Toward a New Continent
Friday, Jun. 15, 2012 at 9:58am
Encompassing Parts 1 through 5 of the series suggesting the acquisition of Canada by the USA Corp.
The third quarter of the year brings with it the smell of barbecue, sand, and seersucker and, as the weather cools to Canadian briskness, a large spasm of strategic planning. I'm sure that many are involved right now in exercises that take a look going forward at what next year and the year after might bring in terms of credible claims that could boost one’s stock price.
In so doing, it is altogether proper, of course, to consider whether one's corporation is working with the proper mix of assets. Divestitures of non-core holdings are considered, as are strategic acquisitions both friendly and unfriendly. In that latter regard, it is quite clear that friendly transactions are best, yielding true economies of scale, collegial consideration of key integration issues and so forth.
Still, unfriendly actions against target companies are sometimes necessary, and those are on the table as well, as we take a look at the challenges and opportunities that lie ahead. These questions are appropriate not only to business organizations, but also to those meta-corporate structures known as nations, although we might all be better off, globally as well as locally, if the leaders of our national governments were as rigorous and methodical as those in our arena. Too often, governments rampage about willy-nilly doing whatever feels best when party politics, anger, greed or emotions of one kind or another take control of the ruling cadre.
Our governments could, in short, be more businesslike. This is particularly germane at this moment, as each party nominates the individual it believes would be best-suited to represent the interests of the American people. Is this not an excellent time to take stock of our portfolio of assets and look for ways to divest, invest and grow the base business of our national corporate state? I believe it is. The scent of change is in the air, and in that environment in which fresh ideas are not only welcome but necessary I have a suggestion for a very, very big deal that could solve a lot of our strategic issues and point us in a good direction for many years to come. I will lay out the rationale in this brief treatise, as well as some suggestions for how it might be accomplished under a number of possible scenarios. In so doing, I will simply be bringing some of the methodologies I have learned over my years in business to some of the issues that face our nation. Longtime readers will know I have looked at this issue before. Nothing was done at that time. The idea is no worse now. In fact, with Europe melting down it may be more germane -- not German! -- than ever before.
The High Concept
The nub of the proposed transaction is simple. When viewed as a business entity, the United States faces many of the same problems endemic to mature organizations. Growth has slowed. Upside is difficult to ascertain given the current asset base. Operating resources are suddenly quite limited. Wages are higher than many competitors. At the same time, opportunities for young people are narrowing. We are increasingly less competitive with start-ups that promise adventure, better benefits, more leisure time, and a stronger currency more likely to grow over time, like Europe, Asia and Dubai. At the same time, make no mistake, our corporate state is strong. With an influx of new blood, new resources, new territory, the powerful established base could be sustained and produce a radical new growth curve. In short, a major acquisition is called for.
Recognizing this, various Administrations of our national corporation in Washington attempted tuck-in acquisitions that have failed to produce value and in certain cases required hostilities that were most counter-productive. Current activities have been non-strategic, far-afield, alienated from our core operations and difficult to manage, to say the least. It is clear to many that these abortive efforts - be they joint ventures or ill-advised mergers of one sort or another - have failed, and must be abandoned. The problems inherent in a static strategy, however, remain.
And yet the answer is staring us in the face. When the United States faced a similar dilemma in the 19th Century, it expanded corporate operations until they reached from one end of the continent to the other. It was, of course, a rough-and-tumble time, not as sophisticated and evolved as ours. The process was ugly, even if it was given a clever brand to hide behind. After all, one man's Manifest Destiny is another man's genocide, imperialism and theft of territory. Today, with our contemporary understanding of mergers and acquisitions, product and brand integration and organizational theory, there is no reason why the process could not be done quickly, efficiently and in a highly civilized manner, producing value for all concerned. This is why I believe the time is right for the United States to acquire Canada.
So far we laid the groundwork for a major, strategic acquisition of a very attractive, synergistic and complementary property that is geographically contiguous, has plenty of upside and, for the most part, speaks the same language, i.e. Canada.
In that regard it is worth noting that up-front costs could be largely offset by an almost immediate divestiture of what is basically an independent, free-standing entity within the acquired corporation, i.e., Quebec. While not trading at a very high multiple, its sale or spin-off could generate significant equity and rid the new corporate entity of lingering legacy and cultural issues. There are many potential suitors for what is clearly a very attractive property, the most obvious being France, which is still smarting from its loss in the French and Indian Wars and has a high-profile CEO in search of global profile.
