MISERY LOVES COMPANY. Sears merges with K-Mart. Here comes a teachable moment for the merger policy unit in the course I will be offering in the spring. A common misconception among students, particularly business majors, and not a few practitioners, is that mergers allow the merging companies to achieve economies of scale. (Please don't get me started on "leveraging synergies" and "reinforcing core competencies" and all that other horsehockey wordnoise that passes for corporate speak these days.)

I pose a simple challenge to the students. Consider a steel company with a collection of dinky plants ("dinky" is a technical term meaning the plant has not achieved the scale economies available at the plant level) that merges with another steel company that also has a collection of dinky plants. Even the dullest least motivated among them quickly grasp that the resulting company is simply a larger collection of dinky plants. (This example works particularly well at Rust Belt universities near such forlorn hopes as National Steel and LTV Steel.)

Or, consider the mergers of weak railroads that many railroad managements saw as a panacea during the years of decline (1950-1980). A merger of competing railroads requires a rethinking of the system that often involves steep transition costs. (Penn Central is the worst case but by no means the only case. Union Pacific's troubles incorporating Southern Pacific come to mind.) A merger of connecting railroads simply connects weakness to weakness. (Norfolk and Western is not a counterexample. Virginian was a coal conveyor, and Wabash and Nickel Plate good at expediting freight.) Per corollary, that is a larger collection of weaknesses.

So let it be with Sears, Roebuck, Kresge, and Company (sorry my age is showing...) Here is the reality.

Mired in a retail slump, Sears had long fallen out of favor on Wall Street after losing ground to competitors and enduring sluggish sales for years. The company last fall introduced its Sears Grand stores, which offer grocery and convenience items besides traditional Sears fare such as clothing, home appliances and tools. The concept had delivered promising results for the struggling retailer at its first three stores in metropolitan Salt Lake City, Las Vegas and Chicago, in the suburb of Gurnee.
Kmart, in recent years, has been shedding many of its underperforming stores, a strategy that has helped the once-struggling discount retailer bounce back after it emerged from bankruptcy. Kmart recently agreed to sell 50 stores to Sears for $575 million as part of that strategy.

And here, the wordnoise.

Company officials said the merger would help make their properties more profitable through a broader retail presence and improved operational efficiency in areas such as procurement, marketing, information technology and supply chain management.
"The combination will greatly strengthen both the Sears and Kmart franchises by accelerating the Sears off-mall growth strategy and enhancing the brand portfolio of both companies," [Sears CEO Alan] Lacy said. "This will clearly be a win for both companies' customers while significantly enhancing value for all shareholders."

Looks like lots of Dilbert material here. The irrepressible Scott Ott has already grasped the message.

Sears, Roebuck and Co. and Kmart Holding Corp. today announced a merger aimed at setting a new record in the arena of retail bankruptcy filings.
"Rather than just vanish from the American landscape, we want to be remembered by our shareholders for decades," said Kmart CEO Edward Lampert who will head the new Sears Holding Corp. "We're change agents, and this merger is bound to change college and retirement plans for thousands of our shareholders."

Jeff at Hit and Run also pounces.

My instant analysis fails to see how this much helps Sears, unless it has basically moved into real estate speculation. Oh, and another thing, Target. Where crap does not litter the floor. Novel in a shopping experience. Bonus insight: Wal-Mart.

I never lack for material. And people say economics is boring ...