The price of corporate derring-do is often painful
It was a strangely quiet denouement to one of the dirtiest, sloppiest, most wasteful takeover battles in U.S. corporate history. At its height, the contest was an unseemly spectacle of "cannibals gorging on one another," in the apt metaphor of Television Commentator Bill Moyers. Last week it ended with a whimper. In meetings at Southfield, Mich., and Morristown, N.J., shareholders of Bendix Corp. and Allied Corp. formally approved the merger of their companies. There was scarcely any dissent, but there was some sober reminiscing. Allied Chairman Edward L. Hennessy Jr., 54, said of the torturous maneuvering leading to the $2.3 billion deal: "It was a pretty sorry spectacle that gave American business a black eye."
Hennessy is a man who ought to know. Allied played the role of "white knight" in the merger mess, which was stirred up last summer when Bendix Chairman William M. Agee, 45, made a surprise tender offer for the shares of MX missile contractor Martin Marietta. But Martin Marietta turned the tables on Agee. The company promptly retaliated by trying to buy Bendix, and the result was a corporate donnybrook in which the two companies acquired huge chunks of each other and made headlines in the process. Finally Allied was called in by Bendix to buy Bendix stock and save it from falling into the clutches of Martin Marietta.
Now that the battle is over, there are growing worries within Allied as to just how it is going to digest Bendix—and doubts all around about the merits of white knighthood in general. The corporate Lancelots usually pay a great deal more for the companies that they rescue than hostile raiders would have paid in the first place. And they must live with the results of such expensive derring-do. Too often that means coping with huge financial burdens and assimilating unfamiliar corporations. Some of the mergers may eventually work out, but few of them, at least so far, are showing any great success.
The largest white knight merger of all was Du Pont's purchase of Conoco in September 1981 for $7.4 billion, against hostile bids by Mobil and Seagram. Conoco has turned into Du Pont's most profitable division; its performance blocked Du Pont's earnings last year from being even lower than they were. But the recession has weighed heavily on the chemical giant, making the huge debt from the Conoco purchase harder to carry, and forcing the company to omit its customary extra year-end dividend. To save money, Du Pont executives have announced plans to close Conoco's Connecticut headquarters next July and move selected employees to Du Pont's home base in Delaware.
Occidental Petroleum is currently groaning under the burden of Cities Service, for which it shelled out $4 billion last year. Oxy's long-term debt has now jumped from $1 billion to $5 billion, while its earnings have dropped from $722 million to $221 million. Similarly, U.S. Steel fought off Mobil to rescue Marathon Oil and is now struggling with the $6.7 billion price of its chivalry. Its steel business is down sharply, and while Marathon's earnings were at a record high last year, they are currently threatened by the downturn in oil prices. To help compensate, Big Steel has put its Pittsburgh headquarters building up for sale.