A big oil company gets hitched to a mammouth retailer. A major soft drink producer is taken over by a tobacco conglomerate.
The Pet cows are now working for IC Industries, whose more prosaic products include hydraulic pumps, brake shoes and a railroad.
The corporate urge to merge seems to have developed into a contagion, fed by underpriced stocks and cash-rich corporations.
The merger fever is generally applauded on Wall Street and in board rooms but in Washington it has caused frustration and dismay in the offices of two federal trust busters - the Federal Trade Commission and the Justice Department.
Jutice's antitrust chief and the head of the FTC have criticized the concentration trend. But they concede that antitrust legislation now on the books makes it all but impossible to stop the major deals being announced regularly.
In the first half of 1978, there were 1,107 merger announcements, up 4 percent from the year before, according to W. T. Grimm & Co., the Chicago-based consultants who tabulate such figures. That doesn't compare in numbers with the last big wave which peaked in 1969 when more than 6,100 mergers took place.
More significant, though, is the size of the deals involved today. The number of completed or pending acquisitions involiving companies valued at more than $100 million totaled 37 in the first half of 1978, aggregating $8.9 billion in asets. This nearly doubled the 20 mergers of this size announced in the same period in 1977, totaling $4.5 billion.
Some of the well-known companies swallowed up in recent months include Seven-Up by Philip Morris in a $500 million cash deal, Pet Inc. by I.C. Industries for $400 million and Inland Container by TIme Inc. for $300 million. And last week, Tropicana was acquired for 490 million by Beatrice Foods, over the objections of the Federal Trade Commission.
R. J. Reynolds, meanwhile, is stalking the Del Monte Corp. with a $460 million offer in stock and cash to the shareholders of the fruit and vegetable packer, whose name is a household word. And virtually every week brings bnews of another transaction of this magnitude.
The merger boom - often through hostile tender offers - has provided handsome benefits to shareholders who have eagerly been bought out at premiums that can be double what their shares were trading at before the offer.
And the Wall Street investment bankers and law firms who facilitate the transactions also have reaped handsome rewards. Lehman Brothers, for example, reportedly earned more than $3 million for its role in guiding the Seven-Up transaction to a successful conclusion.
The managements of target companies, after what can be years at the helm, are understandably hostile to takeover attempts, often helping to generate what is the business world's closest equivalent to out-and-out warfare.
But the merger phenomenon also has raised serious questions among some independent observers who feel that the combinations have no positive economic rationale but instead represent a willy-nilly effort by large corporations to grow even larger through outside acquistions when they can't or don't want to grow through normal expansion.
William Cary, a former chairman of the Securities and Exchange Commission and now a Columbia University law professor, complained recently that "the merger movement is undisciplined, and companies are being put together like a deck of cards. In too short a span of time, our socity has matured and moved from industrial capitalism to finance capitalism."
Defenders of the trend say the combinations being put together are anything but undisciplined, and represent legitimate desires by corporations to diversify and reorganize themselves, given the current business environment.
They also cite decreased willingness of business to invest in new plant and equipment because of growing uncertainties in the long-term economic outlook. This they attribute in part to a meddlesome government in Washington, which they say has fueled inflation while strangling the economy through overregulation, and thus has diminished profit opportunities.
The cliche that it is easier and surer to buy than to build.
"I think his is happening because opportunities have been cut down and we're building on what's there," commented yerger Johnstone, deputy director of the mergers and acquisition department at Morgan Stanley, one of Wall Street's leading investment banking firms.
Additional factors cited by Johnstone and others to explain the phenomenon include the cash-laden position of many corporations, the values still available because of low company stock valuations compared to their book value, and the desire of European investors - given the enhanced purchasing power of their currencies in relation to the dollar - to get a manufacturing toehold in the united states.
Johnstone says he would like to see "a better balance between construction of new plants and acquisitions," but adds: "I don't think these business combinations are disturbing. I haven't seen any harm to society, in fact, I've seen some creative synergy."
