Thoughts about Westinghouse suitors

It appears more and more likely that Mitsubishi Heavy Industries (MHI) will be the victor in the bidding battle for control of Westinghouse Electric Company. On 7 January 2006 The Pittsburgh Tribune-Review published a story on the topic written by Thomas Olson titled Mitsubishi may acquire Westinghouse. The major highlights of the story are that Westinghouse has not made a final choice, that choice will be announced in late January to early February, and that the bid is currently about $2.5 Billion.

According to the Westinghouse spokesperson quoted in the story, the plan is for Westinghouse to remain intact with its major operations retained in Western Pennsylvania, apparently no matter who the final winner is.

For a variety of reasons, I think that MHI-Westinghouse is a good corporate match, one with a greater chance of success for all involved than an acquisition by GE.

I am a patriotic American and have nothing against GE; it is a terrific company with excellent people and products. However, one of the biggest causes of failed mergers and/or acquisitions is a culture clash. Though it might appear on the surface that cultural differences might be less between two American organizations than between an American and a Japanese company, this case is different.

MHI and Westinghouse have a long history of cooperation and partnership in the nuclear industry; MHI has been building reactors and other equipment associated with nuclear power plants with Westinghouse for nearly 50 years. The two companies are co-developers of the AP1000, the third generation Pressurized Water Reactor design that recently was awarded a design certification from the US Nuclear Regulatory Commission (NRC). The companies have deep and long lasting corporate ties and, I am quite certain, a number of strong personal ties between employees of the companies.

In contrast, General Electric and Westinghouse have been corporate competitors for about 120 years, with legendary and often brutal battles over large and lucrative markets. Their electric utility supply businesses began duking it out in the 1890s when one tried to establish DC as the electric power standard while the other favored AC. The battles between the nuclear supply divisions of the company as one favored Pressurized Water Reactors and one favored Boiling Water Reactors have also been dramatic enough to inspire essayists and book authors.

I have been associated with people from both organizations in minor ways for most of my life; Dad was an electrical engineer for FP&L and both companies have been major suppliers to the US nuclear submarine force. I have a hard time imagining the average career Westinghouse employee being completely comfortable working in the GE corporate culture. Though in different ways, the two companies are as compatible as IBM and Apple Computer.

If you want to read some good books that talk about the history between these two organizations, I recommend any or all of the following: (Note: for your convenience and perhaps a tiny bit of revenue to help support this effort, the links take you directly to Amazon.com pages. You can also find the books at many large libraries.)

• “The Rickover Effect: How One Man Made a Difference” by Theodore Rockwell
• “Empires of Light: Edison, Tesla, Westinghouse and the Race to Electrify the World” by Jill Jonnes
• “Nuclear Power from Underseas to Outer Space” by John Simpson (Note: With a list price for a new book of $65.00, I recommend buying a used one or borrowing a copy if at all possible.)

Besides the corporate culture issues, I also think that a GE purchase would have the eventual effect of reducing customer choice, causing prices to be higher than they would otherwise be, and hurting a lot of excellent engineers as PWR technology developments get starved for corporate support.

This is not a direct shot at GE, but a general comment about companies that purchase a direct competitor that supplies a different solution to a similar customer problem. There is a strong tendency for only one of the technologies to remain viable, even when they each have significant strengths, a large installed base of customers, and a large installed base of supporting engineers, designers, and manufacturing infrastructure. The NIH (Not Invented Here) syndrome normally defines which of the two technologies wins – it is the one produced by the purchasing company.

There are far too many American corporate leaders that focus on cutting costs by reducing “redundancy” (I always translate that into “firing people”) and who look for a short term boost in earnings by eliminating competition. I have read the books, the magazine articles and even attended the business school classes where this method of earning money is taught.

I cannot stomach the technique, especially since I have seen it in action. Shareholders that buy and sell at just the right times during the process may profit, but there is a lot of blood dripping off of that money.

If you really want to learn about a lousy use of similar techniques, talk to a government employee who has experienced a merger of organizations led by a corporate executive want-to-be’s. In that case, there are not even any happy shareholders and any taxpayer savings are lost in the churn of the merger.

Disclosure: I own a small number of shares in Shaw Group, one of the other bidders for Westinghouse and I am considering purchasing some shares in MHI.