he attempted to acquire Muskegon Piston Ring, but the company opposed his offer. Eventually, they negotiated a compromise that did not truly satisfy either party. Bluhdorn decided to sell his stock, but by then it had risen from his average cost of $ 17 to $ 32. Gulf & Western booked the gain as ordinary income, which had a better appearance in terms of reporting steady earnings-per-share growth than recognizing it as a one-time gain.( The fact that this accounting treatment was permitted may seem surprising, yet even today the presentation of income statement items is a matter of Securities and Exchange Commission guidelines, rather than specific rules.)
From his experience with Muskegon Piston Ring, Bluhdorn learned he could make out better by losing a takeover battle than by winning it. He proceeded to initiate a series of deals in which he took a beachhead position in a stock, then tendered for the whole company. His tender did not bring in enough shares for him to gain control, but it did drive up the target company’ s stock price, enabling Bluhdorn to sell his shares at a gain. He carefully avoided suggesting that his succession of abortive takeovers reflected an intentional strategy. That would have sounded like illegal stock manipulation.
Despite the questionable financial practices of some conglomerates, it would be unfair to paint them all with the same brush. According to Martha Clark Goss, who dealt with the widely diversified companies as a lending officer at Chase Manhattan Bank, Ben Heineman of Northwest Industries had a high reputation and was well-respected within the business community.
Antitrust Steps In
By and large, the conglomerates encountered no legal difficulties as a consequence of dubious financial reporting practices, but they did come in the crosshairs of the antitrust authorities. This may puzzle some readers. How can a conglomerate be in violation of antitrust laws if it owns companies in a variety of industries and does not have monopolistic control in any of them?
In 1948, before any of the companies discussed above became conglomerates, the Federal Trade Commission( FTC) became troubled by a new kind of merger. Its antitrust officials were familiar with
General Motors preferred stock certificate, dated October 13, 1916. While GM is often described as a conglomerate, Merriam-Webster specifies that a company must be“ widely diversified” to qualify as a member of that category.
vertical mergers, such as the earlier formation of Standard Oil through mergers across exploration and production, transportation, marketing and refining. They also knew about horizontal mergers like the ones that created General Motors through the combination of several previously independent automobile makers.
Now, however, the FTC was seeing mergers sometimes described as circular. These involved acquisitions of companies unrelated to the acquiring company’ s business. The FTC did not understand what the purpose of these mergers was. Its report on the new phenomenon offered three potential motives— spreading risks, investing large amounts of idle funds and increasing the number of products that could be sold by the acquirer’ s sales force or advertised along with its existing products.
Sobel found that the last two played no role in the actions of the one company that the FTC labeled a conglomerate in 1948. American Home Products( AHP) was involved in such diverse businesses as drugs, floor wax, coffee, Italian foods, lubricating oil, cheese products, insecticides and beauty products. Spreading risk, Sobel added, was of only minor importance to AHP or other early conglomerates.
If the hypotheses offered by the FTC were incorrect, what did account for the surge in diversifying acquisitions around that time? Ironically, antitrust legislation itself may have been partly responsible. The Celler-Kefauver Act of 1950 placed prior constraint on companies seeking takeovers that might appreciably lessen competition. The bill’ s authors had in mind horizontal and vertical mergers, so the law may have induced companies that were determined to grow through acquisition( for instance, to help boost the CEO’ s compensation, then as now partly a function of company size) to focus on acquisitions outside their existing businesses.
Even if widely diversified companies were not monopolizing any industry in which they operated, the FTC and the Department of Justice’ s Antitrust Division somehow could not shake the feeling that something was just wrong with conglomerates. Seeking to demonstrate that unrelated acquisitions were problematic, the FTC’ s 1948 report raised the specter of a giant conglomerate that could one day attain what it called“ an almost impregnable economic position.” If such a corporate colossus faced serious competition in one of its businesses, argued the FTC, it could sell below cost there, offsetting the losses with the profits of its other lines. That never happened with the conglomerates discussed herein.
The antitrust authorities never got the courts to buy into a rationale for attacking
www. MoAF. org | Winter 2026 | FINANCIAL HISTORY 25