Congress: look at mergers
If you're not familiar with such current corporate strategies as "shark-proofing" you may be missing one of the most exciting dramas now taking place in the United States. We are referring to the pell-mell haste to merge that is now sweeping Wall Street.
"Shark-proofing" is a tactic used by some firms to deliberatly get so bit (by buying out other firms) as to avoid being taken over themselves in a merger. It is now just one tactic in the ongoing US merger wars. the currnt merger mania, by itself, is not necessarily bad. The public benefits through some mergers.
Still, the trend toward ever larger and larger combinations of firms -- often involving businesses in the same field -- is worrisome and warrents the closest attention of congress and the American public.
The latest example of what is now happening is the Texaco Inc. merger with Getty Oil Company. The $10 billion takeover was given a preliminary approval by the Federal Trade Commission this week, subject to a 60-day period for public comment. Other oil giants are also scouting around for possible corporate marriages.
The Texaco-Getty linkup is not unique in the current corporate setting. During 1983 alone there were some 2,533 corporate mergers, a nine-year record. The total cost of last year's mergers was at least $73 billion. some financial analysts believe that the numbers and dollar value of new mergers in 1984 could equal -- or even surpass -- 1983 totals.
The United States, of course, has had frequent periods in its history when corporate consolidations became the order of the day. The end of the last century, for example. But that period was followed by an era of trust-busting under two Republican Presidents, Theodore Roosevelt and William Howard Taft.
Few antitrust experts in the 1980s would argue that mergers per se are wrong. Such a view would be considered impractical at a time when most major US firms have found that their primary competitors are no longer domestic firms, but rather, overseas firms. Often these overseas rivals are government owned.
It is also true that mergers tend to be particularly common during the first year or two for a recovery, as is now the case. Why? Because businesses are flush with cash, buoyed by strong consumer buying.
What must also be pointed out, however, is that a corporate takeover represents a diversion of capital from investment in new machinery and equipment -- machinery and equipment that in turn could generate new economic activity. Is such a diversion of capital really economically effficient?
that is the question that needs to be addressed by Congress. Several lawmakers -- including Rep. Peter Rodino Jr. (D) of New Jersey, chairman of the House Judiciary Committee -- have now introduced legislation to review the impact of future mergers on the public.
Meantime, the Justice Department yesterday announced that it will file suit, if necessary, to block a proposed merger between LTV and Republic Steel, the nation's third and fourth largest steel companies.
J. Paul McGrath, the chief of the Justice Department's antitrust division, said that the merger, as now envisioned, "would sharply increase concentration in critical parts of the steel industry." The decision to block the proposal took some analysts by surprise, since in the past the administration has tended to look the other way on most mergers.
The specific issue that needs to be addressed by Congress seems increasingly clear: To what extent to large-scale mergers of firms, particularly firms operating inthe same industry, lead to the type of corpoorate size that could actually stifle competiton and work against economic creativity and growth.
