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Originally published July 27, 2008 at 12:00 AM | Page modified July 27, 2008 at 4:43 PM


On the Economy

Mergers and acquisitions are taking toll on Seattle

The nation has reached a significant economic turning point, just the kind of hinge that can swing and hit yesterday's winners in the nose. Losing Safeco is a civic disaster. But it's also unfortunate if small local outfits are selling themselves rather than growing into the next generation of corporate leaders.

Special to The Seattle Times

My economic lumbago starts to act up when I see the merger activity involving Seattle companies in recent months. In general, we've been on the losing end.

Among the lost: Safeco, Getty Images, Pyramid Breweries and likely Puget Sound Energy, along with many small technology firms. Seattle also apparently came close to losing Washington Mutual to JPMorgan Chase, and might eventually do so.

Certainly, Amazon and Microsoft have been acquiring, and the long battle to snare Yahoo continues. But the mergers and acquisitions balance sheet this year is not in our favor.

M&A is constantly remaking industries but it can also remake communities, especially where large companies are involved.

Big headquarters bring a disproportionate share of good jobs, talent and capital. They often weigh in to make their cities better. Their experienced employees leave and start new companies, and the big HQs are the center of a system of vendors and business relationships.

No wonder St. Louis is terrified about losing its most consequential corporate asset, Anhaeuser-Busch, even though its Belgian buyer said the city would remain the North American headquarters.

But the CEO and the real decision-makers won't be living there anymore. The city already lost TWA, Ralston Purina, May Department Stores, McDonnell Douglas, General Dynamics and Southwestern Bell.

I witnessed another dramatic example of being on the losing end of mergers in Phoenix. This is the fifth most populous city in America, but in the 1990s it lost virtually all of its major corporate headquarters, especially the companies that were critical civic leaders.

Now it's a city of call-center jobs and mired in a recession, especially because real estate became the only game in town.

Wages were poor, partly as a result of few corporate jobs; the arts and charities were always struggling; and the city vastly underperformed its peers in venture capital and other measures of quality. This despite Arizona's low taxes and regulation.

I was in Charlotte, N.C., to see the winner's side. As NationsBank (now Bank of America) and First Union (now Wachovia) built themselves into two of the biggest banks in the country, what had been a middling Southern city saw its downtown skyline transformed into an Oz of skyscrapers.

All the prosperity and big-paycheck jobs came, of course, partly through acquiring banks in other cities and gutting their corporate leadership.


As American business has become more concentrated over the past 25 years, these trends have left more municipal losers than winners. Seattle has been one of the winners, partly because M&A is not a zero-sum game. Cities can spawn new companies that grow, and here Seattle has been masterful.

Maybe masterful enough to be a little complacent. The nation has reached a significant economic turning point, just the kind of hinge that can swing and hit yesterday's winners in the nose.

Losing Safeco is a civic disaster (its acquisition by Liberty Mutual Group is expected to close by the end of September). But it's also unfortunate if small local outfits are selling themselves rather than growing into the next generation of corporate leaders.

Markets are changing. Technology and global competition is besieging Wall Street. Hedge funds, private equity and sovereign wealth funds are rising in importance. None of these forces has any loyalty to place.

Armed with these M&A anxieties, I went to see the man who wrote the book. That would be "Deals from Hell," by Robert Bruner, one of the definitive looks at the merger mishaps of recent years, such as AOL-Time Warner and Tyco's trail of disaster. Bruner is dean of the Darden School of Business at the University of Virginia and was in Seattle this month visiting alumni.

The fact that one of the world's most prestigious business schools has enough alums here to merit a dean's visit speaks well of Seattle as a talent magnet. That's where he laid the emphasis.

Bruner admitted mergers have a shocking disruption on loser cities. But, he said, the key is to attract and retain creative people. Capital formation follows creativity. I'm bullish on cities that do that. He put Seattle in that group.

He called mergers and acquisitions the harbinger of more profound, deeper forces. Among these are deregulation, globalization, demographic changes and technology. Yet another is Wall Street's push for higher growth, which CEOs think they can accomplish by acquiring. These are disruptive and M&A is a response. The corners of his mouth turned up and he added, "Whether they do it wisely is another matter."

Which brought us to Microsoft's pursuit of Yahoo, a merger he called very compelling. Google's share (of the online search market) is so big, the future might not look pretty for either Microsoft or Yahoo. A deal would fit one of Bruner's benchmarks for good mergers: a sound strategic rationale. The biggest challenge, he said, would be merging the cultures and retaining talent.

At least that would be a needed win for Seattle. Still, the game is changing fast amid a wrenching and unusually widespread downturn.

Bruner is undeterred. Times of discontinuity, he said, are when great fortunes are made.

And cities can be undone.

Jon Talton is a journalist and author living in Seattle. For more than 20 years he has covered business and finance, specializing in urban economies, energy, real estate and economics and public policy. You may reach Jon Talton at

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Jon Talton comments on economic trends and turning points, putting them into context with people, place and the environment in the Pacific Northwest

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