Word: mergers
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Corporate executives, however, have been anything but cautious. Beginning with a spate of billion-dollar oil-company buyouts in 1981, the merger wave has rolled over virtually every industry. This year alone, acquisitions have produced the largest U.S. gas distributor (Internorth-Houston Natural Gas), a medical giant (Baxter Travenol-American Hospital Supply), a vast food-processing concern (Nestlé-Carnation) and one of the mightiest high-technology combinations (Allied-Signal). Last week even brought a proposed sports marriage between the New Jersey Generals and the Houston Gamblers of the U.S. Football League. The number of megadeals this year could wind...
...poor record of conglomerates is well documented. In a study of the merger programs that 58 large firms pursued between 1972 and 1983, McKinsey & Co. concluded that in at least 28 of the cases the acquisitions did not earn enough money for the company to justify the purchase price. In only six instances did the merger program seem to be a clear-cut success. Companies stumbled most frequently when they bought firms in a totally different industry. F.M. Scherer, a Swarthmore College economist who surveyed 6,000 mergers from 1950 to 1977, discovered that the profitability of most acquired companies...
Indeed, regulators in the free-market-oriented Reagan era seem convinced that bigger is often better. "Reagan's people have allowed the pendulum to swing much, much further in the direction of free and easy merger opportunities," says Robert Pitofsky, dean of the Georgetown University Law Center. "Businessmen see the opportunity to put through deals now that they couldn't have ten years ago." A more zealous Justice Department blocked the merger of two Los Angeles grocery chains during the 1960s on the grounds that the combined firms would claim 5% of the area's food-store business. Today corporate...
...Nonetheless, the drawling Southerner remains largely an outsider. When he went shopping for an investment banker for the CBS deal, he was reportedly turned down first by Drexel Burnham Lambert and then by Shearson Lehman. Finally he reached a deal with E.F. Hutton, a relatively inexperienced player in the merger game...
...Baxter merger put an end to American Hospital's four-month-old plan to combine with the Hospital Corp. of America, the nation's largest for-profit hospital chain. Baxter Travenol's $51-a-share offer, $15 more than HCA's previous bid, was grudgingly accepted by the American Hospital board only after irate stockholders, led by Financier Carl Icahn, threatened to throw out the board of directors...