee again stuck by its guns. No Lay-offs.

Why bother to go to this extent of insistence if it isn't true? They know I will be all over them if they do lay anybody off now. So in that case, all of the people who told me that lay-offs would be in the offing, I say you are wrong, and I regret that I believed in these rumors and did not acknowledge them as such. Heck, if Sara Lee can pull it off, more power to them. That would be truly great and an inspiration to the rest of corporate America that moved stocks up without regard to the workers left behind...

Mark up this Jack!

Nothing is more revolting than these institutions that start taking up stocks the day before a quarter ends in order to boost their performance. That's why it is so fitting that Western Digital and my old buddy Ascend preannounced bad earnings last night. Those firms that have frantically tried to keep up the drives and networkers will no doubt have to scramble today to kick out those same stocks that they levitated Monday. Serves you right...

Hats off to Starbuck's for providing us with a full year of earnings release dates in one fax. I wish all my companies were similarly organized.

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