"I suppose you read in the paper today that General Electric just bought RCA. But it's O.K., nothing's going to change, because I just bought GE"
--Johnny Carson
A good enough opener, John, but the punch line must hurt a bit: not even your salary is big enough to play in this game.
Mergers have become such a happening in America that they are trendy grist for late-night comedy--never mind that a lot of folks do not find them very funny. But the public has every reason to wonder just what is going on, as dozens of the country's biggest businesses woo, wrangle and battle for one another in the strongest outbreak of the urge to merge in U.S. history. Is the current rash of mergers good for American business? For stockholders? For the country? And just how far can it go before it goes too far?
In New York City last week, the trend reached another milestone when General Electric bought RCA for more than $6 billion in what is the biggest acquisition ever of a nonoil firm. Just blocks away, W.R. Grace, the chemical producer and retail-store giant, said it would buy back almost $600 million of its stock in a move to fend off a possible takeover. In Houston, Texaco found itself fighting for its life after a judge affirmed that the third-largest U.S. oil producer would have to pay more than $11 billion in damages for derailing a 1984 merger between Pennzoil and Getty. And in New Jersey, GAF, a middle-size maker of chemicals and building materials, launched a $4 billion takeover bid for Union Carbide, saying that it would break up the much larger company and sell nearly half of its operations.
Those moves were the latest in the spectacular spate of mergers, acquisitions and takeover wars that have transformed the U.S. economy in recent months and become matters of grave concern in American boardrooms, courtrooms and legislatures. In 1985 companies were acquired, wholly or in part, at the frantic rate of eleven a day. When the dollar value of those deals is finally totted up, it is certain to surpass the record $125 billion reached in 1984. Says Democratic Representative Timothy Wirth, who chairs a House subcommittee that has been studying acquisitions: "These mergers and takeovers are having as profound an impact on the American economy as the advent of the great railroads, the airplane and the telephone."
The acquisitions are reshaping virtually every corner of the corporate landscape. While megadeals were once limited mainly to oil and other natural- resources giants, they are now affecting companies ranging from moviemakers to missile manufacturers. Says Felix Rohatyn, a senior partner in the investment banking house Lazard Freres and a principal architect of the GE and RCA merger: "In my 35 years of business, I have never seen anything remotely approaching this year's tidal wave of takeovers, mergers and buyouts of every size and shape, including both very good and sound ones and extremely ill- conceived ones."