Big Business Gets Bigger, Record Pace
2,000 mergers every three months in US
Corporate mergers and acquisitions in the United States this year are off to their fastest start ever - highlighted recently by talks between phone giants AT&T and SBC that could bring the largest merger ever.
The merger boom, now well into its third year, is reshaping corporate America.
Up to now, the rush to merge has not inspired the fears of industry concentration, as it did in the 1960s and 1980s.
Anne Bingaman, top antitrust official at the Justice Department until last October, offers one explanation: "The United States is the most competitive in the world. That is because we take our antitrust seriously."
Despite the mergers, most companies lack the market power to raise prices easily. Inflation has remained low.
Yet the pace of the trend is stunning: more than 2,000 announced buyouts or mergers every three months.
Through last week, $292 billion in such deals had been announced this year, says Richard Peterson of Securities Data Company in Newark, N.J.
At that pace, mergers this year will top the record $648 billion total in 1996.
If AT&T and SBC Communications, a regional Bell company, join forces, the $50 billion-plus merger "would blow the numbers out well over $700 billion," notes Mr. Peterson.
That "if" is a big one, though. The companies themselves are still in the talking stage, and a proposed merger must clear significant regulatory hurdles.
But the deal would easily clear the record $31 billion leveraged buyout of RJR Nabisco by Kohlberg Kravis Roberts in 1988.
An AT&T-SBC link-up already generates controversy. In 1982, US Judge Harold Greene ruled AT&T was so big it stifled competition. He broke AT&T into eight pieces: a parent for long-distance service and seven regional companies for local service.
The move spawned competition in the long-distance arena, and a deregulation law last year opened up local competition.
But mergers have now reduced those seven regional phone companies to five.
So the prospect of a huge new merger has inspired critical comments from experts and politicians.
"This may dissuade them from going ahead," says Robert Litan, a former Justice Department antitrust expert now at the Brookings Institution in Washington.
Further, should the two companies decide to merge, they face "uphill sledding" at the Justice Department. It would "reawaken old fears" of AT&T's earlier monopoly on local calls and its ability to subsidize long-distance business with higher charges on local calls, he says.
The merger boom, the experts say, reflects several factors besides empire building by executives or the hope for synergy and greater efficiency that often prompt takeovers and acquisitions:
Stock prices are high. This makes it easier for companies to use stock to acquire other companies.
Merger booms in 1903, the 1920s, late 1940s, and the 1960s rode bull stock markets. One exception, notes F. M. Scherer, an antitrust economist at Harvard University in Cambridge, Mass., was the early 1980s, when corporate assets were highly undervalued. It was cheaper for companies to expand through acquisition.
Deregulation has allowed major mergers in telecommunications, banking, and electric utilities.
Globalization of the US economy means more American companies face foreign as well as domestic rivals. Seeing the new competition, antitrust officials do not challenge as many mergers and acquisitions.
With lower trade barriers and greater foreign competition, "there are compelling reasons in many sections of the economy for more consolidation," says James Loftis, chairman of the American Bar Association's antitrust section.
Shrinking orders have forced the defense industry to consolidate.
"Peace is breaking out around the world," notes Mr. Loftis, of Collier, Shannon, Rill & Scott, a Washington law firm.
Among the latest deals, Boeing plans to team up with McDonnell Douglas and Raytheon to buy the defense units of Texas Instruments and Hughes Electronics.
President Reagan kept antitrust policies relatively dormant. But Presidents Bush and Clinton reactivated the two antitrust agencies, the Federal Trade Commission and the Justice Department.
Nowadays, though, few cases end up in court, an exception being the planned merger of Staples and Office Depot, two giants in the office supply business.
The motto of antitrust officials is, "Fix it first," Mr. Scherer says. That is, negotiate changes to maintain competition.
Further, guidelines from antitrust officials clarify what type of merger will pass muster. In April, for example, the two agencies released a guideline for evaluating claims of economic efficiency, thereby benefiting consumers.