THE CONGLOMERATES' WAR TO RESHAPE INDUSTRY

THE leaders of America's larger corporations have long been almost unchallenged rulers of their realms. Proud and powerful, self-confident and certain of their authority, they have often run their publicly held organizations very much like private fiefs. Now in many executive suites and board rooms, apprehension and even fear have replaced the old self-assurance. Some of the richest and most respected of the nation's companies have become vulnerable to sudden capture by a new and daring kind of business operator.

These men, mostly young and self-made, have little regard for established rules or customs. They are reshaping business in a manner that deeply affects not only owners and managers but millions of stockholders and employees as well. In time, their expanding takeovers of hundreds of companies could transform the entire structure of the U.S. economy. Already, they have stirred intense debate among businessmen and Government officials alike: Are their actions a threat or a boon to U.S. business?

The men who are challenging established firms with exuberance and even effrontery are the builders of conglomerates--those multipurpose, multi-industry companies that specialize in hodgepodge acquisitions. They are often put together in a seemingly haphazard tangle, with only finances for a common bond. In the modern conglomerate, oil and water do mix. So do steel and airlines, theaters and tobacco, chemicals and clothes, meat-packing and insurance. Such unlikely combinations have repeatedly paid off--at least up to now.

The growing impact of the conglomerates has been so great that even conservative businessmen, who usually complain about too much federal interference, are pleading for Government help in combatting their onslaught. The chances are that they will get it; the Government has lately begun to act as if "conglomeritis" is a virulent disease. Half a dozen agencies--including the Justice Department, the Federal Trade Commission and the Securities and Exchange Commission--have begun investigations of the phenomenon. They are worried that the takeover companies may be creating too much concentration of economic power, that some of them have unsound financing and inadequate management, and that they may tempt many shareholders into trading solid stocks for flossy packages of paper.

Concern about Risks In his first pronouncement as the new chairman of the Securities and Exchange Commission, former Idaho Congressman Hamer Budge complained last week that some complex forms of conglomerate financing offer only "an illusion of security." Testifying before a House subcommittee, he counseled investors against being misled by "apparent improvements" in the earnings of aggressive conglomerates. "Those who are engineering the present wave of takeovers," he said, "appear to find short-term profits so tempting that they ignore long-term risks." Later, Robert W. Haack, president of the New York Stock Exchange, told another House subcommittee that he is becoming "increasingly concerned" about the real worth of debt securities that are being offered to the public in corporate takeover deals. Next day in Atlanta, Haack told a reporter that two companies have gone to such extremes in this direction that the Exchange may even delist them. And at week's end, the chief Justice Department trustbuster, Richard McLaren, announced that he will move to stop conglomerate mergers between large companies. McLaren argued that such mergers tend to reduce competition and aggravate inflation.

McLaren may not have an easy time cutting down the conglomerates. Their growth stems largely from the vagaries of antitrust law--and there is still considerable question about whether the Government has the legal power to stop the trend. Diversification by merger has long been an attractive tactic for industrialists who were anxious to reduce profit-sapping fluctuations in the demand for individual goods and services. It is easier and quicker to diversify by buying a going concern than by starting from scratch. But Government antitrust barriers often stand in the way of combinations within a company's own field. They may prevent not only "horizontal" mergers with competitors, but, to a lesser degree, "vertical" mergers with suppliers or customers. The present law, though, generally enables companies to take over other enterprises in different fields--and it is just that loophole through which the new conglomerate organizers are moving.

Inevitably, "conglomerate" has become something of a dirty word in business, bringing back memories of old-time industrial trusts, interlocking directorates and utilities pyramids that collapsed disastrously. Even most leaders of conglomerate companies loathe the name, largely because they are vocally critical of each other and do not like to be lumped together with some of the abrasive men and controversial companies involved in modern mergers. They prefer to be known as leaders of "multi-industry" or "multimarket" concerns. Yet "conglomerate" seems an apt title. Derived from the Latin verb, conglomerare, meaning "to roll together," it is also the geological term for heterogeneous stone fragments fused into a mass. However much the word grates, it has become fused into the business language.

