No. 3 combines with No. 4. Now, they are No. 1.
That's the way it goes these days in business. A new wave of mergers. Companies leapfrogging their competition - sometimes without regard to national borders. Revenues ratchet upwards to many billions. Is a trillion-dollar company very far away?
This week the Seattle-based Boeing Company is buying St. Louis-based McDonnell Douglas for $14 billion. The combined revenue estimate for 1997: $48 billion. Last month, London-based British Telecom proposed paying $20.8 billion to merge with MCI, a telecommunications giant in the US.
In recent news have been reports that Citibank considered - and rejected - a $25 billion marriage with American Express. Continental Airlines has had preliminary talks - now broken off - with Delta. So far this year seven of the 11 biggest mergers in United States history were either completed or announced.
Business observers see a variety of reasons why these mergers are taking place. There is competition from abroad including European or Japanese companies. Newly merged companies brag about new efficiencies from economies of scale. And the US Justice Department and Federal Trade Commission, combined with a Republican Congress, have allowed many of the mergers without significant challenge.
For many companies, bigness has become the solution to their problems.
The trend is not without critics. Ralph Nader, head of the Center for the Study of Responsive Law, says he is planning to protest the Boeing-McDonnell Douglas merger in a letter to the Justice Department.
"It's a new frontier of monopoly that has developed," he says. He worries that Ford, General Motors, and Chrysler could merge as long as Toyota or Volkswagen are around. "Once the relevant market becomes the world, there is no horizontal merger that can be challenged. We used to have guidelines. Those are all gone now."
Many companies claim they can't survive internationally without merging. Boeing says it is not only competing against Douglas, it is in a war with Airbus Industrie, a European consortium that builds the Airbus.
"We play on the world's stage," Boeing chief Philip Condit said in a TV interview on the News Hour with Jim Lehrer. He notes, for example, that 70 percent of Boeing's business is outside the US.
"We have developed an international business economy that is highly competitive. And to be competitive globally, the units have to be larger," says David BenDaniel, co-editor of the International Handbook of Mergers and Acquisitions. These dynamics, he says, have influenced the way regulators look at mergers. "The regulators may still object to the Boeing merger, but it would have been a clear objection in the past."
Global expansion been forwarded by the rise of global communications.
"Global computer networks enable companies to move resources instantly at the touch of a key and keep their gigantic enterprises in constant sync," says Jerry Mander, co-editor of the Sierra Club book "The Case Against the Global Economy." He says technology, combined with new free trade rules, is creating "stateless corporate entities" with real power over labor unions and the environment.
Companies also claim mergers aid efficiency. There is no need for two pension administrators or public relations staffs. Boeing, for example, does not expect to maintain two corporate headquarters after its merger.
The result is good for customers and shareholders, claims Haskell Monroe Jr., a professor of history at the University of Missouri at Columbia and a director of SBC Communications, which announced it would merge with Pacific Telesis in a $16.7 billion deal. Why? "Because the two becoming one will be a more efficient corporation than they would have been as separate" firms, he says.
Increased productivity does take place with many mergers, agrees Robert McGuckin, director of economic research at the Conference Board, a business think tank. In researching companies that merged in the late 1980s, Mr. McGuckin found that large companies that were performing badly "improved a little" after they were acquired. A large company buying a smaller company was also able to extract some productivity improvements.
This year's telecommunications deregulation law has been a spur to some of the nation's largest corporate marriages. So far in 1996, three of the top 10 mergers have been in the communications business.
The US has seen merger waves before. At the turn of the century, Wall Street financiers put together monopolies. In the 1960s, the rage was conglomerates - companies with many different lines of business. Then, in the 1980s, the corporate raiders, fueled by relatively inexpensive funding, went on a buying spree. This time it's Main Street corporations trying to leapfrog over their competition.
Staff writer Nicole Gaouette contributed to this story.