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Copyright 2008 The New York Times Company

1041 of 1231 DOCUMENTS

The New York Times

February 26, 2008 Tuesday

Late Edition - Final

Mergers In a Time Of Bears


The latest news on mergers and acquisitions can be found at

SECTION: Section C; Column 0; Business/Financial Desk; DEALBOOK; Pg. 1

LENGTH: 1019 words

Most mergers fail.

If that's not a bona fide fact, plenty of smart people think it is. McKinsey & Company says it's true. Harvard, too. Booz Allen Hamilton, KPMG, A. T. Kearney -- the list goes on. If a deal enriches an acquirer's shareholders, the statistics say, it is probably an accident.

But a new study puts a twist on the conventional wisdom. It's not that all deals fail. It's just that timing appears to be everything. Deals made at the very beginning of a merger cycle regularly succeed. It's the rest that fall flat.

The study, published in this month's Academy of Management Journal, found that deals struck in the first 15 percent of a consolidation wave tend to do well, at least measured by the acquirers' share performance against that of the broad market. The duds come later, when copycats jump on the bandwagon. Even in the merger game, there's a first-mover advantage.

The problem is that most C.E.O.'s don't have the guts to make acquisitions when everyone is running scared. That is usually during a volatile market -- like the one we're living in right now. Which is exactly the wrong approach.

Notwithstanding Microsoft's $44.6 billion takeover bid for Yahoo or Electronic Arts' $2 billion offer for Take-Two Interactive, 2008 is going to be an abysmal year for deal-making. Volume in mergers and acquisitions has plummeted 37 percent this year in the United States, according to Dealogic. (Factor out Microsoft-Yahoo and the drop is a whopping 56 percent.) That's partly a result of the private equity folks' being taken out of the equation because of the credit crisis. But it is also because C.E.O.'s and boards become paralyzed when the markets turn turbulent. Instead of making investments, they hunker down and focus on putting their houses in order. Remember those pundits who said corporations would fill the void left by private equity? They were wrong -- only they shouldn't have been.

Baron Philippe de Rothschild, ever an opportunist, is said to have advised, ''Buy when there's blood in the streets.'' Investors like Warren Buffett do just that all the time. Hedge funds have been set up specifically to take advantage of carnage in the markets.

But for some inexplicable reason, many corporate C.E.O.'s can't seem to stomach making a big deal when the going gets tough.

It all makes sense to Gerry McNamara, Bernadine Johnson Dykes and John Haleblian, the professors behind the study, entitled ''The Performance Implications of Participating in an Acquisition Wave.'' The study examined 3,194 public companies that purchased other companies during acquisition waves between 1984 and 2004.

''Our findings suggest that the market rewards executives who perceive opportunities early, scan the environment for targets and move before others in their industry,'' said Mr. McNamara, a professor at Michigan State University. ''Conversely, the market severely punishes followers, those firms that merely imitate the moves of early participants in the wave, who jump on the acquisition bandwagon largely because of pressures created by competitors. Such companies typically lose significant stock value.''

Take the telecommunications industry. AT&T's acquisition of Cingular (now AT&T Wireless), which was announced in February 2004, has turned out to be an unqualified winner. But the merger of Sprint and Nextel, unveiled 11 months later, was and is a disaster.

The numbers tell the story. Early movers -- companies that made acquisitions in the beginning of a consolidation wave within their industry -- found their stock up, on average 4 percent relative to where the shares would ordinarily trade, according to the study. Shares of latecomers, who bought at the end of a wave, fell by an average of 3 percent during that time. Of course, at the end of every wave there are bigger and more deals. After all, stocks are usually up, and so is boardroom confidence (read: exuberance). ''There's a social pressure,'' Mr. McNamara said. ''They like to be in the herd.''