Stock Market Gyrations

Today's list of mergers, raids and takeovers is the largest and longest in corporate history. Last year the number of corporate acquisitions rose to a record 4,462--ten times as many as in 1950--and most were conglomerate mergers. Hardly any corporation, no matter how large, seems wholly safe from the grasp of conglomerates. During the past two years, conglomerates have absorbed or gained control of such big and basic enterprises as Jones & Laughlin Steel, Lorillard, Wilson, United Fruit and Armour. Lately, relative newcomers to the corporate scene have attempted to take over Sinclair Oil, B. F. Goodrich, Allis Chalmers and mammoth A & P. Even Pan American World Airways, long considered to be practically an unofficial agency of the U.S. Government, feels threatened by Resorts International, a onetime paintmaking company whose primary asset is a Bahamas gambling casino and a few hotels. Resorts' total assets are about a quarter the size of Pan Am's, but through a complex swap of securities, Resorts may become a major Pan Am stockholder. Last month Wall Street rumors whispered that U.S. Steel, with its $5.6 billion assets, was on several lists of takeover targets. The company has revamped its bookkeeping, as have many other steel companies, to increase reported earnings in an obvious effort to fend off surprise assault.

Conglomerate activity has figured prominently in the stock market's recent gyrations, and Wall Street is understandably worried. Day after day, frenzied trading has placed the shares of many conglomerates, and the companies that they seek to swallow, high on the most active list of the New York Stock Exchange. Often, two or more rival conglomerates are anxious to take over the same company, and their competition for shares boosts the stock of the target company. Lately, even takeover rumors have been enough to lift the share prices of companies supposedly about to acquire Caesars Palace, the Las Vegas hotel-casino. After the takeover, prices generally sink back. Stocks of the conglomerates themselves were among Wall Street's best performers until some months ago; lately they have broken sharply, and the dive only deepened last week after Haack's warning of possible delistings. Shares of such firms as LTV, Litton, Gulf & Western, Ogden, Bangor Punta and "Automatic" Sprinkler are down 33% to 66% from their 1968 peaks. In sum, trading in conglomerate companies has brought both riches and disappointment to countless investors.

Who the Leaders Are

Much of the argument about conglomerates revolves around the men who make them go. A few are accepted members of the U.S. business Establishment, but many are newcomers. They have fought their way up from obscurity by innovating and taking risks in a way that flabbergasts conventional executives. They are seldom hired managers; most are founders and owners still in their 40s. They have little if any memory of the Great Depression, and they see only growth ahead for the U.S. economy. They are willing to dare much to gain a larger hold on the future.

Among the leaders of this new group of entrepreneurs are the three men on TIME'S cover. Though they have much in common, each operates with individual style, convictions and aspirations. The companies that they manage are among the nation's largest and most discussed conglomerates. But, like the men who head them, they differ significantly in their speed of growth and state of financial health. Taken together, they reflect the origins, sweep and spirit of the most significant current trend in U.S. business.

Charles G. Bluhdorn, 42, chairman of Gulf & Western Industries, epitomizes the takeover specialist who fills the managers of sluggish companies with dread. "We have never been afraid to look for trouble," he says. "We are a damn competitive company." Vienna-born Bluhdorn came to the U.S. at 16 as a penniless wartime refugee, went to work as a $15-a-week clerk for a Manhattan cotton broker. He learned the secrets of commodities trading, and made his first million before he was 30.

In 1958, Bluhdorn took over a rundown Houston auto-parts company and began expanding. Though many conglomerates have prospered by invading new technological fields, he stuck largely with prosaic companies: zinc mining, paper, chemicals, farm products. "Generally speaking, I love to buy things no one else wants," he explains. Last year he collected a dozen companies, including machinery-making E. W. Bliss, Associates Investment (assets: $1.7 billion) and Consolidated Cigar Corp., which he acquired in the belief that the troubles of the cigarette industry would cause smokers to switch to cigars. As a result, Gulf & Western's sales leaped from $645 million to $1.3 billion, and its after-tax profits rose 50% to $70 million.

Although he earns $113,700 a year, and has an estimated net worth of at least $50 million, Bluhdorn seems ruled by insatiable ambition. Afire with ideas, he is forever in motion--smiling, grimacing, gesticulating, pointing, reaching. When he is excited, which is just about always, his brows knit, his lips curl, his voice rises to a screech, profanity tumbles out in a kilometer-a-minute Austrian accent. Despite his manner, however, Bluhdorn inspires awe and devotion among close associates.

He draws criticism from competitors, and makes investors wary. G. & W. stock sells for only twelve times per-share earnings, appreciably less than most older, slower-moving blue chips. Yet many securities analysts maintain that Gulf & Western is one of the best-managed conglomerates. Bluhdorn disposes of his critics bluntly. "If we are chiselers," he says, drumming his desk with his fists, "we are chiselers for our stockholders. I want a dollar for a dollar --or better yet, $1.10."

