New US antitrust outlook is reflected in growing number of company mergers
Megamergers - such as Gulf's union with Standard Oil of California - make for high drama in the financial press and enrich stockholders, corporate officers, arbitrageurs, proxy managers, and publicists.
The Federal Trade Commission (FTC) tentatively approved the Socal-Gulf merger yesterday after Socal arranged to divest itself of 4,000 Gulf service stations and a major refinery in Texas. As a result of the merger, Standard Oil will become the nation's third largest oil firm, behind Mobil and Exxon.
But are these mergers good for society, or do they instead divert precious capital from more productive uses? Are they a passing fancy, or part of a thoroughgoing revision of the US economy? Or are they simply an occasional feeding frenzy brought on by the excesses of capitalism?
Lawmakers, academic specialists, and economists have been asking these questions for the past century - since the days of the ''robber barons'' with their market-cornering trusts, pitted against populist ''trustbusters'' like Teddy Roosevelt and Robert La Follette. Each time there has been a new spate of mergers - the 1920s, late '40s, late '60s, and early '80s - the debate has rekindled.
Today's mergers contain a heady mix of Fortune 500 glitter, Wall Street intrigue, and star-studded casts: the titanic ''Seven Sisters'' of the oil world , the proverbial ''widows and orphans'' who own small parcels of stock, and lone-ranger financiers like Texas oilman T.Boone Pickens.
Almost every day a new merger or takeover bid is announced. Two of the latest involve the purchase by Shearson/American Express (itself a many-times-merged financial conglomerate) of Lehman Brothers Kuhn Loeb and the attempted hostile takeover bid of the Carter Hawley Hale department store corporation by The Limited Inc., a high-fashion upstart.
During the past four years, vast amounts of capital have been fed into the mergers of US Steel and Marathon Oil, Du Pont and Conoco, Texaco and Getty, Socal and Gulf, Mobil and Superior Oil, LTV and Republic Steel. Opposing factions have peppered newspapers with ads soliticing proxy votes and lambasting corporate enemies.
A Washington, D.C, businesswoman who, with her husband, owned two lots of Gulf (70 shares bought in 1973 for $241/8 and 30 shares in 1977 for $27), recently tendered her stock to Socal and stands to net more than $5,000.
''We're ultraconservative investors and very inactive,'' she says. ''We tend to buy a stock and sit on it, and it gave us the willies when T. Boone Pickens wanted to create a 'royalty trust' (out of Gulf). . . . We're happy with our profit, but we tend to draw back from these big mergers because we figure somebody's got to pay for it.''
Her modest good fortune - and that of 260,000 other Gulf shareholders - was the byproduct of high-powered financial maneuvers that occurred in posh board rooms, swank hotel suites, and aboard corporate jets.
It began last August when investor-oilman Pickens bought a sizable bloc of Gulf and let it be known he wanted to carve out a royalty trust (which would spin off oil and gas production into a trust and thereby minimize taxation). To prevent Pickens from getting his way, Gulf eventually accepted a buyout offer from Socal. The price of Gulf stock almost doubled in the process; Pickens's Mesa Petroleum Corporation stands to gain $506.4 million from the deal.
As if the characters and companies involved in the wave of mergers were not colorful enough, the special jargon lends itself to ready quotation: Sharpies like Pickens are said to ''greenmail'' a company by taking a large stock position and threatening a takeover - in order to prompt a lucrative buyout of their position. But a company can try to ''sharkproof'' itself to fend off a hostile takeover, or equip executives with ''golden parachutes'' in case they are fired, or search for a ''white knight'' (Socal, in the case of Gulf) to merge with instead. As a last resort, a company might even threaten to swallow a financial ''poison pill'' or to activate a financial ''doomsday machine.''
The story of William Agee and Mary Cunningham at Bendix and their ill-conceived, costly, ultimately unsuccessful attempt to acquire Martin Marietta was a long-running soap opera in the financial press, rife with money and ambition - and, while it played, every bit as gripping as the latest episode of ''Dallas'' or ''Dynasty.''
Bendix and Marietta locked themselves in a Pac-Man-like struggle, each one trying to swallow the other. Few, besides shareholders, top executives, and Wall Street financiers, benefited from the financial cannibalism. Eventually, Allied Corporation picked up the pieces of Bendix and United Technologies the pieces of Marietta.
If mergers move in waves in US business, today's is tidal in proportions. Helping to generate it is a vast body of academic, judicial, and economic support that has caused a deep change in American antitrust thinking. The word today is that mergers per se are not as bad as they once were assumed to be.
During the past 15 years, a new concept of antitrust has slowly moved through intellectual circles, beginning in academia, filtering into the courts (since 1968), and finally into the Justice Department and the FTC, which share responsibility for antitrust enforcement. This ideological change has been accelerated by major structural changes in the American and world economies.
Robert H. Bork, former US Solicitor General and now a federal judge in Washington, advocated more flexible antitrust policy years before it was adopted. The new antitrust philosophy, he says, derives mostly from the University of Chicago law school in the 1950s. The key was the application of the science of economics to legal arguments about antitrust. Now, says Bork, it is the majority view of the academic world - and, at least at present, of the government, too.
Next: Do mergers help the US compete with the rest of the world?