How do you define a consolidation wave? The professors looked at 12 industries over the 20-year period. To qualify as a wave, merger activity had to show a pattern in which the peak year had ''a greater than 100 percent increase from the first year followed by a decline in acquisition activity of greater than 50 percent from the peak year.'' Waves were as long as six years for some industries.

By the way, serial acquirers like General Electric don't seem to surf through consolidation waves. Companies that ''undertake acquisitions on a regular basis as part of their core business routines'' are less likely, the study finds, ''to either seize early-mover benefits or suffer from the costs associated with bandwagon pressures.''

There are a couple of caveats to the study. The professors measured the acquirers' stock appreciation or deprecation by using a fancy calculation of what they call ''abnormal returns,'' which examined share prices five days before the announcement of the acquisition and prices 15 days later. The math is complicated, but they say the ''abnormal return'' is predictive of stock performance in the future. Of course, critics could argue the study doesn't measure a long enough period after a deal is made.

Nonetheless, the point is clear: C.E.O.'s should stop being such scaredy-cats. While everyone else is battening down the hatches, go make a deal. The wave is just starting.


I wrote on Feb. 12 that Michael S. Gross had 14 days to spend $300 million on acquisitions for his ''blank check'' company, or special purpose acquisition company (SPAC).

Well, the deadline was Monday, and Mr. Gross beat it -- sort of. His company, Marathon Acquisitions, announced last Thursday that it had signed a letter of intent to make an acquisition, but it refused to say what exactly it was buying. The news leaves investors with more questions than answers. And unfortunately for other entrepreneurs trying to clinch deals via such ''blank check companies,'' it makes SPACs even more dubious.

Mr. Gross now has until Aug. 30 to complete his mystery deal.









LOAD-DATE: February 26, 2008



Copyright 2008 The New York Times Company

1042 of 1231 DOCUMENTS

The New York Times

February 26, 2008 Tuesday

Late Edition - Final

Cochlear Implant Supports an Author's Active Life


SECTION: Section F; Column 0; Science Desk; Pg. 7

LENGTH: 1195 words

Josh Swiller was 22 and profoundly deaf when he applied to the Peace Corps in search of adventure. And indeed, adventure he found. His experiences in Zambia are eloquently recounted in his hard-to-put-down memoir of deafness and Africa, ''The Unheard'' (Holt, 2007).

But how could someone so hard of hearing get into the Peace Corps, let alone learn a foreign language and communicate in it? Mr. Swiller told me he had no problem with the interview, which was conducted one-on-one in a quiet room, enabling him to hear and to read lips. Through the devoted efforts of an audiologist and his mother, he could speak nearly as well as a normal-hearing person. And he did not have a problem learning the language of Zambia.

''I was so used to paying close attention when other people spoke,'' Mr. Swiller recalled in an interview. ''I was used to asking people to repeat themselves.''

He added: ''Being deaf and having three brothers, one of whom is also deaf, I learned how to communicate without language. I could conduct conversations when I understood only a few words in each sentence.''

That was remarkable in itself. But far more remarkable is that the interview with me was conducted over the telephone, something Mr. Swiller, 37, could not have done three years ago. In 2005, he and his brother underwent life-changing surgery, substituting a cochlear implant for the hearing aids that were no longer working for them.

''Thirty years of amplified sound had worn out our ears,'' he explained. ''In most people with sensorineural hearing loss, their hearing gets worse with time and they need stronger and stronger amplification. We started getting terrible headaches all the time, and I finally had to stop using the aids altogether.''

Opened a 'Whole New World'

During those two soundless years, Mr. Swiller, who was fluent in sign language, attended the Lexington School for the Deaf, in Jackson Heights, Queens, and the League for the Hard of Hearing, in Manhattan, and earned a master's degree in social work. He now works part-time as a hospice social worker, a job he could not have held before the implant because it involves talking to sick people and lots of time on the telephone. His brother, now married and a real estate entrepreneur, does much of his work through conference calls.