James Joseph Ling, 46, chairman of Ling-Temco-Vought, Inc., of Dallas, is one of the most controversial and troubled of the new millionaires. He thrives on imaginative deals so complex that they often baffle even stockbrokers. They seem elementary to Ling, who talks like an advanced mathematician and delights in doodling the formulas for his deals on legal-sized yellow pads. His specialties are spin-offs and refinancings, and he uses cash and almost every combination of securities known to investors. In twelve years, his varied tactics have propelled his LTV from a tiny electrical-contracting firm into a complex that turns out products as disparate as hamburgers and jet bombers (the Navy's A-7). Annual sales have jumped from $4,000,000 to $2.7 billion, making LTV one of the fastest growing major companies in the world. Ling expects that it will rank among the top ten of FORTUNE'S list for 1969.

Ling, whose father was an Oklahoma oilfield roustabout, dropped out of high school at 15 and bummed around the country for four years. He went into business in 1946 with a $3,000 stake. Later, in order to finance his first acquisitions, he hired salesmen to peddle stock from door to door. Dallas brokers snickered, but investors who bought 100 shares for $225 would today own stock worth $4,098.

The company that carries his name has succeeded in large part because Ling has used the old technique of the spin-off with stunning effect. Improbable as it may sound, when a company is split into several parts, investors will often pay more for its parts than for the whole. Ling has carved LTV into separate, publicly traded subsidiaries (there are ten today), keeping control but often selling off enough shares to repay much of what he borrowed to acquire them. This gambit also had the effect of lifting LTV earnings per share, thus raising the price of LTV stock and enabling Ling to expand still faster.

Ling directs LTV with tireless enthusiasm and demands the same from aides. "Don't tell me how hard you work," he says. "Tell me how much you get done. A race horse can get around the track faster than a jackass." Recently, Wall Street skeptics have begun to speculate that Jimmy Ling may have overextended himself, as he did in 1961 when he almost lost control of his company. Last year Ling borrowed $900 million to snare Jones & Laughlin, National Car Rental, and Braniff Airways whose latest advertising campaign shows odd couples flying high. He tried to refinance part of that debt last fall, but investors spurned his efforts. Ling scoffs at the doubters. "This is just the year to kick conglomerates," he says. He planned to sell off a small slice of Braniff, most of National Car Rental and perhaps a few other securities to raise all the funds that he said LTV now needs. At week's end, however, he cancelled the sale of National Car shares, blaming "stock market conditions."

G. (for George) William Miller, 43, heads Textron Inc., the oldest and one of the soundest conglomerates, and he is an articulate critic of racier companies. Textron, which started the conglomerate trend nearly two decades ago, has acquired the kind of image that newer conglomerates covet. Miller picked up two more companies last year --Talon zippers and Fafnir bearings--but Textron seems less interested in acquiring new branches than in managing and expanding the many that it already has. Its 33 diverse divisions turn out Bell helicopters, Sheaffer pens, Speidel watchbands, Gorham silverware, Bostitch staplers and some 70 other products. Last year the company earned $74 million on sales of $1.7 billion--both records.

Miller runs Providence-based Textron in low-key Yankee style. A model of blue-serge conservatism, he earns $181,000 a year but operates from a modest little office. His headquarters staff is lean --only 105 people. With them, Miller keeps close watch on the spending and planning of Textron's subsidiaries.

The Oklahoma-born son of a furniture dealer, Bill Miller graduated from law school at the University of California in Berkeley. He was plucked from a job with a Wall Street law firm in 1956 by Textron's flamboyant founder, Royal Little. When Little retired four years later, Miller stepped into the presidency under Chairman Rupert Thompson, 63, an imaginative ex-banker. Thompson, a major stockholder, built Textron into New England's second largest company (after United Aircraft) before he turned over his chief executive's title to Miller a year ago.

A business philosopher, Miller argues that Textron and similar companies represent the tide of the future because they can shift capital in great amounts to where it can be most wisely used. He figures that this "mobility of capital" has an ultimate social purpose. "If this country allows itself to go the way of some European companies, where capital was kept deep in the sock," he says, "then we will never achieve full employment and raise the standard of living for the bottom third of our population." At the same time, he faults many conglomerates for expanding wildly by issuing huge quantities of debt securities of questionable value.

The Big Operatives

Many other makers of conglomerates have joined Miller, Bluhdorn and Ling in that elite group of American businessmen who have boosted their sales to more than $1 billion a year. Henry E. Singleton, a Ph.D. from M.I.T., has built Los Angeles' Teledyne Co. into a $1 billion conglomerate in eight years by moving into metals, electronics and defense systems. Ralph Ablon, a former business instructor at Ohio State University who heads Manhattan's Ogden Corp., has turned the world's biggest ferrous-scrap company into a billion-dollar conglomerate by moving into stevedoring, cattle raising, construction and food (Tillie Lewis). However fast other conglomerates are expanding, none has yet been able to overtake International Telephone & Telegraph Co., which had 1968 revenues of $4 billion. Under Chairman Harold Geneen (TIME cover, Sept. 8, 1967), ITT has built an executive team envied by many, matched by few. "Hurry-Up Hal" Geneen's ITT runs hotels, builds homes, rents autos, sells insurance, bakes bread and manufactures communications gear.

