Corporate Growth Trends

Corporate Growth Trends

During the 20th century, there has been a definite trend toward mergers of large corporations. From 1955-1980, Fortune magazine's "core group" of 262 companies (companies appearing on both the 1955 and the 1980 list of the top 500 companies) purchased 4,500 other companies. In 1979 alone, 2,128 companies worth a total of $43.5 billion were bought by other corporations.⁸ (See figure 4.2.)

A merger occurs when one company purchases the controlling shares of an­other company. There are several types of mergers. A horizontal merger involves the combination of competing companies that perform the same function. In the early part of the 20th century, many horizontal mergers occurred. A classic example was the acquisition of competing oil companies by Standard Oil. However, hori­zontal mergers that prevent other companies from competing were outlawed by anti­trust legislation.   

In the 1920s, vertical mergers were popular. A vertical merger occurs when a major corporation purchases its suppliers. For example, a car manufacturer might purchase a battery or tire corporation in order to guarantee a supply of parts. Amal­gamation occurs when the merger of two corporations creates a new corporation, with no one company being dominant. An example of a classic amalgamation was the merger in 1917 of Buick, Olds, Cadillac, and Pontiac to form General Motors.

More recently, corporate growth patterns have indicated a definite trend to­wards the conglomerate merger, the joining together of unrelated businesses. For example, in the 1970s Mobil Oil (an oil company) purchased Montgomery Ward (a retail department store). In addition, the devaluation of the dollar in the 1970s made many American companies targets for foreign mergers. In 1978, Interna­tional Thompson Organization, Ltd., a British corporation that owns British Air­ways and several oil companies, purchased Wadsworth, one of America's leading textbook publishers. In that year, Thompson employed over 20,000 people world" wide, and earned over S I billion.

In the early 1980s, mergers boomed in the United States, and the leaders in acquisitions were the big oil and chemical companies. For example, 1981 marked the merger of the chemical giant, DuPont, with Conoco Oil. The reasons for this recent trend are many, including (1) the relaxed anti-trust policies of the Reagan Administration, (2) a growing scarcity of resources, (3) the cost and challenge of new technology, (4) the fracturing of markets, and (5) the accelerated pace of eco-nomic change. Uncertainty appears to be a major factor underlying all these rea­sons. Many corporations feel the need to insulate themselves against the genera! environment of business uncertainty. In the DuPont-Conoco merger, for example, DuPont wanted to insure itself against any_disruptions in its basic fuelstock supply.

 Uncertainty has been especially hard for those industries affected by changes m government policy. After the government decontrol of the airline industry, for example, many airlines such as Pan Am and Northeast Airlines were forced to merge or go broke. Government control with its route and rate restrictions, had kept many inefficient airlines aloft. A similar fate may be in store for the banking industry, where recent changes in financial regulations have created new competition from such institutions as Merrill Lynch and American Express.

 Not all companies want to be merged, however. Some mergers are thus "un­friendly." An "unfriendly" merger is called a "takeover acquisition." In 1981, for example, Mobil Oil made a controversial attempt to merge with Marathon Oil. This takeover attempt was challenged by U.S. Steel, which proposed a friendly merger otter to Marathon. U.S. Steel and Mobil Oil fought each other in a series of court «ties for the right to merge with Marathon. U.S. Steel eventually won. But the successful bid by U.S. Steel generated still more controversy because many people believed the large steelmaker should use its profits to modernize its own operations and to hire back laid-off workers, rather than to acquire new companies.