General Electric will get much bigger next year, riot by selling more and better products and services, but by buying profitable RCA — which includes the Television network NBC — for $6.28 billion. Anonymous RCA executives were reported by the Wall Street Journal to be “shocked and disappointed by the agreement, negotiated with seemingly astonishing speed and secrecy.”
These executives are upset because they may lose their jobs during the consolidation of the two companies. But they were correct about the hastiness of the deal. RCA boss Thorton Bradshaw and GE boss, John Welch (whose nickname is “Neutron Jack”), were brought together by Felix Rohatyn, an investment banker. In a matter of days, the agreement was concluded, the pliant Boards of Directors met quickly on December 11 to approve the deal, and the next day the formal announcement was made at Rockefeller Center.
The second guessing started immediately. Some financial analysts said the purchase price for RCA at $66.50 a share was too little. T. Boone Pickens, Jr., the takeover raider, said that GE got a “cream-puff” deal. RCA and NBC employees were reported grumbling about the sell-out after they worked so hard during the past four years to turn the troubled company around.
But silence greeted the merger from other quarters. Fifteen years ago, under the Nixon Administration, a “Neutron Jack” would not have dared even propose such a takeover. The Justice Department’s antitrust division would have blocked it. Now, based on informal contacts with the Reagan regime, Bradshaw and Welch exuded confidence that there would be no trouble. The Justice Department kept quiet. Only Senator Howard Metzenbaum (D-OH) issued a statement decrying the merger. Fifteen years ago, such a takeover would have caused a bi-partisan uproar on Capitol Hill and Congressional antitrust hearings.
Both companies are defense contractors. If concluded, the merger would remove one more competitor from the Pentagon’s covey of large oligopolistic bidders. Both companies are in consumer electronics; after the takeover is concluded, there will be one less large competitor in this area. Both companies could have been potential competitors in several areas. For example, now both companies are involved in what Welch called “related, but different segments of the aerospace industry.” They could have competed head on later, but no more. No wonder Welch called the merger a “strategic fit.” Not many years ago, others in Washington would have called it a violation of the antitrust laws.
What facilitated this takeover was that GE had a lot of cash on hand. Arid why not? During the four years — 1981-1984 — the company made a total of $9.4 billion in profits and paid only one percent of that total in federal income taxes. This windfall came as a result of Reagan’s corporate tax loophole law enacted on the basis that companies like GE would use the tax savings to invest in new plant and equipment. Instead, GE is using that money toward buying one of its competitors.
There is an additional question as to whether General Electric has the ‘corporate character’ to take over RCA and NBC. The company has run afoul of the antitrust and other criminal laws with unseemly frequency. From the notorious and gigantic criminal price-fixing schemes of the Fifties and early Sixties to fixing prices and restraining trade in the sale of light bulbs until the early Seventies, the company has had difficulty observing fair rules of competition. From nuclear safety violations to dumping lethal chemicals in waterways, the company has had trouble toilet training itself. GE has always had very aggressive leadership and it will be interesting to watch its leaders straining at the bit while watching NBC conduct exposes of its parent company – oh hope springs eternal!
Why the takeover? At the news conference, both executives repeated the bromide that it was necessary to meet the global competition. This is an American corporate code word to mean ‘the Japanese’. Do you read about Japanese corporate giants merging to meet the U.S. competition? The smaller Japanese companies have overcome their larger U.S. competitors by paying attention to product rather than to mergers. There are eleven Japanese auto companies; the U.S. has four.
Probably the only hope against this empire-building, executive-enriching agreement is a concerted revolt inside RCA to keep their company independent. There is a lot of talent and cause to do this; but it will take a pioneering brand of collaboration and leadership to get the opposition underway. Should such a defense surface, there will be many people who believe in competition, applauding.