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Mergers mean layoffs
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October 6, 1999: 3:43 p.m. ET
Merger-related job cuts up 35% this year and on track for record: report
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NEW YORK (CNNfn) - A record number of mergers in corporate America this year is leading to a record number of job cuts, with one in 10 employees being shown the door because of overlap, according to employment firm Challenger, Gray & Christmas.
MCI WorldCom Inc. (WCOM) and Sprint Corp. (FON) became the latest members of the record-acquisition club with their $129 billion stock-and-debt agreement, announced Tuesday. That deal topped Exxon Corp. (XON)'s planned $80 billion purchase of Mobil Corp. (MOB) and surpassed the $35.6 billion CBS-Viacom merger announced at the end of last month.
Amid all that is some bad news: Through the end of September, some 60,282 positions were eliminated through mergers and acquisitions, up 35 percent from the 44,742 positions cut in the first nine months of 1998. That leaves 1999 on track to post the highest number of acquisition-related job cuts ever, John Challenger, chief executive of the Chicago-based firm, said Tuesday.
"For employees in the middle of a merger-acquisition right now, it is likely that at least one in 10 will lose their jobs because of the combination," Challenger said.
Employment still growing briskly
The grim numbers come as the U.S. economy churns out new jobs at a brisk pace. Some 124,000 new positions were added to the economy in August, leaving the unemployment rate at a 29-year low of 4.2 percent. September's employment numbers, to be released Friday, are expected to show that 218,000 new jobs were created, with the jobless rate staying right where it is.
For economy and financial market observers, the merger- and acquisition-related job cuts offer a double-sided picture.
On the one hand, fewer employed people means a reduction in the overall labor force and a slowdown in economic growth -- something Federal Reserve Chairman Alan Greenspan and the Fed's policy board would like to see, according to their statement Tuesday following their decision to leave short-term interest rates unchanged.
On the other hand, mergers and acquisitions -- particularly job cuts related to overlapping departments and positions within two joining companies -- tend to streamline operations and make firms leaner and meaner. That tends to lift corporate profits in the long term and contribute more to economic growth.
Merger-acquisition-related job cuts had tapered off in 1997, falling to 37,033 from 42,603 in 1996 and 72,083 in 1995. Last year's cuts rebounded, though, climbing to 73,093 positions.
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