Conglomerates history

Large, diversified holding companies that buy operating companies to form corporations with a wide array of interests. As a form of industrial organization, conglomerates diversify their activities to make themselves less susceptible to changes in the business cycle. This type of corporation dates from the end of World War II, when industrialists began buying companies and assembling them under the umbrella of a HOLDING COMPANY.

Often conglomerates are described as a form of merger, along with horizontal and vertical MERGERS. While horizontal mergers join two companies in similar businesses and vertical mergers join two in different parts of the supply or productive chain, conglomerates are described as bringing dissimilar businesses together. One of the by-products of this merging is that conglomerates often fall outside the traditional lines of ANTITRUST law. While horizontal and vertical mergers fall under the Sherman Antitrust Act and the CLAYTON ACT, conglomerate mergers tend to remain relatively free of antitrust action unless a conglomerate acquires more than one company in a highly concentrated business, behaving like a 19th-century trust.

After World War II, conglomerates began to appear and contributed to the merger and acquisition trend on Wall Street in the 1950s and 1960s. Companies such as International Telephone & Telegraph, Ling-Temco-Vaught, Litton Industries, and United Technologies all actively pursued conglomerate strategies. In 1950, Congress passed the Celler-Kefauver Act, which was aimed at the conglomerates. The law blocked a company from purchasing the assets of another if the combination created threatened a monopoly. But if it did not, as was the case of most conglomerates, then the law was powerless to prevent conglomerate formation.

As a form of merger between two companies with no apparent common interests or common markets, conglomerates seemed immune to antitrust laws. One criticism of conglomerates in the past was that although there were no apparent common interests between many of the companies assembled by a holding company, there were often illegal arrangements between them that violated antitrust laws. For instance, the parent company could require that subsidiaries do business exclusively with each other, eroding competition in the marketplace. In a well-diversified conglomerate, that may have been possible, but it was also difficult to prove by antitrust regulators.

The conglomerates became the target of antitrust efforts by the Nixon administration in the late 1960s after fears that they were poised to begin buying established older companies. Their growth was slowed by a stock market downturn in the early 1970s. In the 1980s, their diversification principles were adopted by other multinational companies, and today the distinction between conglomerates, diversified for their own sake, and other well-diversified companies is less pronounced than in the past. While many of the older conglomerates established in the 1960s began to fade from view, others such as GENERAL ELECTRIC were highly successful, and their stocks remained as investor favorites.

Further reading

Fortune Magazine. The Conglomerate Commotion. New York: Viking Press, 1970.
Sobel, Robert. The Rise and Fall of the Conglomerate Kings. New York: Stein & Day, 1984.
Winslow, John F. Conglomerates Unlimited: The Failure of Regulation. Bloomington: Indiana University Press, 1973.