Similarly, Louis Perlumutter, the managing director of the merrill Lynch White Weld Capital Markets Group in charge of merger activity, says the trend "doesn't show weakness, but really the dynamism of the system.
"Having lived through some of the mergers that have taken place in the last five years and watched the careful planning and negotiating process that goes on, these combinations are not a house of cards - they represent well-planned and considered moves on the part of the acquirer," said Perlmutter.
And, in fact, the 1969 "Neal Report" prepared for a White House antitrust task force noted that "an active merger market suggests a healthy fluidity in the movement of resources and management in the economy toward their more effective utilization."
The current wave of mergers also differs significantly from the 1960s binge when conglomerates like International Telephone and Telegraph, LTV Corp. and Gulf and Western mushroomed in size through a parade of disparate takeovers, often using stock or other financial paper to make the acquisition on a highly leveraged basis.
Today's deal is more likely to involve one major company acquiring another large company, and usually for cash on the barrel.
The view from Washington on the positive benefits of the latest merger wave is quite different from the enthusiasm of Wall Street, however, and there is considerable skepticism that conglomerate combinations in fact produce economic synergy - or a whole greater than the sum of its parts - either in enhanced profitability or a greater ability to raise capital.
John Shenefield, the assistant attorney general for antitrust, testified recently that in examining the effects of the 1960s merger boom, "On average few of the benefits contemporaneously claimed for such conglomerate mergers were valid."
He cited as one example the LTV Corp. which went from No. 14 in sales on the Fortune 500 list in 1969 to No. 43 by 1977, following the need by the conglomerate to spin off some undigested assets.
Shenefield and others concede that the current wave of corporate combinations differs in kind and quality from that of the 1960s, and the concern of the Antitrust Division and of the FTC's Bureau of Competition seems to lie in the size of the acquisitions that are taking place more than in the potential effect they may be having in specifically reducing competition.
However, the problem these agencies are having is that there is no size prohibition within the antitrust laws for blocking an acquisition. Bigness, by itself, is not a valid reason to stop a merger.
Under Section 7 of the Clayton Act, mergers are prohibited only where "the effect of such acquisition may be substantially to lessen competition or tend to create a monopoly."
However, the companies contemplating takeovers get careful legal advice on how to avoid the antitrust pitfalls and usually choose to acquire a company in a completely different field, which does little to alter the resultant structure or market share of a particular industry.
For example, when Mobil bought Marcor two years ago, the combination created a $25 billion company, but the takeover by the oil giant of Montgomery Ward and the Container Corp. of America did nothing to change concentration in the oil, retailing or packaging fields.
"Simply stated, under current interpretations of existing law, we cannot reach most of these mergers," FTC Chairman Michael Pertschuk told the same Senate subcommittee recently.
Recent challenges to the conglomerate mergers have hinged on the so-called theory of potential competition. The argument is that a merger may be illegal if it eliminates a significant source of potential - though not present - competition with companies in the acquired firm's market. This lessening of potential competition can come about from larger financial or marketing muscle, for example.
But even where the FTC thinks it has a good case, as in its recent battle to prevent Beatrice Foods, with annual sales nearing $6 billion, from acquiring Tropicans, another large food company with nearly $300 million in annual sales, it found the courts are construing the antitrust laws quite narowly and are not receptive tothese theories.
The FTC, seeking to enjoin the Beatrice-Tropicana merger, had claimed that it ccould "substantially lessen competition or create a monopoly in the processing, distribution and sale of ready-to-serve orange juice."
It produced figures that showed Beatrice accounted for about 1.7 percent of the ready-to-serve orange juice market while Tropicans had 29 percent.
The federal appeals court in Washington last week, however, not only found the FTC's figures to be exagerrated, but in turning down the agency's request pointed out that Beatrice's orange juice sales represent only "an infinitesinal part" of its overall business.
Only 17 minutes after the court refused to extend the temporary restraining order, Beatrice and Tropicana announced the completion of the merger.
While the FTC says it will continue to oppose the merger through its own to oppose the merger though its own administrative proceedings, legal observers said the ruling was significant because it showed the courts are requiring stiff proof from the FTC before handing out injunctions.
