Corporate cannibalism
Beyond all the confusion and legal twists in the bizarre merger-mania of recent days involving Bendix, Martin Marietta, Allied Corporation, and United Technologies, the American public is faced with serious and far-reaching public policy questions. The pell-mell takeover efforts vividly underscore the trend toward ever larger combinations of firms within the US corporate setting. Most disturbing, they point to a growing corporate reliance on short-term profit and empire-building schemes that work against the very economic efficiency and productivity so needed to help restore America's industrial primacy.
That is not to say that all mergers per se are bad, or that Wall Street is not enjoying the black humor in all this. One can only imagine the consternation of future economic historians as they attempt to unscramble the maneuvers and players in this latest drama. A battle, incidentally, that makes the wheelings and dealings involving du Pont and Conoco, and US Steel and Marathon Oil, seem tidy by comparison. Consider: as of this writing, several of the companies involved in this current battle now own each other. Bendix, which started the whole cycle, now owns 70 percent of Martin Marietta. Martin Marietta, resisting a takeover, now owns 44 percent of Bendix. Allied Corporation, meanwhile, had been planning to buy Bendix (which would own Martin Marietta.) Such a three-way linkage of Allied, Bendix, and Martin Marietta would produce a company with annual revenues of over $14 billion.
United Technologies, finally, is apparently now out of the contest, although it had sought to buy Bendix to support Martin Marietta.
Confused? If so, you are probably no more so than Wall Street, or many of the corporate officials involved. Who profits from all this? The American public in terms of increased productivity, better economic efficiency, or new ideas for a product or service? Or, as pointed out in an article on today's financial page, the scores of law offices, investment banks, public relations firms, advertising agencies, and other corporate hangers-on who stand to make millions of dollars?
What is of concern is that the mergers of the past decade far outweigh in size of assets the most notorious mergers of the turn of the century, when Teddy Roosevelt emerged as the champion of US trustbusting. In 1981 alone, some 12 mergers were valued at over $1 billion each. This year, although the rate of mergers has fallen off somewhat, mergers have involved such giant firms as Occidental, Cities Service, American General, NLT Corporation, R.J. Reynolds, Heublein, Coca-Cola, and Columbia Pictures. Look deep inside each of these firms and one also finds the bones of past mergers. R.J. Reynolds, for example, now controls Del Monte foods. Heublein, which has been bought by Reynolds, controls Kentucky Fried Chicken. And so it goes.
Many economists note that diversion of so many assets into acquisitions does little to advance either output or productivity. Proponents of mergers argue that one advantage is to clean out the corporate ''deadwood'' in weaker firms. But if firms relied more on truly independent outside corporate directors - as many of the most progressive US firms do - it would be difficult for management to become stodgy in the first place. And it should not be forgotten that the original rationale for the Reagan administration's tax-cut plan (both for personal and corporate cuts) was to free up assets for investment and new productive enterprise. There is a point at which the merger-mania becomes a form of corporate cannibalism.
By one measurement, less than 3 percent of all industrial firms now control more than 80 percent of all industrial assets. Yet the American political and economic experiment was built on a system of diffusion of power and of checks and balances. The Reagan administration, which this past June eased federal antitrust guidelines regarding mergers, needs to consider why large-scale corporate mergers and consolidations should be tolerated at the very time that the White House is vigorously seeking to devolve and diffuse federal governmental power. Is there not a major policy contradiction here?
It seems time to draw clearer policy lines on mergers.
