IN half-serious flights of fancy, humorists have lately envisioned an economic future in which International Everything, Inc. and about a dozen similar finance-manufacturing-retailing combines take over half of the nation's business. Corporate consolidation has a long way to go to reach such extremes, but it is certainly moving in that direction at an accelerating speed. Never before have U.S. companies been caught in such a powerful and persistent tide of mergers, raids and takeover attempts. The volume of mergers doubled last year, when firms paid a record $43 billion—mostly in securities—to acquire 4,462 other concerns. The average price for a company jumped 40%, to almost 25 times its annual earnings. This year the volume of mergers will be larger, the prices higher and the controversy more intense.
A Matter of Taxes. About 90% of the action involves conglomerate corporations, those multi-industry companies whose desire to acquire often produces crazy-quilt mergers. Alarmed critics complain about shaky financial foundations, untested managements, dubious use of tax loopholes and overconcentration of economic power. Last week conglomerates ran into simultaneous and serious attack from both Congress and the Nixon Administration. The assault will almost certainly lead to new laws to control the conglomerate movement. "We're going after this," says a ranking White House adviser. "Otherwise, we'd have an economy like the Japanese, with certain large families owning everything."
The Federal Trade Commission is delving into the various economic implications of the conglomerate trend. Antitrust subcommittees in both the Senate and House plan probing inquiries of their own. The Justice Department is studying whether to recommend broader antitrust legislation to cope with conglomerates. Paradoxically, the trend has been fostered by Government antitrust barriers against mergers within the same field. More and more firms with little in common are getting together because it is the only legally safe way to merge.
Hoping to give investors a clearer view of conglomerates, the Securities and Exchange Commission is about to issue a tough new regulation requiring all multi-industry companies to disclose how each segment of their business is faring.
Last week, calling merger fights "a form of mid-20th century corporate warfare," SEC Chairman Manuel Cohen said: "The stakes are very high. Giant companies are threatened by small companies that issue paper—sometimes cynically referred to as 'funny paper'—as the incentive for the takeover."