Bob Barr

Ga.-Pacific, Koch create win-win deal
November 23, 2005

For most of my life, I've thought of corporate takeovers about like most people view the Loch Ness monster. I never planned to personally encounter a takeover, but I knew that if I did, I probably wouldn't like it. I never realized there was actually a good way to conduct a corporate takeover until I began following the news of the Koch Industries merger with Georgia Pacific.

When I first heard about the merger, I reacted like most Georgians; assuming that yet another iconic corporate leader in our state had fallen on hard times and was looking for a quick buck to pull its corporate fat out of the fire. First Delta, now Georgia-Pacific. What would be next - the University of Georgia becoming a subsidiary of the University of Michigan and turning Sanford Stadium into a hockey rink? Coca-Cola being bought out by Parmalat and moving its headquarters to Italy?

However, after taking a hard look at the way Koch and Georgia-Pacific have handled their soon-to-be consummated marriage, I have to admit that I'm becoming a huge fan of this particular merger.

Typically, when corporations merge, a few rich guys get richer and a lot of little guys lose their investments, pensions, customers and jobs. Incompetent or marginally competent executives get huge golden parachutes, and paper-pushing vultures on Wall Street cash in at the expense of the employees who built the company.

Exactly the opposite is happening in this case. Existing shareholders were rewarded with a price that allowed them a return on their investments that was more than fair. From Day One, the top priority of management at both companies was not spinning Wall Street analysts, but assuring existing employees that they were highly valued by the merged company.

There are some obvious reasons for the likely success of the G-P and Koch merger. First, neither company was desperate to buy or sell - meaning negotiations took place between equals with a focus on mutual benefit rather than corporate guerrilla theater.

Secondly, the merger makes great economic sense. Koch is a diversified natural resources company, while G-P focuses heavily on one particular resource. By balancing with other elements of Koch, a company that was previously highly vulnerable to commodity market cycles is able to protect itself much more effectively.

Yet, these aren't the fundamental reasons this particular merger came off so well. In a word, three names explain this success - Charles Koch, David Koch and Pete Correll. Correll deserves credit for structuring a buyout in good faith and being willing to consider a major change, provided that everyone involved benefited.

On the Koch side of the equation, the benefit of the merger is more fundamental. Simply put, the Koch brothers have developed and refined a corporate model that is unlike anything else the world has seen (at least in recent years). While most companies are top-heavy and oriented toward making the most money for the fewest insiders as possible, the Koch boys have applied the core principles of free-market economics to focus relentlessly on building value - broad-based, lasting value.

When Koch rewards value creation, it does so for everyone from receptionists to CEOs. In effect, this offers every single employee the chance to see a personal reward for their business skills - not based on the whims of someone on the executive floor at headquarters, or under threat of some government do-gooder such as Eliot Spitzer, New York's attorney general. In point of fact, this kind of focus might well have saved such notorious corporate failures as Enron, which imploded because its decision-makers focused on creating buzz rather than value and didn't care who they stepped on or what laws they broke as they played out their game.

So while the words "corporate takeover" may strike fear into the hearts of millions, this case shows that needn't always be so. When equals negotiate in good faith in an open environment and realize they succeed or fail as a team, the results can be most impressive. We in Atlanta are fortunate to enjoy that breath of fresh air in our fair city.

Now, if we could just get Koch interested in the Doraville GM plant.

Former U.S. Rep. Bob Barr is a frequent commentator on political and social issues and the chairman of the American Conservative Union Foundation's 21st Century Center for Privacy and Freedom