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Go Slow. The most immediate challenge to the new super corporations came from Arkansas Democrat Wilbur Mills, chairman of the tax-writing House Ways and Means Committee. Severely criticizing the economic soundness of mergers among wholly unrelated businesses, he suggested that Congress repeal tax laws that nourish such deals. "Companies should go slow in conglomerate mergers if they are depending on tax provisions for the success of their merger," he warned. In particular, Mills questioned the tax arrangements when merging corporations exchange debentures for common stock. Under present law, corporations can deduct from their income tax the interest that they pay out on the debentures—just as homeowners can deduct the cost of mortgage interest on their tax returns. In merger deals, such swaps cost the U.S. Treasury substantial revenue. Instead of paying dividends on common stock, companies pay interest on debentures. This saves them money—at the expense of every other U.S. taxpayer—because the debenture interest is taxdeductible, whereas dividends can only be paid out of a company's after-tax earnings.
Mills also attacked the financial packages offered by merger-bent companies. "Many securities offered in takeovers are highly speculative and could well resuit in substantial losses whenever there is a downturn in business conditions," he said. As for surprise takeover bids, he complained that they "artificially inflate stock prices." Citing a study by the Chicago consulting firm of W. T. Grimm & Co., he maintained that, in 66 such takeover attempts since the summer of 1967, bidders kited by $2.4 billion the stock prices of the companies that they were after.
A Question of Values. The current flurry of takeover battles indicates that there is ample cause for concern in many fields. For example, Manhattan's General Host Corp., a baking, food-freezing and tourism firm (1968 revenues: $200 million plus), last week claimed victory in a bitter fight to acquire Chicago's Armour & Co., which is ten times as large. To the meat packer's stockholders, General Host offered a package of warrants—options to buy its stock in the future—plus $60 in debentures for each Armour share. At 7% interest, each debenture should return $4.20 a year; Armour earned only $3.53 a share and paid a dividend of $1.60 in 1968, its best year ever. Armour Chairman William Wood Prince denounced the offer as a "printing-press raid." He tried to foil it in two federal courts, and attempted to consummate a defensive merger with Greyhound Corp. Richard C. Pistell, 41, the chairman of General Host, sweetened his offer slightly and, he said, picked up more than half the shares with an assist from Gulf & Western Industries, a major conglomerate, which sold him its own large holdings of Armour stock. The takeover would make Pistell, a onetime Nevada gold mine operator, the boss of one of the nation's biggest conglomerates.