Du Pont and the merger wave

The largest takeover battle in corporate history leaves du Pont in control of Conoco, the ninth largest oil company.The spectacular $7.5 Billion acquisition struggle had du Pont autbidding Seagram of Canada and Mobil Oil, the second largest American oil firm. It briefly dramatized one of the biggest merger drives in history currently in progress. It is surprising that the latter gets so little attention; in times past it could have been major political issue. Look at the record.

The first great merger wave began in 1879. According to a new study by the American Enterprise Institute, a conservative nonprofit research organization here, Congress passed the Sherman Antitirust Act in 1890 to control mergers but the Supreme Court undercut it. An avalanche of merger activity followed the weakened decision. Then in 1904 the Supreme Court changed its mind and in effect banned mergers that resulted in market dominance. that, and a severe depression, ended the first merger wave.

Number two came with the concentration of industrial life and with further interpretations by the Supreme Court. In the 1912 election candidates Taft, Roosevelt (theodore), and Wilson all fervently committed themselves to more stringent antitrust laws. Following his election, Wilson encouraged Congress in 1914 to pass the Clayton Act and the measure creating the Federal Trade Commission to police the marketplace. The famous Section 7 of the Clayton Act forbade mergers that might lessen competition or create a monopoly. That seemed to settle it.

But again it appeared that the corporate lawyers were smarter than the legislators. The law put restrictions on holding companies which were then the most common device for creating consolidation, but ingenious attorneys soon found other devices almost as effective to achieve their purpose.

Merger activity slowed down in the great depression of the 1930s but started up again in the war-stimulated prosperity of the 1940s. That was wave three. As usual Congress reacted. It passed the Celler-Kefauver Act of 1950 which strengthend "Section 7". Simultaneously there was an anxious new look by political scientists and politicians at the concentration of economic power. The usual cycle followed. How would the Supreme Court interpret the new legislation? The answer came fairly promptly in Brown Shoe Company v. the United Statesm -- it supported tough restrictions on horizontal and vertical mergers.

Very well, that required a new path; a new legal detour. Companies acquired stocks and assets of other firms in unrelated industries; the same corporation could be digging coal in one area and publishing books in another. It was the new conglomerate merger. That's where we are now. Since 1966 some 60 percent of large acquisitions in manufacturing and mining have been conglomerate.

Merger activity has increased since 1972, including the conglomerate. In a new book by Edward S. Herman, professor at the Wharton School to Business, he argues that the latest consolidation is concentrating American economic power in few hands. There is a network of interlocking directorates: an international company that finds it can't produce textiles at a profit in the United States, say, lets a subsidiary produce them in Latin American or Asia.

If the usual cycle is repeated Congress will shortly investigate. Two years ago Sen. Edward M. Kennedy (D) of Massachusets figured that in 1955 the top 500 industrial companies controlled 65 percent of all manufacturing and mining assets in the country; in 1965 it had climbed to 73 percent, and in 1977 to 83 percent. He said, "Less than 3 percent of all industrial firms now control over 80 percent of all industrial assets." he added that the "merger wave is growing, not receding."

Sen. Strom Thurmond (r) of South Carolina, chairman of the Judiciary Committee, plans hearings on the antitrust laws in the Senate and Rep. Peter W. Rodino JR. (D) of new jersey in the House. Why, asks Rodino, is US industry falling behind foreign competition? The Reagan administration takes the situation calmly. William Baxter, assistant attorney general for the antitrust division, seems inclined to keep hands off. It is uncertain whether the emotion that used to affect the issue has drained off or whether a new effort will be made to curb concentration which Louis D. Brandeis once fervently called "the root of many evils: it offends laws human and divine."

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