Corporate Mergers; S. Richman

?R? lustrated than in the coverage of and comment on the recent spate of cor porate mergers. The Du Pont-Con oco merger last summer set off an hysterical display of economic igno rance that still might find its way into law. Unfortunately, this igno rance is found not only in the writ ing of journalists and antimarket spokesmen, but in the articles and speeches of business spokesmen who themselves have fallen victim to the confusion. Typical of the way mergers have been discussed is this opening para graph from Newsweek's July 27 (1981) cover story (the italics are mine): One prominent banker called it a "feeding frenzy," and last week, as the biggest takeover battle in American cor porate history gained momentum, the description seemed right on the mark. Three giant companies-Du Pont, Sea gram and Mobil-were battling for conCORPORATE MERGERS: METHOD OR MADNESS? 283 trol of Conoco, Inc., the nation's ninth largest oil concern, and the bidding was fast approaching the $6 billion level.

Meanwhile, other cash-rich corporate giants were eying their own acquisition targets and frightened companies scram bled to protect themselves. By the end of the week, the hunters and their prey had stocked up war chests of bank credits worth more than $25 billion-enough to buy Detroit's Big Three automakers with $10 billion to spare-and many analysts predicted that the marauders were prE~ paring for a long-term merger binge of unprecedented proportions. "Having had that first taste of blood," said Larry Goldstein, chief economist for the Petro leum Industry Research Foundation, "it is hard to believe they will pull back." To take this sort of writing seri ously is to believe that firms are ra bid bears preying on defenseless Bambis in a gentle forest, or Attila the Hun pillaging a placid hamlet. If language was ever used to obfus cate and mislead, here it is. Merger by Consent Contrary to popular impression, a merger does not occur by one firm eating another against its will.

Mergers occur when a firm buys a sufficient portion of another firm's stock to enable the first firm to de termine the second's management and policies. The key word is "buys." Before a company can buy stock, the owners of the stock must be willing to sell; only the state and muggers think they may acquire property without the [owner's consent. To complain abol/lt mergers, then, is to complain about the stockholders' freedom to sell their property as they like. But what 'about "hostile take overs"? This, misleading term de scribes merg~rs in which the man agement (or s~me stockholders) don't want a contrplling share to be ac quired by so~eone else. It certainly is not hostile to those who find bids on their stock attractive. Economic historian Robert Hessen made an important potnt about hostile take overs when h~ testified in Congress about conglorperate mergers: If a company remains privately held, the owners tliereby guarantee them selves against la hostile takeover. How ever, if they gp public, that is, if they allow shares of their stock to be traded on public exchajD.ges,then they know that one of the inherent risks of being a pub licly traded company is that someone or some coalition of people can buy enough stock to be able to elect one or more di rectors and ultimately to change the pol icies and personnel of that company ...