A Short Pause for New Rules

Only last December, the Federal Communications Commission agreed that a merger designed to turn Interna tional Telephone & Telegraph Corp. and American Broadcasting Co. into a $2 billion telecommunications company was a good idea. Last week the FCC changed its mind. The reason for the reversal was simple: the merger is being strongly protested by the Justice Department's antitrust division -- an agen cy that easily outranks the FCC in Wash ington's hierarchy. Bowing to the anti trust division's argument that the ITT-ABC merger might impede competition and open ABC public affairs pro gramming to pressure from ITT's foreign customers, the FCC, by a 4-to-O vote (with three commissioners abstaining), called for new hearings.

The decision probably earned Jus tice's trustbusters temporary relief from recent complaints that they have been too lenient with big-business mergers. Such criticism falls most heavily on Donald F. Turner, 46, who in two years as Assistant Attorney General in charge of antitrust has become resigned to trouble. "There are strong emotional views on antitrust," he says, "ranging between those who think it is too tough and those who think it so soft as to be antiquated." Now he is mostly under attack as being too soft, by critics who note that in 1966 "large firm disappearances" (acquisitions of companies with $10 million or more in assets) increased for the fourth consecutive year without notable opposition from Justice.

Sophisticated Dangers. Plaguing Turner even more than the sheer volume of mergers, though, is the changing nature of such activity. Once, most corporate marriages were either vertical (between suppliers and customers) or horizontal (between competitors). The Sherman and Clayton antitrust acts defined the terms for such mergers, and the Supreme Court interpreted the definitions in their strictest sense. Laws and precedent are much murkier regarding the "conglomerate" unions that now account for 70% of merger activity.

In a conglomerate merger, a company takes over another in a different field, as in last week's announcement that tobacco-producing P. Lorillard Co. is planning to consolidate with Schenley Industries (see following story). To the trustbusters, conglomerate mergers offer some sophisticated dangers. Potential stifling of competition--as in the ITT-ABC case--is one. Another is reciprocity. One circumstantial example of reciprocity currently cited by Government lawyers involves Armour & Co., which as a meat packer is a major customer for railroad shipping space. Armour, in a conglomerate merger, bought out Baldwin-Lima-Hamilton, a manufacturer of railroad equipment. And now, to the disapproval of the government and the outrage of competitors, B-L-H has been getting 90% of new hotbox orders.

Pending Guides. How are Turner and his men to deal with such problems? Neither Congress nor the courts have thus far spelled out specific rules covering conglomerates. The first firm guidelines may come before summer, when the Supreme Court is expected to act on the acquisition of Clorox bleach by Procter & Gamble.

Meanwhile, Antitrust Chief Turner is biding his time. But the shift in merger emphasis has already meant a personal shift of sorts. As a professor of law at Harvard, and an antitrust expert before his federal appointment, Turner took a liberal view of mergers. In the Harvard Law Review, he argued that courts should be "hardest on horizontal mergers, easier on vertical, and least severe on conglomerates."

Turner now seems less and less enchanted by the popular argument that conglomerates should be approved in order to benefit consumers by economics achieved through sheer size. Addressing Los Angeles' Town Hall Forum two weeks ago, Turner argued: "In those instances where larger size will indeed carry with it greater efficiency, such efficiency will sooner or later be achieved by internal growth--the avenue by which, I wager, most economies of scale have historically been realized."

This file is automatically generated by a robot program, so reader's discretion is required.