Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: THURSDAY, August 31, 1995 TAG: 9508310071
SECTION: BUSINESS PAGE: B-8 EDITION: METRO
SOURCE: Associated Press
DATELINE: NEW YORK LENGTH: Medium
With a blitz of mergers and acquisitions reshaping American business, many of the new marriage partners have adopted a strategy once soundly rejected by conglomerates: focusing like a laser on related industry sectors.
The result is huge corporate combinations that seek to control empires of related businesses. The idea is to cut costs and control industries that are increasingly borderless, spanning nations and technologies.
The proposed takeover Wednesday of Turner Broadcasting System Inc. by Time Warner Inc. would make the prime cable industry property part of the world's biggest media and entertainment company. The offer, said to be $8.5 billion, would create an entity eclipsing the $19 billion combination proposed by Walt Disney Co. and Capital Cities-ABC Inc. just one month earlier.
Proposed mergers and acquisitions totaled $270 billion so far this year, putting 1995 on track to outdo the record $347 billion in deals announced last year, according to Securities Data Co.
The industry replete with the most mergers is television entertainment, with about $48 billion in deals, followed by $39 billion in proposed bank combinations.
Thirty years ago, conglomerates blossomed on the theory that a grab bag of unrelated businesses could smooth out corporate profits across volatile industry cycles. One example, defense contractor Litton Industries Inc. snapped up 50 companies in the 1960s, ranging from Stouffer Foods to a German typewriter company.
But the profit performance of these companies lagged amid the realization that managers at corporate headquarters were making too many decisions for disparate businesses whose intricacies escaped them.
``It turns out it's not easy to be a jack-of-all-trades,'' said Mark Weinstein, a professor of finance at the University of Southern California's business and law schools.
In the 1980s, many chieftains began to dismantle conglomerates and focus on their core products again. And if the last decade debunked the theory that diversification helps boost corporate profits, the '90s may have buried it.
``The lesson was it was probably asking most managers to manage across too many businesses,'' said Martin Sikora, editor of Mergers & Acquisitions magazine. ``It was probably too many eggs in the same basket.''
One quintessential American conglomerate, ITT Corp., sold off hundreds of disparate businesses over the past 15 years. Late last year, it said it would use the proceeds of selling major chunks of its financial services empire to focus on gambling and entertainment.
Driving the trend toward narrowly focused businesses in the 1990s is a relaxation of laws restricting marriages of similar companies, particularly banks, and the advancement of technology that has cheapened the cost of delivering products and services to dispersed customers.
Put another way, the new merger partners are eschewing fat and seeking to emphasize brains and brawn.
Brains means having the technology to deliver products to customers spread over large areas. Brawn means having the business clout and financial backing to manage and expand empires in specific industry sectors.
by CNB