Factors Underlying Business Interest in Conglomerate Mergers

Abstract

ANYONE who has been even reasonably alert to trends in American business in recent years is well aware that merger has become a way of life. There were an estimated 4,462 mergers in 1968, and the number in 1969 is expected to rise to 5,400 [2]. Over the past five years or so, a growing number of such mergers have been instigated by firms that have come to be known as conglomerates. Since different people have different ideas on what a conglomerate is, let me define the word as I will be using it in this paper. I am not talking about the more conventional forms of merger that have been commonplace for a long time-horizontal integration (such as occurs when one fertilizer company acquires another fertilizer company) or vertical integration (such as the purchase of a broiler operation by a feed manufacturer). Neither am I talking about diversification into related product areas (a soap manufacturer buying a bleach producer) nor into different geographic areas in the same product line. Rather, I will be talking primarily about mergers in which one company takes over or combines with another whose product line is completely dissimilar, such as an electronics firm acquiring a meat packer or a telephone company buying a vending machine company. Conglomerates, even by the latter definition, have been with us for a long time. One need only cite such giants as General Electric, Ford, and Westinghouse to confirm this. However, these companies got that way long before the recent wave of acquisitions that have led to such wellknown enterprises as Ling-Temco-Vought, Textron, Gulf and Western, and Litton, to name only a few. The fact that a number of major U. S. food and agricultural companies-Armour, Wilson, John Morrell, United Fruit, Allis-Chalmers, Canteen Corporation, Sunshine Biscuit, etc.-have been involved in such acquisitions (actual or threatened) makes this particular session of more than passing interest to agricultural and food economists.