The Danger of Doubling Down

A few weeks ago AMB Property and ProLogis, two giants in the global warehousing industry, announced their intention to merge. It's a big deal (pun intended), because together the two companies control 635 million square feet of space. To get a sense of how much that is, take your average U.S. home (2,094 square feet) and multiply it by more than 300,000. That's a mid-size American city.

The companies cited the usual reasons for such a merger, saying it will enable them to reduce costs and offer more services to their customers. Fair enough. While the cost savings of a merger are usually apparent (and often realized), its strategic implications are more likely to be misjudged, sometimes fatally.

There are several reasons for this. Agility, or the lack thereof, is one; an aircraft carrier takes a long time to turn, as the saying goes. In addition, a larger company presents a bigger target to smaller, more nimble competitors who wish to take a bite out of its hide. And there are almost always damaging corporate culture clashes when two proud companies come together that can be difficult to anticipate and even harder to manage.

Perhaps the most frightening aspect of a big merger is the doubling-down of risk the combined company is making in a single sector-a dangerous and ill-advised move in any other form of investment.

The CEOs of AMB and ProLogis say the new company will be able to take advantage of the nascent industrial real estate market upswing. Sure it will. But as we've once again learned the hard way over the past three years, what goes up will come down. The combined company will be much more exposed to the next market downturn. I'd hate to be there when it happens (maybe that's the point-if corporate management trends hold up, most leadership will have moved on).

I'm no expert in the global warehousing industry, and perhaps this merger is a smart one. But too often companies seem to come together because they simply don't know what else to do. That strikes me not as strategy, but surrender.
Steve McKee is president of McKee Wallwork Cleveland and author of When Growth Stalls: How It Happens, Why You're Stuck, and What to Do About It . Find him on Twitter and LinkedIn .