Other tactical post-merger actions to rationalize high upfront costs abound, but will be discussed at a later date. I would like also to offer at this juncture, before proceeding further, my thanks to those of you who weighed in so far with your thoughts and alternative suggestions. Some were patently facetious, while others drifted into issues pertaining to execution that must await subsequent installments of this strategic plan. As always in the pursuit of any focused acquisition discussion, alternate scenarios do suggest themselves. Most notable has been the notion of setting our sights not on our neighbor to the north, but our amigo to the south.
In that regard, I hasten to state that, in my opinion, the acquisition of Canada does not preclude the development of plans pertaining to equally intriguing possibilities involving Mexico, the former proprietor of vast segments of our current asset base, including Texas, California and most of the Southwest. In my view, however, one must put the cart before the caballo. Large global corporations get themselves into trouble when they overextend their holdings, as any study of Rome, Britain and Time-Warner (TWX) will tell you. This is not to say that a hemisphere-wide master strategy might not lie somewhere down the road. Right now, however, let us keep our eye on that which can be achieved in the near and intermediate term.
We have already looked at some of the global issues facing the current incarnation the corporation, which is now more than 230 years old and still functioning rather well for a mature organization. Day-to-day leadership of the entity has floundered recently, but as we all know it is difficult to sustain the quality of management over time, and on the bright side we can state with some assurance that the underlying power structure is still rather robust, and the class that operates it firmly entrenched in power regardless of who is sitting in the corner office. Still, recalcitrant issues exist that would almost instantaneously be addressed by the proposed transaction. On a somewhat more granular level, then, let's look at just a few:
- Need to expand customer base/sales territories: The U.S. frontier is a thing of the past. Even the depths of Wyoming, Idaho and Montana are crawling with identical strip malls and high-end boutiques. Look at a map. There's a lot of Canada up there, most of it in desperate need of consolidation and branding. It is, quite literally, as big as all outdoors; similarly, there are many, many small to midsized urban centers in need of large glass boxes and roads leading to them. The existing corporation has the capital and the know-how to get the job done. All we need is the land and the customer base to justify the expansion, which in our view would be almost instantaneously accretive;
- Limited natural resources: Once again, the acquisition offers an immediately solution to this problem. Oil is, quite literally, seeping out of the ground up there, and there is a wealth of other minerals, lumber and, of course, wind;
- Stagnation of culture: Perhaps most disturbing about current trends within the existing corporation is a "been-there, done-that" mentality and a certain calcification of the spirit of adventure, unlimited opportunity and entrepeneurial drive that made us great not only in our own estimation but in the mind of the world as well. This corporation is viewed now -- internally and externally -- as increasingly insular, hostile to new recruits to the enterprise, and set in its ways. Canada is, in this sense, far more congenial to some of the core cultural issues that once defined us. They have cowboys, for instance; real ones that actually have something to do more with cows that with guitars and amusing hats. There are innumerable other existing synergies that speak to the ease with which integration of the acquired party could be effected, including consistencies in language, cuisine and even pop music, where Canadian artists routinely pass themselves off as American without fear of reprisal.
There are other operating gaps in the corporate fabric that this acquisition would address. Lest the benefits be perceived as purely opportunistic or lopsided, however, it must be recognized that the acquiree would benefit from the deal as well. For its part, the acquisition target needs capital, infrastructure and some sense of what to do with the enormous acreage at its disposal with which, frankly, it's done very little for the several hundred years of its existence. This lag could quite naturally be laid at the feet of its original stewards -- the French and British -- but the entity has been essentially on its own as a free-standing corporation for quite some time and there's really no excuse for all that wasted space. With so many compelling arguments in favor of the potential acquisition, we must at the same time allow that there are also powerful contradictory trends and considerations that must be addressed as well. Before we arrive at a discussion of conceptual execution strategies, then, it is incumbent upon us to do so.
