Holdings as an example of pro-forma attitude to enterprises’ mergers

Belarusian enterprises are actively merging into holdings. However, as a rule, these processes are not based on a business plan or aiming to achieve the maximum effect, rather they are declarative by nature and meant to fulfill authorities’ administrative tasks.

On November 8th, 2012 a meeting about the merger of the country’s diary processing enterprises was held.

In 2012, ‘holding business model’ started forming in Belarus. A number of holdings in various industries have been created. New enterprises joined the newly created holdings. In August 2012, there were 45 holdings in Belarus, which included 297 companies. Before the end of 2012, 16 more holdings are planned to be created in various industries. In addition, there are international merger projects, in particular, “Rosbelavto” holding.

The meeting demonstrated that mergers are often rooted in the local authorities’ desire to fulfill administrative orders pro-forma. Merger projects’ economy is not being calculated: there are no business plans; efficient enterprises are merged with ineffective, thus putting off distressed companies to those which have proven their efficiency with financial results.

One of the problems with holdings’ creation is de-facto repetition of the five-year plans practices in holdings. Enterprises, from being mobile structures, capable of quick response to market changes, become colossal structures with bureaucratized administrative core, often acting not because of the economic feasibility, but following orders and plans developed by the authorities.

Thus, the state, by artificially enlarging its assets into holdings, loses the basic economic sense for the mergers, i.e. the enterprises’ efficiency. Businesses merge in holdings, not because it creates a synergy effect and boosts development of companies inside a holding, but solely for the formal consolidation purpose and the potential subsequent sale as one. It would be a lot more effective to allow businesses to decide when and how to merge, and on what principles.