Merge-and-Purge Cuts

By Published on .

The explosion of M&A activity accounted for one in nine job cuts last year, according to a report by Challenger, Gray & Christmas, Inc., the Chicago-based corporate research firm. Merger-related job cuts hit 73,903 in 1998, almost double the 37,033 counted a year earlier.

The true number of job losses stemming from takeover activity may be significantly higher, according to CEO John Challenger, because his firm only tracks publicly available announcements.

For example, Challenger said Ameritech attributed a round of layoffs to the need to rationalize management and staffing in its home-security business. The business and its excess staffing, however, were created by the acquisition of many small companies over several years, he said.

Job cuts come in two main varieties: Those that eliminate duplicate functions, especially in merged companies, and those that cut layers of bureaucracy, which is common in formerly regulated businesses now operating in a deregulated environment. A disproportionate share of layoffs occurred in deregulated businesses, such as financial services and telecommunications.

Continuing the trend begun in the early 1990s, white-collar workers shared the bad news with blue-collar workers in 1998. "It's hit the white-collar worker much harder than it ever did before," Challenger said.

Research from Securities Data Company showed that there were 11,630 mergers announced in 1998, up 4 percent from the previous year. The cumulative value of the deals was $1.6 trillion-up 80 percent from the previous year.

"As the price tag goes up, there's more and more pressure to reduce costs," Challenger says, hence the jump in the number of takeover related cuts.

Separately, CG&C calculated that 79,667 jobs were eliminated in January of this year, up 10 percent from a year ago (72,193) and 23 percent below December 1998's announced cuts of 103,166.

In this article:
Most Popular