Corporate takeovers -- enough is enough
The recent takeover battle involving four industrial giants - Bendix, Martin Marietta, United Technologies, and Allied Corporation - qualifies as an even worse scenario than could have been imagined a few years ago. Our values have changed so dramatically that raiding can now be applauded as an integral part of the strategy of respectable companies.
The growing trend of forced takovers creates an atmosphere of suspicion, mistrust, and hostility in the business community and dilutes the effort and focus of management. It undermines our free enterprise system by creating a need for more regulations to preserve some semblance of equity between opposing factions and diverse interests. Finally, it wastes our economic resources.
As the participants disentangle, it is hard to tell who the winners are. It is far easier to identify the losers since in terms of people, productivity, and confidence, there are many. Martin Marietta is now heavily burdened with debt incurred in order to preserve its independence. Its borrowings to finance its maneuvers used up borrowing capacity that will not get channeled into more beneficial applications like jobs or research and development.
The other principal combatant, Bendix, a company with an excellent earnings record until recently, is likely to be slowly dismantled, and many of the people who built that record inevitably will be cast aside. Having conducted extensive research with individuals who have been through a forced takeover, we found in most cases the unique chemistry of a successful company eroded and often was destroyed. The claims for synergistic benefits may be good public relations but, in fact, typically do not materialize. Synergism is elusive under the best circumstances, and it is unrealistic to expect when the polarity between organizations has been raised to the point of deep-rooted hostility.
As this almost comic opera unfolded, countless manhours were diverted from the task of building businesses to attacks, counterattacks, and defensive strategies. The fees paid to lawyers, proxy solicitors, and investment bankers, in addition to communications costs, may well exceed $50 million. How much better if that money had been invested in plants and equipment that would contribute to improved productivity and help create jobs.
Perhaps saddest of all is the image conveyed by business leaders locked in a struggle that raises questions about the quality of economic decisions that are perceived to be inseparable from their own personal interests. When the execution of business strategies is carried out in an atmosphere of open warfare , and management's actions are characterized by deviousness and reliance on gimmicks, one wonders if this does justice to the management process.
It is incumbent upon chief executive officers to provide vision and statesmanship and create an atmosphere of high principles of business conduct. Confidence in the American business community as a dynamic and positive force in society has been eroding for a long time. The takeover phenomenon and the increasingly bizarre forms it assumes only worsen an already unsatisfactory public attitude.
There may be one benefit growing out of this most publicized of all takeover battles. The potential for economic chaos it illustrated has served to generate increased public awareness of the dangers involved. The specter of enormous sharks trying to devour each other is alarming.
In this case, the sharks had combined assets of $18.7 billion and more than 358,000 employees. It was obvious that decisions were being made that would significantly alter long-range strategies, weaken financial positions, and perhaps jeopardize the futures of corporate participants. With that in mind, it is time to examine the premise upon which the takeover movement is predicated and to establish reasonable controls to safeguard and balance the rights of stockholders as well as those of target companies and their employees.
Much has been written on the rights of stockholders and improving the value of their investment as the justification of forced takeovers. This short-term objective, by itself, is simplistic. Achieving it is difficult to justify when weighed against the negative implications inherent in forced takeovers.
Furthermore, I doubt the stockholder's investment value has, in fact, been maximized since targets are almost always successful and attractive companies, whose potential may well exceed the short-term premiums paid for them. In such a case, the premium is a deception, since the raider has made an informed value judgment that the price being paid is a bargain. Even if stockholders get an adequate premium, a ''quick buck'' for one set of stockholders is hardly a compelling social virtue.
Frequently, a substantial share of the profits goes to the arbitragers who have no interest in the ''real'' stockholders and the audiences who often have lifetime connections with the company, i. e., employees, customers, communities, vendors, etc. Speculators, therefore, are in a position to ensure that the tender offer is a fait accompli before any real deliberation can take place.
There do not seem to be many bidding wars for weak, troubled companies. No one came forward to take over White Motor or Chrysler before its current rejuvenation, and I know of no bids for International Harvester. This belies the popular notion of the tender offer as an effective mechanism for keeping management on its toes. That is the classic function of a board, and where it fails the means already exist through the proxy for stockholders to displace unresponsive management.
There is far too much at stake for the US economy and those communities that depend upon a particular corporation's presence to allow an issue of this magnitude to be determined exclusively by the whims of a handful of chief executives who frequently appear to be moved by ego needs and self-interest and who generally have little equity investment.
The acceptance of the takeover phenomenon represents a vast change from the atmosphere that prevailed a relatively short time ago. Consider the outcry raised when Saul Steinberg tried to acquire Chemical Bank. At that time, ''forced takeovers,'' a euphemism for ''raiding,'' were beyond the pale of respectable companies.
While there are measures that would curb some of the abuses of forced takeovers, I strongly advocate voluntary restraint on the part of responsible business leaders. Though such an idealistic solution does not appear to be on the horizon, I am hopeful that the business community will grasp the opportunity for self-regulation. The alternative is more regulations and restrictive measures imposed by government agencies.