Roadblocks and Other Barriers To Entry
We now turn, after our last installment in this inquiry, to some of the roadblocks that stand in the way of the acquisition under review. There are certainly many, and they are significant enough to give us pause. All major transactions of this sort do have such issues, of course, and history might be different if those in charge of past efforts like this one had heeded those who raised them. If Rome, for instance, had not attempted to acquire the corporate entities of the Middle East, Asia and Africa, we would not have known of Cleopatra, Hannibal or Pilate, but the Empire might not have stretched itself so thin that it eventually snapped. If Spain hadn't decided to re-Catholicize England, would it still have an Armada? Shouldn't Napoleon have listened to those who advised him against attacking Russia in the wintertime? And how about the Facebook IPO? At any rate, we would be fools indeed if we did not look these questions straight in the face before we moved on so weighty a matter. Here are some that suggest themselves:
Cultural:The acquisition target has its own brand, albeit a somewhat less high-profile and rudimentary one, of which it is proud. Thought should be given to whether some form of continuity should be considered, i.e. incorporation of the maple leaf into future iconography after the merger. As populations have shifted throughout the globe over the last several years, the distinctions between nations have also blurred, however, making the merger of formerly discreet entities more conceivable. Canada is no longer exclusively the domain of lumberjacks and fisherfolk from Scotland and France, any more than Minnesota is an outpost of Stockholm and Oslo. This melding of peoples ultimately renders the entire idea of inviolate nations somewhat obsolete in the long run. Integration of cultures, however, would need to be aggressive and immediate if the merger were not to founder.
Different Benefit Structures: As has been pointed out by several commentors, Canada has a much better health plan, and would be loathe, for very good reasons, to revert to the dysfunctional system under which U.S. citizens must live and die. An analysis is clearly in order to see whether the better structure of the new operating division should be incorporated into the whole. Taking away a superior system in such situations is often a recipe for unnecessary social upheaval. Acquiring parties that intend long-term growth of the merged entity are responsible for overall improvement of social infrastructure, not its destruction and degradation. That's the difference between Marcus Aurelius and Genghis Khan or, for that matter, the guys who decided to take away your pension in the most recent corporate reorganization. That's not what the uber-concept of this deal is all about. A great merger incorporates the best from both parties and jettisons the aspects of each culture that do not work going forward. Putting a Canadian team on the consolidation of health care policies might be a good place to start.
Resistance to Change: This is a polite way of suggesting that portions of the acquired party might prefer to remain independent of the new entity. In spite of the obvious benefits to all sides in this deal, there are those who will oppose it. As anyone from Yahoo will tell you, being the subject of scrutiny by an infatuated and somewhat unwanted suitor, particularly one that is quite big, fat and at times obnoxious, is unpleasant. One is conducting one's business. One feels good about one's corporation. Suddenly, there is a hungry snuffling gorilla in the tent. At the end of the day, there are those who are sentimental about their organization and who do not wish the upheaval that is always involved in a change of management structure. Representatives of this group will be found both at the top end of the scale -- in existing management, the Canadian "military" and other portions of the ruling class -- and in the huge, disorganized mass of highly independent folk spread across the gigantic operating landscape as well. A carrot/stick strategy must be explored and executed with some dispatch if the merger is not to be doomed from the start, as many seem to be.
These are but a few of the macro-problems that will face us as we move closer to our goal. They are not unique to this venture. But the scale of the proposed enterprise makes them all the more thorny.
Some History of An Improbable But Credible Idea
In the process of thinking through this crucial issue, we come face-to-face with the improbability of the venture. And yet this is by no means the first investigation of this particular merger/acquisition. In fact, the question has been around for as long as this corporation has been in existence. Some backgrounding, then, is in order, lest we succumb to past failures or neglect the lessons of history.
When the new United States Corporation was formed in the late 18th Century, it turns out, there were significant efforts to include the entity to the north in the new enterprise. These efforts foundered because the Canadian organization was simply too protean, violent and amorphous, and our corporation too exhausted from its leveraged buyout from Great Britain. This did not stop the new United States from including Canada in its Articles of Confederation of 1777. Subsequent attempts at joint venture or straight acquisition continued through the unpleasantness of 1812, but were abandoned, as such projects are when other quotidian matters (like War) intrude. Projects of this scale need champions, individuals with the attention span, passion and political legerdemain to get them done. There was no such individual at hand in either company.
I want to thank a reader for acquainting me with the existence of theAnnexation Bill of 1866, which was introduced in the U.S. House of Representatives during that year but never made it to the Senate. It was quite a well thought-out document, by no means the product of some crackpot, and I commend you to the website provided in the link. The kernel of the notion is not altogether dissimilar to the concepts discussed in this venue, to wit:
Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled, That the President of the United States is hereby authorized and directed, whenever notice shall be deposited in the Department of State that the governments of Great Britain and the provinces of New Brunswick, Nova Scotia, Prince Edward Island, Newfoundland, Canada, British Columbia, and Vancouver's Island have accepted the proposition hereinafter made by the United States, to publish by proclamation that, from the date thereof, the States of Nova Scotia, New Brunswick, Canada East, and Canada West, and the Territories of Selkirk, Saskatchewan, and Columbia, with limits and rights as by the act defined, are constituted and admitted as States and Territories of the United States of America.
