Is Pfizer's Jeffrey Kindler Brave or Crazy?


Back in September, my colleagues at asked if I had any reaction to the decision by Bank of America CEO Kenneth Lewis to pay $44 billion for Merrill Lynch in the middle of the Wall Street meltdown. My initial reaction was the sort of thing one can’t say in polite company, so instead of offering a four-letter epithet, I wrote a post entitled, “Is Bank of America’s Ken Lewis Brave or Crazy?”

Based on the events of the past few weeks, I think we have our answer. Here’s what I wrote at the time of the deal: “It sounds great on paper as a high-testosterone business strategy. But my concern is that what makes Ken Lewis and his company tick runs counter to almost every major trend in business I’ve seen over the last five years — and are at odds with what customers are looking for in the companies with which they do business…This week, Lewis and his colleagues took a big step forward. Let’s see how long it takes for them to take two steps back.”

Make that ten steps back! What an absolute disaster — for shareholders, for Lewis’s track record as a leader, for one-time Merrill CEO John Thain’s reputation (although he may have a future as an interior decorator), and for the country as a whole, which is on the hook for the fallout from this disastrous deal.

Of course, one of the other big headlines of the last few days has been the decision by Jeffrey Kindler, CEO of pharmaceutical giant Pfizer, to pay a staggering $68 billion to acquire Wyeth, another giant in the field. Same you-know-what, different day.

So let me pose the question anew: Is Pfizer’s Jeffrey Kindler brave or crazy?

Kindler offers all the standard strategic rationales for the deal: Buying Wyeth allows Pfizer to round outs its product portfolio, expand into entirely new lines of business, add state-of-the-art manufacturing. I wish Kindler and his colleagues nothing but the best, but I fear they too will come to regret this monster move.

When will big-company CEOs ever learn that using acquisitions to get bigger almost never makes their companies better? It would be funny if the consequences weren’t so depressing. Giant hookups make so much sense on paper — and yet the minute the ink dries on the contracts, all sorts of nonsense gets in the way. There’s nothing wrong with these acquisition-driven behemoths other than the fact that talented people don’t want to work for them (the politics and bureaucracy are paralyzing), customers hate doing business with them (they lose any sort of human touch), and investors don’t trust them (which is why the stock price of the acquirer almost always drops on news of a deal).

So let me take another shot at making a point I made back in September, during the Merrill Lynch deal. There’s nothing intrinsically wrong with being big. There are advantages to having the deepest pockets and the biggest market share. But size itself is not a strategy. How many industries can you name in which the biggest player is also the best in terms of productivity, customer satisfaction, or financial performance?

Sure, we live and compete in a world in which the strong often take from the weak. But the real story of our times, the logic of business moving forward, is not that the strong take from the weak. It’s that the smart take from the strong. And getting bigger, especially through mega-acquisitions, almost always makes you dumber.

So good luck, Jeffrey Kindler. But if Pfizer needs additional financing a year from now, because the merger isn’t going as planned, I wouldn’t bother asking Ken Lewis for a loan.


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