With the spotty record of both Justice and the FTC in blocking any significant conglomerate mergers (billion-dollar combinations like General Electric's purchase of Utah International and Atlantic Richfield's acquisition of Anaconda Copper breezed through), there has naturally been some discussion whether any new antitrust legislation may be needed.
Both Shenefield and Pertschuk declined to make specific recommendations in their Senate testimony but did indicate a few areas Congress could consider.
Possible measures might include an outright ban on mergers of a certain size, prohibitions of mergers that would breach certain market-share or concentration limits, a change in the law to force the merging companies to prove the positive benefits of their combination, or changes in the tax laws that now provide interest deductions, for example, when companies take out bank loans to finance an acquisition.
The last time the Antitrust Division tried to mount a direct challenge to a conglomerate merger on the basis of size, interestingly, was the controversial ITT-Hartford Fire Insurance consent decree which nonetheless was approved by the Justice Department in 1971.
In that case, former ITT Chairman Harold Geneen intervened directly with the White House to challenge what he called the "bigness is bad" policy of the Antitrust Division and got both President Nixon and Attorney General John Mitchell to override the objections of the Antitrust Division.
Susan McDermott, counsel to the Senate Judiciary subcommittee on antitrust and monopoly, said the after-effects of the July 1971 ITT-Hartford settlement are still being felt.
"The sad thing is that it would have been the first real conglomerate case," said McDermott. "But as a result of the settlement, we never have gotten a judicial decision on how far existing law can be carried."
The subcommittee plans further hearings in September on the takeover question and will give consideration to different legislative poposals, said McDermott, but she said that enacting any new bills would take time.
"What we are talking about is down the road," she said. "But these merger trends are cyclical, which means they will appear again. Remember, the economy stopped them cold in 1970 and 1971."
Meanwhile, one new law which it is hoped might at least slow the pace of corporate takeovers goes into effect on Sept. 5.
Titled the Hart-Scott-Rodino Antitrust Improvements Act of 1976, the new law requires companies planning an acquisition sbove a certain size to filed detailed information with the FTC and then wait at least 30 days before completing the merger. The law applies to transactions where one party has assets of more than $10 million and the other has assets of more than $100 million.
The purpose of the new rule is to prevent the quickie takeover, or socalled "Saturday Night Special," and to supplement current Securities and Exchange Commission disclosure requirements. Under the Williams Act, which the SEC administers, certain filings have to be made at the start of a takeover offer which can run as short as 7 days, putting tremendous pressure on management to accept an offer.
In recent years, many target companies have availed themselves of state regulations governing takeovers which have provided them with time to fight off or at least delay a tender offer long enough to search for a "White Knight," or alternate merger partner.
But the U.S. Circuit Court of Appeals in New Orleans last Thursday declared as Idaho state takeover statuute to be unconstitutional, and cast doubts on the constitutionality of similar laws in 31 other states.
The FTC prenotification requirement will substitute for the state statutes. But it is not expected to significantly diminish the number of takeovers, and lawyers say it may produce an unwanted side effect in making it more difficult for a target company to resist the original offeror and find a White Knight.
"I think the tempo of activity may slacken for a short period of time while people sort out the mechanical aspects of Hart-Scott-Rodino," commented Joseph Flom, another securities lawyer specializing in takeovers. "But just as when the Williams Act came in, there were some initial problems in complying with it, a lot of injunctions, and then people learned where the pitfalls were and learned to work around it."
But for the target company, Flom noted, it will make it more difficult to avoid the initial takeover offer under the Hart-Scott-Rodino Bill, because any alternate bidder will be subject to the same filing requirement and 25 day delay period.
"Under the state takeover stateutes, management ha the option to waive the statute so that a company was free to oppose the first offer and shortly before it expired they would run in, waive it and bring in a White Knight," said Flom. "Now since managment does not have the discretion to waive it, they will have to consider bringing the White Knight in at a very early point, because shareholders may end up choosing the bird in the hand.