Mergers and buyouts are always news, whether its the merger of Halliburton and Dresser in the oil services industry or Hibernia's buyout of Argent Bank. Mergers of firms in the same area or at least with strengths that make them viable in another area can prove to be successful, while those of unrelated firms have little chance of success. The loss of competition is often a concern as well, but in some cases mergers occur because of the competitive process.

When firms in the same field combine, as happened in the Halliburton/Dresser and Hibernia/Argent cases, people are concerned with the loss of competition in that field as well as the loss of local institutions. The fear of monopolization is a real concern, but mergers do have to meet Justice Department guidelines to get approved.

With the Halliburton and Dresser merger, firms that occupied different parts of the oils services industry combined to give oil companies a place where they can get most of their oil services dealing with a single firm. With high contracting costs in this industry, a full-service firm offers a savings in contracting, providing oil companies with one-stop shopping.

In the case of Hibernia and Argent or even the recently announced plan of Wells Fargo and Norwest, many of the banking mergers are due to the competition. There have been so many bank mergers recently because the state governments have cut out their laws that once forbade cross-parish or cross-county banks and a recent federal law made interstate bank mergers easier. Previous laws protected banks from competition from outside of their county or state, but these prohibitions of competition have been lifted. With significant cost savings with larger banks, fewer banks can survive. Still, banking remains highly competitive.

When the combinations are between firms from totally separate fields, the loss of competition is not a problem, but such mergers are often not successful. In the 1960s and 1970s there were many mergers between firms that were completely unrelated.

In the 1980s and 1990s, many of these conglomerates became targets of buyouts themselves. What made these takeovers different is that they were mostly made with the express intention of breaking up these conglomerates into several firms, spinning off areas of the business that did not take advantage of the firm's core competencies. The 1960s and 1970s mergers that put these firms together were not successful; the sum of the parts was worth more than the whole.

Takeovers, far from being an evil business practice, have an important role in modern corporate society. Corporations are characterized by a separation of ownership from management, stockholders hire a management team to run their company. But managers can sometimes run a company in a way that benefits the managers to the detriment of the stockholders. The threat of being taken over helps to keep managers' decisions in line stockholder interests.

To wrest corporate control from current managers, takeover specialists must offer current stockholders a higher price for their stock than they can get in the market. The takeover specialists are essentially telling the stockholders that the current management for the firm is not doing a good job for the stockholders and that the takeover specialists can do better, and the takeover specialists are willing to put their money where their mouths are.

The takeover specialists only make money if they can increase the firm's stock value by more than they paid for the stock, and they paid more than the going price was under the old management. Managers, if they want to keep their jobs must keep stock values up as high as anyone else could or risk losing their jobs.

The best news for me is that some of these recent mergers and takeovers will enable me to buy a car with a better pedigree. Unfortunately, it isn't because I own stock in a firm being bought out. With the mergers of Rolls Royce with Volkswagen and Mercedes-Benz with Chrysler, I should be able to afford a Mercedes Neon or a Rolls Rabbit.