Political Consequences of Conglomerate Mergers

• Author: Thomas G. Marx
• DOI: 10.1177/0003603X8202700104
• Published date: 01 March 1982
• Date: 01 March 1982
• Subject Matter: Article

The Antitrust Bulletin/Spring 1982 107

Political consequences

of

conglomerate

mergers

BY THOMAS G.

MARX·

I.

Introduction

The debate over legislation to prohibit conglomerate mergers is

heating up again as a result of accelerated merger activity in the

first half of

1981

and the huge du Pont-Conoco deal. Conglomer-

ate mergers first increased in relative importance following the

passage of the Celler-Kefauver Act in 1950, which substantially

extended the reach

of

section 7 of the Clayton Act to horizontal

and vertical mergers. Conglomerate merger activity peaked in

1968, but then began to increase again in the mid-1970s. This

renewed activity led to proposed legislation in the 96th Congress

to restrict conglomerate mergers among large firms. Senator

Kennedy sponsored a bill that would prohibit all mergers between

companies with more than $2 billion in sales or assets, and

require companies with sales or assets over $350 million to

demonstrate that the merger would enhance competition or in-

crease efficiency. IInterest in this legislation waned, however, with

•Director, Economic Policy Studies, General Motors Corp.

AUTHOR'S NOTE: The assistance

of

T. Walton and E. Eckard is grate-

fully acknowledged; however, all opinions and any errors are solely the

responsibility (}f the author.

IThe Small and Independent Business Protection Act

of

1979, S.

600, 96th Cong., 1st Sess., S2417-19 (1979).

©1982by Federal LegalPublications. Inc.

108 The antitrust bulletin

the Republican victories in the Senate; Strom Thurmond's re-

placement of Senator Kennedy as head

of

the Judiciary Commit-

tee (and the subsequent abolishment

of

the Subcommittee on

Antitrust and Monopolies); and the development

of

more press-

ing macroeconomic problems.

Recent developments, however, have rekindled the conglomer-

ate merger debate. Mid-year

1981

data indicate that mergers and

acquisitions are running

50010

ahead

of

1980 levels.' During the

first six months of

1981

there were 1,184 transactions with a value

of

$35.7 billion compared with 1980 totals of 1,889 transactions

worth $44.3 billion.3Interest in conglomerate mergers has also

been recently sparked by the

views

of

new antitrust chief William

F. Baxter, who has promised a revision of the 1968 merger

guidelines. Baxter is concerned with the horizontal consequences

of

mergers (e.g., the elimination

of

potential entry) and not with

size per se.

The focus of these debates represents a marked shift from

economic to socio-political arguments against conglomerate

mergers among large firms. The reason for this lies in the demise

of

earlier economic arguments against size per se. Early observa-

tions of profit-concentration relationships have proved largely

transitory or consistent with large-firm efficiency, which looms

ever more important with increasing competition from large,

foreign multinationals. Aggregate concentration, deep-pocket,

reciprocal dealing and mutual forbearance theories have all been

2Mergers and Acquisitions 16, no. 2 (Summer 1981): 4.

3

"Don't

Stop the Mating

Game,"

Fortune 104, no. 4 (24 August

1981): 70. As a result of these merger developments, Rep. John

Seiberling (D-Ohio) introduced a bill similar to S. 600 that would

prohibit mergers between companies with sales or assets exceeding $2

billion, and also prevent mergers between companies with sales or assets

of $350 million unless the companies could prove that the mergers

would increase competition or economic efficiency. The Small and

Independent Business Protection Act

of

1981, H.R. 4409, 97th Cong.,

1st Sess., E 3939-40 (1981).