Concern About Conglomerates

Charles G. Bluhdorn, chairman of merger-minded Gulf & Western, explains the rationale behind that current corporate rage--the conglomerate company--in disarmingly simple terms. "If you have all your eggs in one basket, you're stuck with those eggs," says Bluhdorn. "But if you've also got apples and bananas, that's something else." Following that formula, Bluhdorn, James Ling of Ling-Temco-Vought, Harold Geneen of ITT and several others have traced the tracks of such conglomerate pioneers as Litton and Textron across industry lines into movies and machinery, aircraft and auto parts, cigars, cybernetics and clothing. Along the way, the conglomerates have stirred up what the Federal Trade Commission calls the "sharpest merger activity in modern industrial history."

Last week, citing a "growing concern" that too much U.S. business is going into too few big baskets, the FTC announced that it is undertaking a thoroughgoing study of the conglomerate phenomenon. Chief FTC Investigator Harrison Houghton, 56, plans to tackle not only antitrust problems but also such areas as efficiency and profitability of the "multimarket companies"--as the conglomerates like to call themselves.

Zeroing In. The FTC is only the latest agency to zero in on the controversial conglomerates. President Johnson has appointed a group of academic antitrust experts to study and recommend policy toward the companies. The Securities and Exchange Commission is studying their financial reporting techniques. The Justice Department, criticized as being soft on antitrust, recently became acutely aware of the fact that antitrust law has lagged behind the phenomenon of conglomerates.

Horizontal mergers (between competitors) and vertical mergers (between users and suppliers) have long been severely limited by well-established antitrust law. The status of conglomerate mergers, between companies not in direct competition, remains uncertain. Only last May, Justice issued a 27-page merger guideline suggesting that conglomerates would be opposed if, for instance, the merger would prevent two noncompeting partners from entering each other's fields on their own. Thus, this month a federal District Court upheld a key Justice challenge to a merger of Wilson Sporting Goods, a subsidiary of LTV, with a small maker of gymnastic equipment. The grounds: Wilson might well have entered the gymnastic field on its own.

The Federal Trade Commission is fretting over the number as well as the size of acquisitions. Last year there were half again as many mergers (1,500) as there were in 1966, and 83% of them involved conglomerates. Large mergers (involving companies with assets of $10 million or more) doubled to 155; during the first two months of this year, no fewer than 40 more were pending or completed.

Like Taking Dope. Hardly a day now goes by without at least half a dozen merger attempts being launched, parried, counterattacked, renegotiated--or consummated. In swift succession last week, the Lily-Tulip Cup Corp. got a merger offer from Owens-Illinois, then a counterbid from Sun Chemical. Continuing a drama that has lasted longer than a TV soap opera, ABC lost one disenchanted suitor, C.I.T. Financial Corp., then lost a round in a court attempt to fend off another, Howard Hughes's Hughes Tool Co. Then there was Studebaker-Worthington, itself the product of a 1967 merger, which moved to acquire shoemaking Endicott Johnson; and Miles Laboratories (drugs), which acquired SOS (soap pads) from General Foods, which had been under FTC orders to sell off its 1957 acquisition.

The conglomerates insist that they are anxious to answer all sorts of criticism, ranging from the charge that they are little more than glorified holding companies to former Justice Department Antitrust Chief Donald Turner's recent remark that the acquisition habit "is like taking dope." Such charges may well apply to some of the more razzle-dazzle operations. But Chairman Rupert C. Thompson of huge (1967 sales: $1.4 billion), highly regarded Textron, has no doubt that the study will show that the basic idea is sound. "We embarked on 'diversification' in 1952," says Thompson, who numbers Gorham silver, Fafnir bearings and Talon zippers among his most recent acquisitions, "and we expect to be here in 1992."

By then, of course, some of the conglomerate glitter may be gone. A bit of the luster went early this year when Litton announced that in 1967 it suffered a profit dip--something that is not supposed to happen to multimarket companies that hedge their bets in many fields. Then, too, there might be new legal restrictions. One proposal being discussed by Government trustbusters is that, in the event of a merger, big firms be made to spin off matching assets in some other subsidiary. Another is to prohibit acquisitions altogether by a company when it reaches a certain size in any highly concentrated particular field.

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