The Threat of the Merger Craze
This is the month that Ronald Reagan and his associates destroyed any pretense of enforcing the antitrust laws — those anti-monopoly charters for a competitive marketplace. In just one week, the Justice Department dropped its opposition to the merger of LTV Corp. with Republic Steel (resulting in the nation’s second largest steel producer), and the drive in Congress to put a six-month brake on some of the largest mergers ever (the Socal–Gulf oil merger is the largest) became a mockery.
The White House was instrumental in changing this legislation to exempt all those pending oil mergers which originally prompted the bill in the first place.
Nine of the ten largest corporate mergers in American history have taken place since Mr. Reagan took his oath of office. His appointees at the Federal Communications Commission are about to revoke restrictions on the number of broadcast TV and radio stations a company may own (the limit is now seven television stations and seven AM and seven FM radio stations). This centralizing prospect led the Wall St. Journal to predict a wave of takeovers of broadcast firms. The result would be to further reduce the diversity of communications facilities and programming.
Earlier in his term, Mr. Reagan ordered a weakened enforcement antitrust policy. Major cases in concentrated industries were dropped, including one against the largest eight oil companies. Major investigations also were dropped, including one -focused on the domestic auto industry led by GM whose car prices have zoomed upward more than twice the rate of inflation since 1980. In speeches and testimony, Reaganites regularly reject any concern over the dangerous concentration of economic power in the grip of ever fewer giant corporations. Barely concealed is their ridicule of established antitrust guidelines and precedents.
It was riot always this way. For decades under both Republican and Democratic Administrations, the antitrust laws were treated seriously as an expression of a historic and uniquely American politico—economic philosophy. Granted, enforcement levels had their modest ups and immodest downs, but the basic recognition that the antitrust laws fostered decentralized economic and political power for the benefit of a more competitive market and a more democratic politics remained intact under Eisenhower and even under Nixon.
Then came the Reagan theorists claiming that these laws were obstructing efficiencies and inhibiting U.S. companies from merging to compete better against foreign companies. I can no longer count the number of veteran businessmen who have laughed derisively when confronted with such theories.
The record of what happens after mergers take place, compared to what the merger partners promise will happen, is grim indeed. Remember the disastrous Penn Central railroad merger which spawned the bankruptcy and a legion of stories about serious snafus, incompatible computer systems, waste, greed and indifference. Congressional hearings documented that one.
Other studies have shown numerous acquired companies looted and cast aside by an incompetent management looking for a few more years reprieve before their retirement. Many a town has had a stable company taken over by the big city goliath only to wither on the vine. Just wait and see how fast the mega-bank mergers and takeovers change the scene on Main Street, U.S.A. in the next five years.
Bernard Rapoport, president of the American Income Life Insurance Co., is reflecting more than a solo voice when he says: “this merger craze does not create new wealth nor innovation nor jobs; it eliminates competition and hides mistakes of management while enriching them immensely. I can’t see one salutary benefit to society from these giant mergers.” Others sharing his views point to management’s energy being drained into this merger arbitrage instead of attending to producing and selling finer products and services. Moreover, the federal tax laws facilitate and subsidize these mergers. And small businesses are subjected to more unfair predatory practices.
These businessmen and women who see the abyss that the economy is falling into due to the stifling effect of concentrated corporate power need to come forward. A vanguard dozen of them need to have a news conference to sound the clarion call. They’d better not tarry, for soon there may be only one corporate media chain to call to attend their presentation.