(7 of 9)
Any attempts to curtail corporate consolidations will be opposed by many Wall Streeters and takeover specialists. They argue that such action will only safeguard the jobs of incompetent company executives. Says Pickens: "What the Fed and Cuomo are doing is wrong. It will just further entrench entrenched management. They will finally get all doors closed so that they can go about their business as usual."
Takeovers may be good for Pickens, but are they good for the U.S. economy? A long-running debate is going on about that in business and academic circles. The discussion is vehement on both sides and will probably never be finally resolved.
On the one hand are corporate raiders and many economists, who argue that takeovers and mergers help to make businesses more efficient. The threat of a takeover can be an effective way of dislodging inept managers. To Carl Icahn, the typical chief executive is merely "a nice guy, a good drinking buddy." Sir James Goldsmith, a feared acquisitor who gained control of the Crown Zellerbach paper company last summer, told Congress that he has freed firms from "the dead hand of the bureaucrat" who produced only "complacency, ossification and decline."
The threat of takeover has also forced managements to take steps to boost their stock prices, which benefits all their investors. Says Robert Greenhill, a managing director for the investment banker Morgan Stanley: "Corporate America has realized it had to get much more in tune with its shareholders."
Many corporate consolidations, of course, make good business sense. They are most likely to succeed when one company buys another for its complementary products or skills. Procter & Gamble, which acquired Richardson-Vicks for $1.24 billion in October, wanted the company for its popular brands, including Oil of Olay and NyQuil. Recalled an insider: "It was less expensive for P&G to buy into a line of new products than to develop them on its own." The experience and marketing skills of the two firms should go well together.
Another promising megadeal was the decision last June by General Motors to buy Hughes Aircraft, a leading producer of high-technology equipment, for $5.2 billion. The agreement followed GM's 1984 acquisition of Electronic Data Systems, a premier data-processing firm. The world's largest automaker hopes to use the skills of its two new units to move into special areas of technology, especially with the Saturn project, which aims to build a small car that can compete with Japanese models. EDS is designing computer software that will link all aspects of Saturn operations from the showroom to the shop floor, while Hughes will develop electronic systems for GM cars.