ECONOMIC CONCENTRATION TUESDAY, APRIL 13, 1965 U.S. SENATE, SUBCOMMITTEE ON ANTITRUST AND MONOPOLY, OF THE COMMITTEE ON THE JUDICIARY, Washington, D.C. The subcommittee met, pursuant to recess, at 10 a.m., in room 318, Old Senate Office Building, Senator Philip A. Hart (chairman) presiding. Present: Senator Hart. Also present: S. Jerry Cohen, staff director and chief counsel; Horace L. Flurry, assistant staff director and chief counsel; Peter N. Chumbris, chief counsel for the minority; James E. Bailey, counsel for the minority; Dr. John M. Blair, chief economist; Kirkley S. Coulter, economist for the minority; Walter S. Measday, economist; Patricia Bario, editorial director; and Gladys E. Montier, clerk. Senator HART. The committee will be in order. We resume the hearings on economic concentration this morning to hear from the chief economist of the subcommittee, Dr. John Blair, and from the department of economics at the University of New York at Buffalo, Prof. Michael Gort. Mr. Chumbris? Mr. CHUMBRIS. Mr. Chairman, at one of the previous hearings on concentration, Prof. Jules Backman was a witness, and in the colloquy with the Senators and members of the staff, Jules Backman made a reply, and he also sent a paper, "Joint Ventures and Competition in the Chemical Industry," which would amplify his answer, and I ask unanimous consent that it be placed at the completion of his testimony. Senator HART. It will be printed in the record at the place indicated in appendix 3. At my direction the economic staff has been undertaking research, gathering and organizing data concerning this area of economic concentration, and the latest results will be presented by the chief economist, Dr. Blair, who has directed the effort. Dr. Blair? STATEMENT OF DR. JOHN M. BLAIR, CHIEF ECONOMIST, SENATE SUBCOMMITTEE ON ANTITRUST AND MONOPOLY Dr. BLAIR. I might want to state also, Senator, that a great deal of the work involved in developing this presentation, has been performed by Dr. Walter Measday and Mrs. Lois Alexander, economists on the subcommittee staff. Senator HART. Thank you very much. Dr. BLAIR. The purpose of this presentation is to bring together information in one place concerning important corporate acquisitions made since 1950 by a small group of very large companies which have been conspicuously active in the postwar merger movement. Specifically, the objective is to show on one chart the number of significant acquisitions (defined as companies with assets at the time of purchase of more than $1 million) made by each of the 100 most active acquiring companies (all of whom were among the 200 largest manufacturing firms in terms of 1962 assets); and further to show the 4-digit industry of each of the acquired companies, excluding those industries in which merger activity by the 100 has been minimal (defined as industries in which they have made less than two significant acquisitions). Moreover, figures on assets have been ascertained for each of the acquired companies, which in turn makes possible measurements of merger activity not merely in terms of numbers of acquired companies but in terms of their size. In his appearances before the subcommittee, Dr. Willard Mueller, chief economist of the Federal Trade Commission, has made important additions to our previous knowledge about mergers, which had been based largely on numbers of acquisitions; Dr. Mueller has shown the aggregate assets of acquired companies with assets of over $10 million, distributed by size of company and major industry group. What is presented here extends our knowledge to merger activity in a more specific form by showing which of the largest, most active acquiring firms purchased how many substantial companies, with what assets, and in which industries. Its purpose can perhaps be better understood by delineating some of the objectives which it is not intended to accomplish. Thus it is not intended to show the mergers and acquisitions made by the 100 largest or the 200 largest manufacturing corporations. It is not intended to provide a precise statistical measure of the contribution of mergers to the growth of large corporations. It is not intended to show for any corporation all of its acquisitions, nor for any industry all of the acquisitions which occurred therein, and it is not intended to show all of the industries in which significant mergers have taken place. Rather, its central purpose is to show the loci of merger activity where it has reached dimensions which could be regarded as significant. for both large acquiring companies and industries. METHODS Although the methodology is described in greater detail in appendix A, a few words on methods may be in order here. Both to facilitate exposition and to give greater significance to the presentation, a number of standards were employed. Thus, the presentation for both the acquiring and the acquired companies is limited to manufacturing enterprises. Then, the 100 "most active" large acquiring companies. were limited to those which (a) were among the 200 largest manufacturing firms in terms of 1962 assets, (b) made at least two acquisitions during 1950-63 of firms which each had assets of more than $1 million, and (c) absorbed firms whose assets totaled at least $15 million. A further restriction was the limitation of industries to those 1 See app. 6. (a) with 1958 shipments in excess of $100 million, and (b) with at least two acquisitions of significant firms by companies meeting the above standards. The purpose of these standards is to rid the presentation of what might be regarded as mergers or acquisitions of de minimis proportions. Senator HART. Doctor, I think the record should indicate that you are lecturing not alone the committee this morning but a large number of students from the Horton Watkins High School in Missouri. They are certainly welcome. Dr. BLAIR. I hope I do not sound partisan by observing that the distinguished former Senator and President from that State, Mr. Truman, forcefully supported the enactment of the 1950 amendment