975
n
Liaisons and intrigues
Along similar lines, in a large research project, Ezra Zuckerman,
Professor at MIT, found that rms divested businesses, split
up, or demerged in order to make themselves easier to under-
stand for analysts. Those rms who, for one reason or another,
comprised an unusual combination of businesses in their
corporation and therefore were “more difcult to understand
for the poor analysts traded at a signicantly lower price.
They could try to explain their strategy at length but after a
while the only thing left for them to do was to split it. Arthur
Stromberg, then CEO of URS Corporation, who initiated its
spin-off, declared: “I realized that analysts are like the rest of
us. Give them something easy to understand, and they will go
with it. [Before the spin-off,] we had made it tough for them to
gure us out.”
Security analysts usually specialize in one or a specic combi-
nation of industries. If a rm does not conform to that division
of analyst labor, it is more difcult to understand and analyse,
which is why it will trade at a lower price. It then makes sense
to give in to the analysts’ whims, and focus
and simplify, even if that would make you
weaker in a strictly business sense. Hence,
analysts rule the (diversication) waves. And
their lunch-break will determine your stock
price.
Sirens and investment bankers birds of a feather
As I have discussed so far, analysts have a substantial inuence
on a rm’s stock price, therefore on its access to nancial
resources, and therefore on what strategies managers decide to
pursue. In addition, they face a conict of interest, because they
are rating rms that are often also their banks’ (prospective)
customers. I would say that these conicts of interests go a bit
further, and are not restricted only to banks’ analysts. With
it, banks’ inuence on rms’ strategies go further than often
realized. Let me return, as an example, to the now familiar topic
of acquisitions.
analysts rule
the (diversification)
waves
Business Exposed98
Some time ago, I was interviewing a CEO of a FTSE 100 company,
which had acquired dozens of companies over the past years,
when we came to speak about investment bankers. He then asked
me, “Do you know who the Sirens were, in Greek mythology?”
I said “yes” (because I did and, of course, also because I did not
want to appear ignorant).
Sirens were beautiful maidens located on a small island surrounded
by cliffs and rocks. They would lure seamen who sailed near the
island with their enchanting singing, to shipwreck them on the
rocks.
“Well,” this CEO continued, “investment bankers are just like
Sirens.” That caught my attention. “How’s that?” I asked. “They
constantly try to seduce you into doing another deal, and they
don’t care at all whether that deal actually make sense for the
company. It’s like they are trying to make you shipwreck onto the
rocks for their own benet,” he said. OK . . . that’s one (slightly
peculiar) way to describe your own advisors . . .
Of course, he does have a point: rms and their shareholders are
not the only parties potentially beneting from a transaction.
A vast industry exists that initiates, values, negotiates, and
closes deals. However, the interests of such parties, for instance
investment bankers, may not always be aligned with those of the
rm. Especially when M&A times are relatively slow, investment
bankers may attempt to initiate deals from which it is not clear
that they are to the benet of the potential acquirer.
As an ex-investment banker told me some time ago, “When
times were slow, we’d all go through our address books and
discuss ‘who hasn’t done a deal for a long time’, because we
would usually be able to talk such a person into doing one.”
Yet, one could – if one really wanted to – make a good argument
that investment bankers are not necessarily to blame for this;
they are supposed to follow their interests and it is up to the
manager to say “no” to a proposed transaction.
Yet, deals and investment bankers can be seductive. Sometimes,
CEOs who are inclined to at least listen to their investment bank

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