Again, events intruded, most particularly a number of extremely violent developments in the Canadian space that made the acquisition target more problematic for a corporate entity then recovering from its own Civil War. Nationalist incorporation efforts then developed in the north that produced another barrier to progress.
The idea has never quite died down, however. In 1971, a proposal was made for the United States to offer every Canadian citizen $1,000,000 and an employee ID to U.S. Inc. The suggestion was viewed as less than serious, perhaps, which may be why it never received the extensive investigation it might have deserved. We will look at something similar in our final posting on this subject. It would represent a peaceful means of resolving the question, certainly less expensive than other, more violent ways that corporate states have accomplished such strategic expansions in the past.
These days, according to Wikipedia, some 20% of Canadians and 40% of the residents of the United States support the annexation of Canada to the United States. Not a majority, or even a plurality, but a surprising base of support for a project that might, at first, be considered the realm of humorists and business bloggers. An interesting and comprehensive website "dedicated to the exploration of the potentialities for a democratic annexation of Canada to the United States of America" may be found athttp://www.annexation.ca/. The author of this study has just joined as a registered member of their Forum. What had begun as a far-fetched and perhaps amusing concept has taken one bold additional step toward reality.
How To Get This Thing Done: Options
As we move beyond considering history to the making of it, we now come to some potential means of getting this transaction accomplished. They are various:
1. Friendly joint venture on synergistic operations. Attractive but limited in value. In such deals, each side keeps its brand, its independence, and its treasured access to key customers and businesses. Very little upside for the acquisitor and too much for the target.
2. Reverse takeover of U.S. corporation by Canada, Inc. Several of you have suggested this. It has its points. But the concept is ultimately unstable. We have a perfect example of such a maneuver: the Time-Warner/AOL merger. In that, a deluded CEO decided, in a so-smart-he's-stupid move, to allow his gigantic corporate government to be taken over by a smaller and less mature entity. In practice, it was like having a bunch of scruffy Visigoths taking over Rome, which didn't work very well the first time either.
3. Friendly merger of equals. Better, but still not perfect. A merger of equals is basically a polite term for an acquisition of one party by another in which the target retains much of its original structure. It would involve significant payment up front by the corporation, plus significant incentives to the target's senior management to remain in place, at least during at attenuated transition period. Integration issues would abound, and much of the existing, unnecessary infrastructure would have to be retained for an unacceptable amount of time. Friendly, merged entities give mergers and acquisitions a bad name, and the reputation for a high rate of failure that they enjoy.
4. Straight transaction. The 1971 suggestion that U.S. Corp simply buy out every Canadian citizen is amusing on its face, and would cost somewhat more now than it would have at that time, but it would guarantee a happy, affluent employee base in the newly unified entity. Such a buyout would create issues, however, with existing employees of the corporation, who, having joined from birth, essentially, would suddenly be thrust into the role of second-class citizens without the huge nest egg enjoyed by the acquired populace up North. Such resentments are difficult to manage. On the upside, a direct purchase of Canada from either its citizens or the United Kingdom, which reportedly has something to do with them, would ensure a free hand for those seeking to administer the transition and the shape of the new enterprise. Simple, clean, quick-- and very expensive.
5. Hostile takeover. Leverage their assets. Purchase them with the debt created by the deal itself. Enforce the new arrangement with force, if necessary. The reality is that the target cannot really claim the ability to defend itself. There would be minimal loss of life. The property, operations and employee base would be acquired. The small and rather limp national management structure would be phased out immediately. We could even offer attractive exit packages to those who wish to depart. After the dust settles, most would have stayed, and a plan for zero-based operations could be swiftly developed and executed. Marketing efforts could be implemented to develop new branding, flag, anthems, etc., for the entity. A new currency would be called for, which would be quite simple, exchange rates now being equal. Think of the excitement! The creativity that would be required! The opportunities for growth and the development of new horizons!
Obviously, further study is necessary. Plans for this strategic initiative have been in development now for more than 200 years. It should not, however, take another 200 to get them field stripped and ready to go.
Those wishing to investigate, discuss or invest in this developing venture may contact the authors of this monograph at The National Association for Serious Studies at firstname.lastname@example.org or at email@example.com.