Mega-mergers as a window on political-economy
What Couche-Tard's bid for Seven & i tells us about the organization of contemporary commerce
Yesterday's announcement that Canadian convenience store chain Couche-Tard was making a bid for Japan’s Seven & i Holdings (owners of 7/11) filled my Linkedin feed with commentary about the proposed tie up.
Missing in that discussion was any mention of the anti-trust implications and the visible-from-space regulatory challenges (both legal and political) that this merger would face both in the US and Japan (and maybe even in Canada). And while it's tempting to play contrarian, tut and wag a finger at these issues, I'm more interested in exploring what mega-mergers like this can tell us about the functioning of contemporary markets. Three points I want to briefly examine.
1) Information processing
While it's obvious that mega-mergers like this will face considerable regulatory hurdles, they continue to be proposed (Kroger / Albertsons is in a similar vein). Why?
Followers of Hayek will tell us that markets are near-perfect information processing systems and therefore the challenges are known (somewhere) and baked into the price. That pricing information will shape action with rational actors pursuing opportunities that convey advantage at the appropriate price. Weaker versions of this argument use this as indicators for non-economic events. For example, proposed mega-mergers continuing point to business belief in a second Trump term (arguing that his administration would return to the pre-Lina Khan status quo ante FTC).
Even if we allow for a Hayekian price mechanism here (and I’m proud of myself for even indulging this thought experiment), a singular event, even a limited class of events driven by a small number of players is not often a good predictor of wider social events, e.g. elections. Recent issues in political betting markets around the Tim Wallz announcement provide a nice example. There are simply too many relations through which information and activities may flow, too many cleavages within and among those relations, and too many alternative mechanisms of mobilisation for a small cadre of players working in a relatively niche part of the commercial world to explain much less be "causal" for political events.1 But it does highlight a couple of more plausible alternatives.
2) The power of advisors
Matt Stoller wrote here that we’re living in a “termite economy”. Intermediaries of all sorts burrowing through the productive (“real”) economy baking in financial infrastructure to extract value across the chain. Beyond intermediaries there are legions of “advisors” who primary role is to identify opportunities for companies to do stuff. Investment bankers and commercial lawyers are the go-to examples for these advisors, but they’re joined by management consultants, M&A advisors, business scouts, matchmakers, brokers, and a host of other middlemen who make their livings by identifying, framing, presenting, and connecting opportunities between (potential) buyers and (potential) sellers. Contra Hayek there is little spontaneous about (merger) markets.
Merger advisors, in most cases, get paid no matter what the outcome. There are, of course, larger payments for successful transactions. But the money flows into their accounts regardless. This creates a powerful inducement to generate deals.
This money-spinning mechanism is reinforced by the relatively high status these advisors hold. Within consulting firms, banks, and related industries these roles are high status. When I was a but a boy and working in the Big 4, the transactions teams were better paid, wore nicer suits, and were held in higher esteem (despite doing the ass-end of transactions work - mainly valuations) than us lowly PowerPoint monkeys.
This status hierarchy replicates in advisor - company relations. Transactions are managed at board level, with business development generally reporting up the CFO or CEO line. Advisors have the attention of senior people. Senior people who are themselves high status and seeking to reinforce and expand that status through interactions with other high-status networks. Advisors are well positioned to build these bridges to other high status networks, connecting across domains and supporting the flow of status and status reinforcing relations. These status circuits are autocatalytic, providing self-reinforcing models of status that are readily mimicked across firms. Doing deals is a status augmenting display in an environment where status distinction is a critical driver of behavior.
3) Time lags
Max Planck remarked “a new scientific truth does not triumph by convincing its opponents and making them see the light, but rather because its opponents die, and a new generation grows up that is familiar with it.” A similar dynamic is at work with mega-mergers. Despite the creation and slow imposition of a new regulatory environment in the US, firms continue to both propose huge mergers and offer up the same old remedies for squeaking them through approvals.2
In the FT article referenced above external advisors are quoted as suggesting that the merger may pass muster through selling stores in the US. It’s a long-standing strategy to cover retail market concentration by offloading outlets. And while it’s had a long-ish track record of success, it addresses issues that are increasingly of secondary focus to regulators. The neo-Brandeisian turn in antitrust places greater emphasis on the ills of market concentration and the ways that power may hamper competition, innovation, and labor. None of which are really addressed by off loading outlets.
The continued suggestion of the old solution points to the temporal lag between frames of reference. Most advisors continue to peddle the solutions they understand despite the problem framing changing. This lag explains a lot in the ways organizations respond to their environments and highlight the continued push for mergers that will inevitability invite regulatory scrutiny. It’s not that the issues aren’t recognized or known. It’s that the problem-solving approach available to actors in the field are running in different timelines of transition.
Reminds me of a piece by famed evolutionary biologist / science explainer Stephen Jay Gould. Gould has an essay in “Hen’s Teeth and Horse’s Toes” describing the nesting process of the Galápagos Islands’ booby birds. These ground nesting birds drop their eggs in a ring a guano. If the chick wanders out of the ring it effectively disappears to the bird, if something else wanders into the ring it’s treated as attention worthy. The guano ring here just happens to be partially temporal with the ways issues are framed and solutions proffered running out of “rational” sync.
It was all but inevitable that revisions to the rules of Japanese corporate governance making it easier for foreign ownership would spur merger and acquisition activities. But the real insight for me is how this contingency opens a window into some of the often hidden relational and temporal infrastructure of modern commercial life.
Only the most vulgar of Marxists would attribute such wide-ranging power to such a small cadre of actors.
Suppose the Khan & Kanter program in the US has been more of an application of existing / historical approaches rather than new regime.