Word: mergers
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Dates: during 1980-1989
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Insider trading is about the only aspect of the merger marathon that bothers the Reagan Justice Department. Just a decade ago, a proposed joining of two leviathans like GE and RCA would have drawn an immediate challenge. But under the benign gaze of the Reagan White House, bigger most often means better. Charles Rule, Deputy Assistant Attorney General in the antitrust division, notes that recent years have brought "a sea change in public opinion regarding the costs and benefits of regulation," including antitrust laws. Says Rule: "After years of experience with the Great Society, we discovered that more Government doesn...
Congress talks about curbing some of the merger activity, but it has not taken any action. While some 50 bills to regulate acquisitions were introduced in 1985, none has made it out of committee. Complains Wirth, who tried and failed a year ago to restrict some takeover practices: "The economic ideologues at the White House are dominating what debate there is within the Administration, and they believe the market can do no wrong...
Critics of mergers and takeovers, on the other hand, charge that hostile consolidations disrupt management and force companies to think mainly of short-term profits rather than of how to become more effective competitors in U.S. and foreign markets. Even the short-term run-up in stock value that frequently occurs in merger situations may not be to the long-term benefit of a company, since it may overstate the firm's actual worth. Martin Lipton, a Wall Street lawyer who specializes in helping companies defend themselves against raids, denounces them "as financial transactions for the profit of the takeover...
...Even if mergers are by and large beneficial to the U.S. economy, however, the current merger frenzy seems to have gone too far. Takeover strategy is taking up vast amounts of management's energy and attention. Instead of running their businesses, some executives are spending their time worrying about financial plays. Says Berkeley's Jones: "As considerable as is the drain of money and other resources into mergers and acquisitions, I regard the drain on management time and talent as perhaps even more important...
Ultimately, of course, each merger or takeover or leveraged buyout must be judged on its own merits. There are good mergers, and there are bad ones. The true danger of the current rash of mergers is that it will distract corporations from the real business of business. American firms, facing ever tougher competition both at home and abroad, need to look beyond the short- term search for a merger partner or takeover target and get back to making products and services for tomorrow's customers...