Reasons Behind the Merger Spree

THE BIG GET-TOGETHER

US. businessmen, who like nothing more than getting together at trade conventions, recently have been getting together in another way. They have embarked on the greatest merger spree in history. In the past few months, by stock swap or outright purchase, Nash and Hudson became American Motors, Hilton Hotels took over the Statler chain, Mathieson Chemical and Olin Industries combined. Still more big mergers are in the making throughout industry. Packard and Studebaker stockholders vote this week on consolidating. Bethlehem Steel is talking merger with Youngstown Sheet & Tube, and Textron is working on a three-way merger with American Woolen and Robbins Mills.

According to Arthur D. Little, Inc., Cambridge, Mass. management consultants, mergers are taking place at the rate of about two a day. What lies behind the big get-together?

There are almost as many reasons for merging as there are companies willing to merge. In the rough-and-tumble competition that has returned to many industries during the past year, mergers have frequently been undertaken in self-defense. The biggest companies in the textile industry are now in a great race to become still bigger, combining the efficient new mills of the South with the going industry of the North, and the fast-growing new synthetics with older fabrics that are still in demand. In autos, the independents are joining forces to compete against the Big Three.

But most mergers are not born of despair. A big motivation has been industry's dynamic urge to diversify and get new markets. In the nation's two previous great merger waves--after the turn of the century and in the Roaring Twenties--consolidations were mainly within industries. The theory was that only a foundryman, for instance, could run a foundry properly. But in recent years industry has spawned a new kind of professional manager who can step into virtually any business, find the weak spots and strengthen them. Today management thinks nothing of buying into unrelated fields.

When the $66 million General Dynamics Corp. took over the $147 million Consolidated Vultee Aircreft Corp. last April, about the only thing the two had in common was that both were working on nuclear-powered craft, one in submarines and the other in airplanes. One of the earliest and biggest diversifiers was Glidden Co., from paints into such products as sex hormones and oleomargarine. Locomotive-building H. K. Porter Co., convinced that the locomotive market was running out of steam, bought up 15 companies in eleven years, now makes steel, industrial rubber and oilfield equipment. Its sales have soared from $8 million to $64 million.

Companies can merge vertically as well as horizontally, thus assure themselves of either the materials they need or of market outlets. Chrysler Corp., harassed by supplier strikes at a time when it could sell every car it turned out, and dissatisfied with its Briggs bodies, eventually bought the Briggs bodymaking plants. Looking for retail outlets, International Shoe bought out Florsheim.

Tax advantages often play an important part in creating the urge to merge, as in the Hilton-Statler combination (TIME, Aug. 16). So do changing business tides. The Paramount Theatre chain, making money in a troubled industry, was a natural to combine with American Broadcasting, which was losing money in the promising new field of television. One of the reasons advanced for Oilman Clint Murchison's current interest in Follansbee Steel (see Tycoons) is that the steel company has a listing on the New York Stock Exchange, something that Murchison has never had.

Does the present wave of mergers threaten to build up a set of competition-crushing monopolies? Just the reverse seems to be true. Small companies consolidate so that they can better compete with bigger firms in their industries. Companies that diversify into new fields bring along new ideas to challenge the industry leaders. If television had been developed 50 years ago, the chances are that one company would have had a monopoly for many years. But recently so many firms have been looking for new products and markets that dozens went into television, quickly drove set prices down.

Under the Democratic Administration, the Federal Trade Commission followed the "per se" rule in cracking down on mergers, assumed that any merger involving a large sum of money probably interfered per se with competition. Under the Republicans, FTC has adopted a new "rule of reason." The test: Will a merger hamper competition in fact? As a result, only two merger cases are now pending before FTC. Of the hundreds of other mergers that have recently taken place, the great majority have served to give business a keener competitive edge.

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