Mergers, Acquisitions, and Corporate Restructurings. Gaughan Patrick А.

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      The conglomerates formed during this period were more than merely diversified in their product lines. The term diversified firms is generally applied to companies that have some subsidiaries in other industries but a majority of their production within one industry category. Unlike diversified firms, conglomerates conduct a large percentage of their business activities in different industries. Good examples are Ling-Temco-Vought (LTV), Litton Industries, and ITT. In the 1960s, ITT acquired such diverse businesses as Avis Rent A Car, Sheraton Hotels, Continental Baking, and other far-flung enterprises, such as restaurant chains, consumer credit agencies, home building companies, and airport parking firms. Although the third merger wave is associated with well-known conglomerate firms such as ITT and LTV, many corporations of varying sizes engaged in a diversification strategy. Many small and medium-sized firms also followed this fad and moved into areas outside their core business.

      As firms with the necessary financial resources sought to expand, they faced tougher antitrust enforcement. The heightened antitrust atmosphere of the 1960s was an outgrowth of the Celler-Kefauver Act of 1950, which had strengthened the antimerger provisions of the Clayton Act of 1914. The Clayton Act made the acquisition of other firms' stock illegal when the acquisition resulted in a merger that significantly reduced the degree of competition within an industry. However, the law had an important loophole: It did not preclude the anticompetitive acquisition of a firm's assets. The Celler-Kefauver Act closed this loophole. Armed with tougher laws, the federal government adopted a stronger antitrust stance, coming down hard on both horizontal and vertical mergers. Expansion-minded firms found that their only available alternative was to form conglomerates.

      The more intense antitrust enforcement of horizontal mergers was partially motivated by the political environment of the 1960s. During this decade, Washington policymakers, emphasizing the potential for abuses of monopoly power, worked through the FTC and the Justice Department to curb corporate expansion, which created the potential for monopolistic abuses. Prime advocates of this tougher antitrust enforcement were Attorney General John Mitchell and Assistant Attorney General Richard McLaren, the main architect of the federal government's antitrust efforts during the 1960s. In his book Managing, Harold Geneen, then chief executive officer of ITT, has described the difficulty his company had in acquiring companies when McLaren was in office.31 McLaren opposed conglomerate acquisitions based on his fears of “potential reciprocity.” This would occur, for example, if ITT and its other subsidiaries gave Hartford Insurance, a company ITT acquired, a competitive edge over other insurance companies. ITT was forced to compromise its plans to add Hartford to its conglomerate empire. It was able to proceed with the acquisition only after agreeing to divest itself of other divisions with the same combined size of Hartford Insurance and to not acquire another large insurance company for 10 years without prior Justice Department approval. Years later the European Commission would voice similar arguments for opposing takeovers in the 2000s.

      With the election of Richard M. Nixon toward the end of the decade, Washington policymakers advocated a freer market orientation. Nixon supported this policy through his four appointees to the U.S. Supreme Court, who espoused a broader interpretation of concepts such as market share. The tough antitrust enforcement of the Justice Department came to an end in 1972, as the Supreme Court failed to accept the Justice Department's interpretation of antitrust laws. For example, in some cases the Supreme Court began to use a broad international market view as opposed to a more narrow domestic or even regional market definition. Consequently, if as a result of a merger, a firm had a large percentage of the U.S. market or a region of the nation but a small percentage of the international market, it could be judged to lack significant monopolistic characteristics. By this time, however, the third merger wave had already come to an end.

      The rapid growth of management science accelerated the conglomerate movement. Schools of management began to attain widespread acceptability among prominent schools of higher education, and the master of business administration degree became a valued credential for the corporate executive. Management science developed methodologies that facilitated organizational management and theoretically could be applied to a wide variety of organizations, including corporations, government, educational institutions, and even the military. As these management principles gained wider acceptance, graduates of this movement believed they possessed the broad-based skills necessary to manage a wide variety of organizational structures. Such managers reasonably believed that they could manage a corporate organization that spanned several industry categories. The belief that the conglomerate could become a manageable and successful corporate entity started to become a reality.

      Because most of the mergers in the third wave involved the formation of conglomerates rather than vertical or horizontal mergers, they did not appreciably increase industrial concentration. For this reason, the degree of competition in different industries did not significantly change despite the large number of mergers. Some 6,000 mergers, entailing the disappearance of 25,000 firms, took СКАЧАТЬ