It started with William Agee, chairman of the Bendix corporation, and a large pile of Bendix cash. Rather than invest in new or better products for consumers, Agee decided to take over the aerospace company, Martin Marietta. Martin Marietta objected to its being acquired, in part because company officials did not believe Bendix knew anything about their business or how to manage it. So the Great Merger Battle of 1982 was on.
Every day for a month, the financial pages were filled with details of the titanic struggle, which soon brought into the fray two other corporate giants, United Technologies and Allied Corp. Lost in the Pac-Man-like moves of high-priced lawyers and investment bankers were the economic reasons for this corporate cannibalism.
An astonishing number of corporate executives disagreed with Mr. Agee. Some were willing to be quoted in the Wall Street Journal. A steel company official said: “Maybe there’s something wrong with our system when these four companies can line up large amounts of money in order to purchase stock, when it doesn’t help build one new factory, buy one more piece of equipment, or provide even one more new job.”
And these words from Chrysler’s Lee Iacocca: “It’s not a merger. It’s a three-ring circus. If they’re really concerned about America, they’d stop it right now. It’s no good for the economy. It wrecks it. If I were in the banking system, I’d say no more (money) for conglomerations for one year.”
The sagacious William Norris, chairman of Control Data, pointed to the accountability issue: “What the hell are those (Bendix) directors thinking of? Why would they let management go out and attack a corporation like Martin Marietta?”
Professor David Lewis, a business historian, observed: “I bet you Bill Agee and the rest of them haven’t spent 10 minutes thinking about running their companies, making better products or serving the public in the past two weeks. Who’s minding the store? I have nothing but contempt for the speculators and manipulators. (Agee) started it all, and this whole idea of feathering his nest (with salary guarantees) whether Bendix wins or gets swallowed up, that’s the most despicable thing yet. He’s taking no risks.”
Well, as it happened, Bendix lost the fight to take over Martin Marietta and, in turn, got swallowed up by the Allied Corp. Agee is to be president of the merged companies, but Allied Chairman Edward L. Hennessy will be the boss. Martin Marietta is a greatly weakened company financially, with about a billion dollars in new debt. Financial analysts say the company will have to sell off some of its assets and years could pass before the damage to its balance sheet can be repaired.
There are other repercussions. Big Business has been made to look like a Big Fool, manipulated by a few managers on corporate ego trips. Pension funds invested in Martin Marietta are taking sizable losses in the stock market. Those losses affect millions of Americans. The executive power trip nature of these acquisition moves breeds insecurity and instability in an already fragile economy.
Watching the Bendix-Martin Marietta joust take place reminded me of a crusade by Bernard Rapoport, president of the American Life Income Insurance Co. in Waco, Texas. He wants the federal tax laws changed so as to discourage mergers and instead provide a tax incentive for companies to sell off subsidiaries. Presently, the tax laws facilitate merger activity and induce many independent businesses to agree to mergers or suffer the various discriminatory impacts of these laws on smaller firms or family-owned companies.
Rapoport says that when corporations become too big, they not only undermine competition but they also become too big to fail when mismanaged. Therefore, they go to Washington and demand that Uncle Sam (you, the taxpayer) bail them out.
The history of what happens to smaller firms that are gobbled up by conglomerates is not encouraging. Two years ago, the House of Representatives Committee on Small Business held hearings on conglomerate mergers and their effects on small business and local communities. It found many adverse effects on local economies and a pattern of corporate stripmining or neglect of the acquired local companies. This absentee control has led to many plant closings and a surge of local unemployment.
Citizens, elected representatives and scholars need to think about an observation by a retired merchant: that “the trouble with business is big business.”