''The implant opened up a whole new world for me,'' a world that now includes a normal-hearing girlfriend who mumbles, Mr. Swiller said, laughing.

With the implant, Mr. Swiller's hearing went from 25 percent to 100 percent. The deafness inherited by Mr. Swiller, his brother and one of their first cousins is caused by an autosomal recessive mutation in a gene called connexion 26, the most common cause of sensorineural deafness in children.

Sensorineural hearing loss affects one to three of every thousand children born in developed countries, according to a report in the Dec. 6 issue of The New England Journal of Medicine. Hearing aids are helpful when the deficit is mild to moderate, but are less effective or ineffective when hearing loss is severe.

Candidates for cochlear implants have severe sensorineural hearing loss in both ears but still have a healthy auditory nerve. A tiny microphone worn behind the ear picks up and amplifies noises filtered through a sound processor that gives priority to speech. The resulting signals are sent electromagnetically to a receiver and stimulator implanted under the skin. The signals are converted to electrical impulses and sent to the brain via the auditory nerve.

At least one company, Otologics, has developed a cochlear implant that is placed entirely under the skin, but it is not yet approved for use in the United States. Mr. Swiller sees some advantages to the external receiver, which, for example, is easily removed for showering or swimming. ''One of my favorite things is the ability to turn it off,'' he said. ''On the subway, it's off.''

Mr. Swiller explained that the device also has built-in flexibility with four different programs, each with its own volume and sensitivity control: ''In addition to the base program, one makes speech frequencies louder, which is useful at a lecture or a meeting at work; another turns off all the microphones except the one picking up the voice of the person I'm looking at, which makes it easier to hear in a noisy environment; and a fourth cuts the microphone pickup to a three-to-four-foot radius.''

''My hearing is so many light-years better than I ever could have imagined -- it's a miracle,'' Mr. Swiller said. ''Before the implant, I couldn't talk on the phone, I couldn't have a conversation. It was very frustrating to be in the world and not in the world, watching people talking and not being able to follow what they were saying.''

Not an Easy Decision

Some deaf people are opposed to cochlear implants, because they regard the world of the deaf as a community, which they believe that implants threaten. They also point out that the devices are still being perfected.

Nonetheless, Mr. Swiller says based on his experience, ''a small child with severe hearing loss should be implanted as soon as possible. Sign language can be learned down the road, but not English. It's a no-brainer to me if you want the child to succeed in a hearing world.''

Mr. Swiller recalled meeting a deaf high school girl who received the implants at age 2. He said she was doing well academically, captain of her basketball team and confident in social situations. Because of cochlear implants, he said, deaf schools around the country are rapidly losing enrollment.

Before his surgery, Mr. Swiller did a lot of homework. He read ''Rebuilt,'' a book by Michael Chorost about his experience with an implant. He also attended a support group at the League for the Hard of Hearing where people with implants spoke positively about them. Still, after much testing for eligibility and deciding to get the implant, Mr. Swiller said he had to wait several months to be sure he would not change his mind. Then a month of healing followed the surgery before the device was turned on.

''The first week was a real disappointment,'' Mr. Swiller recalled. ''All I heard was nonsense. My brain was like a muscle that needed to be strengthened and increase its tolerance for this new stimulus.''

''The first sound I heard was 'sh' -- I'd never heard that or 's' before,'' he continued. ''Then one day, I passed someone on the street talking on a cellphone, and I heard everything she said crystal clear. That had never happened before -- hearing something when I was not paying attention to the sound. I can now hear conversations from another room; before I couldn't hear distant speech at all.''

Mr. Swiller's surgeon, Dr. J. Thomas Roland Jr., co-director of the cochlear implant center at New York University, said in an interview that universal screening of newborns had made it possible to detect deafness by one month of age, making cochlear implantation in infants one of the latest trends. Other trends are getting implants in both ears and implanting older adults -- including those over 70 -- for whom hearing aids are no longer adequate.



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