Mergers: Concern About Conglomerates

Charles G. Bluhdorn, chairman of merger-minded Gulf & Western, explains the rationale behind that current corporate rage—the conglomerate company—in disarmingly simple terms. "If you have all your eggs in one basket, you're stuck with those eggs," says Bluhdorn. "But if you've also got apples and bananas, that's something else." Following that formula, Bluhdorn, James Ling of Ling-Temco-Vought, Harold Geneen of ITT and several others have traced the tracks of such conglomerate pioneers as Litton and Textron across industry lines into movies and machinery, aircraft and auto parts, cigars, cybernetics and clothing. Along the way, the conglomerates have stirred up what the Federal Trade Commission calls the "sharpest merger activity in modern industrial history."

Last week, citing a "growing concern" that too much U.S. business is going into too few big baskets, the FTC announced that it is undertaking a thoroughgoing study of the conglomerate phenomenon. Chief FTC Investigator Harrison Houghton, 56, plans to tackle not only antitrust problems but also such areas as efficiency and profitability of the "multimarket companies"—as the conglomerates like to call themselves.

Zeroing In. The FTC is only the latest agency to zero in on the controversial conglomerates. President Johnson has appointed a group of academic antitrust experts to study and recommend policy toward the companies. The Securities and Exchange Commission is studying their financial reporting techniques. The Justice Department, criticized as being soft on antitrust, recently became acutely aware of the fact that antitrust law has lagged behind the phenomenon of conglomerates.

Horizontal mergers (between competitors) and vertical mergers (between users and suppliers) have long been severely limited by well-established antitrust law. The status of conglomerate mergers, between companies not in direct competition, remains uncertain. Only last May, Justice issued a 27-page merger guideline suggesting that conglomerates would be opposed if, for instance, the merger would prevent two noncompeting partners from entering each other's fields on their own. Thus, this month a federal District Court upheld a key Justice challenge to a merger of Wilson Sporting Goods, a subsidiary of LTV, with a small maker of gymnastic equipment. The grounds: Wilson might well have entered the gymnastic field on its own.

The Federal Trade Commission is fretting over the number as well as the size of acquisitions. Last year there were half again as many mergers (1,500) as there were in 1966, and 83% of them involved conglomerates. Large mergers (involving companies with assets of $10 million or more) doubled to 155; during the first two months of this year, no fewer than 40 more were pending or completed.