to the Anti-Merger Act known generally as the Celler-Kefauver amend ment. Senator HART. I am sure it sounds and reads partisan, but it is true. Dr. BLAIR. The use of these standards had the effect of excluding a number of important mergers. This is true even for the 100 firms shown on the chart, since their acquisitions in a given industry are not shown unless at least two significant acquisitions were made by the 100 in that industry. For example, this standard resulted in the exclusion of the acquisition of Wesson Oil and Snowdrift Co. by Hunt Foods, of Liquid Carbonic by General Dynamics and of Benson & Hedges by Philip Morris; these were the only acquisitions in shortening and cooking oils, compressed and liquified gases, and cigarettes, respectively, made by the 100. Also excluded were other important acquisitions by companies which, although within the 200 largest manufacturing companies, did not meet the standards set to determine the 100 "most active" acquirers. In this category of important mergers not shown on the chart were the acquisition of C.A. Swanson & Son (frozen foods) as well as Pepperidge Farm by Campbell Soup, Morton Food (frozen foods) by General Mills, Ballard & Ballard (refrigerated biscuits) by Pillsbury Mills, I. Miller & Sons (shoes) by Genesco, Standard Oil of Kentucky by Standard Oil of California, and National-U.S. Radiator by Crane. It can thus be seen that as a result of the use of the standards the presentation errs on the side of understating merger activity in terms of both companies and industries. After determining appropriate standards, the problem was to obtain the necessary data. Essentially, this involved three steps: (a) identifying the 100 "most active" acquirers within the 200 largest manufacturers, (b) identifying and ascertaining the assets of each of their acquired companies and (c) classifying the acquired companies by the industry in which they were previously engaged. The Federal Trade Commission has compiled an extensive body of information relating to the assets of the acquired companies. Where the information came from public sources, it was made available to the subcommittee staff. For some of the smaller acquired companies this information was supplemented by data from other sources. The classification of companies by 4-digit industries was also based on a variety of sources including the Dun & Bradstreet reference book. These determinations, and, indeed, the entire presentation are based on published sources and consequently share any errors of those sources. Moreover, since several thousand separate pieces of information had to be located, recorded and tabulated, it is not unlikely that there may be other errors. THE MATRIX CHART The heart of this presentation is the accompanying matrix chart, which is attached to the end of the statement. The horizontal stub shows the 100 most active acquiring companies within the 200 largest, each of which is given an identifying number from 1 to 100. The vertical stub shows the 4-digit industries in which they made significant acquisitions during 1950 to 1963. The companies are arrayed from left to right in accordance with the major 2-digit industry group in which they are primarily engaged. Thus companies primarily engaged in food and kindred products, which in the Standard Industrial Classification is the first of the major industry groups, are to be found at the extreme left of the chart. Companies primarily engaged in transportation equipment and miscellaneous productsthe last of the 2-digit groups are shown at the extreme right. The industries are also arrayed from top to bottom in accordance with the major industry groups. Acquisitions by food producers of other food companies are thus recorded in the upper left-hand part of the chart: acquisitions by companies in transportation equipment and miscellaneous products of other companies in those same industry groups are shown in the lower right-hand part of the chart. Hence, if the acquiring firms only made acquisitions in their own major industry group, the observations would cluster around a diagonal line from the upper left-hand to the lower right corner of the chart. In addition, the chart shows on the horizontal stub the number of significant acquisitions made by each company and on the vertical stub at the right the number occurring in each industry. For the convenience of those who may wish to use the chart, it also shows for each 4-digit industry the value of shipments and the concentration ratio in 1958 and the change in the ratio from 1947 to 1958. The first entry, Borden, can be used to illustrate the way in which the chart is to be read. Senator HART. Doctor, at this point read slowly as you use this example of the Borden Co. I am not going to follow from the text, but I am going to try and follow it on the table as you describe it. Dr. BLAIR. Right. The first entry under Borden means that it made 21 acquisitions of companies with assets of more than $1 million. Below this is the figure "1," representing the acquistion it made in canned seafoods. Right below is the figure "5," referring to the five acquisitions it made in canned fruits and vegetables. Following on down the column it will be seen that Borden made one acquisition in dehydrated fruits and vegetables, one in pickles and sauces and two in confectionery products. Moving down from the food industries, it will be seen that Borden made a significant acquisition in coated fabrics, which is industry number 2295. Then down to industry number 2823, plastic materials, in which Borden made two acquisition. Skipping down several lines below that industry, but still within the chemicals group, there are two acquisitions by Borden-one in printing ink and one in toilet preparations. Near the bottom of the chart we find another entry, an acquisition in surgical appliances and supplies. And finally at the very bottom, we find that Borden made two acquisitions in industry 3971, plastic products not elsewhere classified, giving the total of 20. In addition |