Megamerger Bites the Dust: BHP Billiton Abandons Bid for Rio Tinto
MarketWatch, 25 November 2008
The world’s largest mining company, BHP Billiton, scraps its hostile takeover bid for rival Rio Tinto, citing falling demand for commodities. The deal was set to be one of the world’s largest takeover offers, and its collapse may signal the end of megamergers. According to MarketWatch, the value of all M&A activity is down 24% to $3.36 trillion in 2008 from an all-time high of $4.42 trillion a year ago.

Our View: Acquiring another company in this environment requires the ability and willingness to act. First, a company must possess the balance sheet capacity for deal making (and of course cash is the only accepted currency these days). A company must also be willing to commit those resources to deals, as opposed to saving it as a “just in case” buffer. Furthermore, a company must be willing to accept the risks of buying troubled or distressed companies—those, increasingly, are the targets now in play. Making an offensive move is interesting when viewed as an option (albeit a pricey one) for coming off the sidelines should the right opportunity materialize. In a highly uncertain environment, call options of this nature can make for very prudent investing.

Crisis Elevates Finance, Sinks HR
Economist, 19 November 2008
Headlines aside, some commentators claim that the crisis is a boon for finance executives rather than a hindrance. CFOs will be elevated to the CEO position more frequently over the next few years as firms look for candidates with the ability to manage numbers (cost initiatives in particular) across increasingly complex global organizations. Human resources executives, who have enjoyed a tremendous ascendancy during the “war for talent,” will diminish in importance as more pressing needs overshadow soft skills.

Our View: While CFOs and treasurers have been elevated during the crisis, they will also face tremendous pressure to deliver results. CFO Executive Board research shows that during times of turmoil, CFOs are the first to pay the price due to bad performance. CFOs who do deliver leading performance are neither bean counters nor visionaries; instead, they tend to excel at many of the soft skills that are supposedly going out of fashion: influencing others without using authority, cultivating strong internal relationships, and relying more on in-person communications.

U.S. Government Commits $800 Billion to Buttress “Real Economy”
The Washington Post, 26 November 2008
Pairing good news with bad, the U.S. Treasury and Federal Reserve announce a new lending program that makes it easier for households to borrow money for cars, tuition bills, and new homes, while news broke that the economy contracted more quickly in the third quarter than was initially estimated and home prices fell even more. The program will provide backing to investors who put money toward consumer loans, as well as some small businesses.

Our View: The time to full recovery (not just turnaround in GDP growth) for this downturn is likely to be measured in years, not quarters or months. That will give ample time to “imprint” new behaviors on people in their economically formative years (17- to 25-year-olds, roughly coinciding with millennials). In the United States alone, that group numbers 38 million people (more than the population of Poland). This cohort will take the behaviors formed during the downturn with them for life, just as depression and boomer cohorts have in the past.