Conglomerate Mergers and the Antitrust Laws
![handle is hein.journals/clr73 and id is 577 raw text is: CONGLOMERATE MERGERS AND THE
ANTITRUST LAWS
HARLAN M. BLAKE*
In spite of optimistic announcements by the Antitrust Division that
conglomerate mergers no longer constitute a major problem,' there is evidence
that, after a brief respite, they are again increasing in numbers and signifi-
cance.2 While changes in the income tax laws and accounting rules, and
unfavorable stock market circumstances combined to reduce the number of
mergers in 1970 and 1971,3 rapid growth by acquisition is sufficiently attractive
to entrepreneurs to require that the public policy issues it raises be finally
resolved.4
* Professor of Law, Columbia Law School; B.A., 1946; M.A., 1947; J.D., 1954,
University of Chicago. The author wishes to thank his colleagues, Professors W. K.
Jones, Harvey Goldschmid and Leonard Ross, for helpful comments on an earlier draft.
If circumstances had permitted him to respond fully to their suggestions, the piece would
have further benefitted. Mssrs. Eric Rosenberg and Ronald Bleker, third-year students
in Columbia Law School, provided capable research assistance.
1. I am inclined to think the heyday of huge conglomerate acquisitions has ended.
In my view antitrust suits attacking conglomerate mergers under this Administration
have had a substantial deterrent effect. Address by Thomas E. Kauper, Assistant At-
torney General, l1th Annual Corporate Counsel Institute at Northwestern University,
Oct. 4, 1972, in 5 TRADE Rm. REP. 1 50,149 at 55,252 (1972).
2. The total number of acquisitions of firms with assets of $10 million or more in
manufacturing and mining dropped from 155 in 1969 to 98 in 1970 and 66 in 1971, a
decline which reflected a general downward trend in merger activity. Bureau of Economics,
FTC, Current Trends in Merger Activity, 1971, Table 6 (1972) [hereinafter cited as
Current Trends]. However, after a very slow first quarter of 1971, acquisition activity
began a steady resurgence. 7 MERGERS & AcqUISlTIONS no. 1, Spring 1972, at 36. Statistics
compiled by Mergers & Acquisitions periodical showed that major acquisitions (at least
$700,000 in consideration exchanged) dropped in the first quarter of 1971 to 241, down
28% from the corresponding period in 1970, but increased in the second quarter 1971
to 322, in the third quarter to 327, 4% higher than third quarter 1970. And in the fourth
quarter 1971 major acquisitions reached 347, up 18% from fourth quarter 1970. Id. at 38.
Interestingly, though perhaps coincidentally, the turnaround coincided precisely with the
Government's negotiation of a consent order in the three important conglomerate merger
cases it had brought against International Telephone & Telegraph-see note 26 and
accompanying text-permitting ITT's retention of Hartford Fire Insurance Company.
The merger upswing continued into 1972, according to the W.T. Grimm & Co. An-
nual Merger Survey. Grimm reported merger announcements of all sizes during 1972
totaled 4,804, up 4.3% from 1971. The Grimm Survey predicted a similar rise for 1973.
Wall Street Journal, Jan. 4, 1973, at 4, col. 5. See also Perham, The New Action in
Acquisitions, DUN'S, June, 1972, at 46-49. The Grimm figures do not reveal the amount
of assets involved; announced mergers are subject to subsequent cancellation.
3. For a summary of merger disincentives written into the Tax Reform Act of 1969
see Jewell, The Tax Legislation Against Conglomerates-the Case Against the Tax
Legislation, in Conglomerate Mergers and Acquisitions: Opinioo & Analysis, 44 ST.
JoHN's L. REV. 1073 (Special Ed. 1970) [Special volume hereinafter cited as 44 ST.
JOHN'S L. REv.-(Special Ed. 1970)]. The stock market declines of 1968 and 1969
had an especially great impact on the shares of conglomerate firms, generally, and by
reducing price/earnings ratios deprived them of an important advantage in making ac-
quisitions. See, e.g., J. BLAIR, ECONOMIC CONCENTRATION 298-300 (1972). For discussion
of the inhibitory effect of accounting changes on merger activity see Perham, supra note 2.
4. As this article went to press, decisions were announced in two market extension
conglomerate merger cases argued together before the United States Supreme Court:
United States v. First Nat'l Bancorporation, Inc., 41 U.S.L.W. 4358 (U.S. Feb. 28, 1973),
aff'g by an equally divided court 329 F. Supp. 1003 (D. Colo. 1971) ; United States v.
Falstaff Brewing Corp., 41 U.S.L.W. 4342 (U.S. Feb. 28, 1973), rev'g 332 F. Supp. 970](ViewImageLocal?handle=hein.journals/clr73&div=39&collection=&method=preview&ext=.png&size=3)
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Conglomerate Mergers and the Antitrust Laws
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