Many conglomerates have evolved elaborate rationales for such apparently aimless accretions. Pioneering Charles ("Tex") Thornton has tried to confine his 15-year-old Litton Industries to expansion in technological fields, using scientific management systems to retain overall control. Nearly a dozen Litton executives have quit to apply the formula elsewhere. The alumni have even coined a name for themselves: "Lidos," for Litton Industries Drop Outs. One of them, Fred Sullivan, has lifted his Walter Kidde Co. from a burglar-alarm and fire-extinguisher manufacturer with $40 million in sales five years ago to a $350 million conglomerate. He figured that Kidde was really in the "safety, security and protection" field, and that gave him latitude to make bank vaults, rifles and light fixtures. Another Lido, George Scharffenberger Jr., president of New York's City Investing Co., has increased his firm's revenues in the past three years from $7.5 million to more than $1 billion by acquiring nine companies, including Florida's General Development and New York's Rheem Manufacturing.

The Bankers' Advantage

Even commercial bankers, who often criticize the conglomerate trend, are half joining it. The Bank of America, New York's First National City and about 80 other large banks have recently formed "one-bank holding companies." That is, they have reorganized their corporate structure so that the bank itself is a subsidiary; the parent corporation may then venture into such fields as insurance, computer leasing and mutual funds. Some high members of the Nixon Administration, convinced that the trend to bank holding companies is a far greater threat to the future of the U.S. economy than conglomerates, are preparing restrictive legislation. Unless the law is changed, they say, bankers who know the secrets and control the credit lines of other companies could have a large competitive advantage.

Railroads are also becoming conglomerates. Ben Heineman's Northwest Industries Inc., the holding company that controls the Chicago & Northwestern Railway, last year derived less than half its $700 million revenue from trains. The company has spread into chemicals, steel, and the manufacture of apparel--from underwear to boots. Last month Heineman issued a $1 billion tender offer for B. F. Goodrich, the nation's fourth largest rubber company.

At least a dozen other major roads, including the Illinois Central, Santa Fe, Union Pacific, Norfolk & Western and Southern Pacific, have formed holding companies to diversify. Many railroad men insist that it hardly makes sense to invest money in railroads when they can net 15% in other industries. If this trend continues, some authorities fear that it will open the way for ultimate railroad nationalization in order to keep enough trains running to serve the public.

The technique of the takeover ranges all the way from polite negotiation to sneak attack. If the takeover is a friendly seduction, it usually follows a rather elaborate ritual. The first contact is often arranged by investment bankers, who stand to collect fees of up to $1,000,000 for arranging the merger. The potential partners usually meet at a country club or on some other neutral ground. They size each other up stiffly and uneasily; drinks are practically never served. If extreme secrecy is necessary, the top executives travel to out-of-town hotels where they figure nobody will recognize them.

Ogden Corp.'s Ralph Ablon wanted to expand into housing construction. He simply phoned Los Angeles Architect Charles Luckman, whom he had never met, and proposed a discussion. Luckman flew to New York. In just two hours over lunch at Manhattan's 21 Club, where myriad American mergers are made, Luckman agreed to join Ogden in exchange for common stock.

Many deals start on the golf course. One day at a Dallas country club, Jim Ling ran across an acquaintance who was a steel-company director. The man remarked that the steel company was in trouble and should be available for a takeover. As it turned out, the company threatened to resist, and Ling backed off. But his appetite had been whetted. He started looking for other steel companies. By reading annual reports, he became interested in Jones & Laughlin. First there was a correct but tense meeting at the elegant Rolling Rock Country Club outside Pittsburgh, then a secret hotel-room huddle in Cleveland. Though J. & L. Chairman Charles Beeghly was far from eager to sell his controlling shares, he considered Ling's offer so generous--some analysts insist that it was too generous for LTV's good --that he agreed to go along.

Insiders' Dilemma

After Gulf & Western was blocked by the Justice Department from taking over Armour & Co., Charlie Bluhdorn attempted to resell his 750,000 shares to the meat packer for about $60 per share. He thought he had a deal--and an $18 million profit--but Armour Chairman William Wood Prince tried a squeeze play to drive the price down to $50. His method was ingenious. Armour made a public offer to repurchase 20% of its own outstanding shares at $50 each. If successful, the move would have increased Bluhdorn's stake in Armour from 9.8% to 12 1/2%, thus making Gulf & Western an "insider"* under the rules of the Securities and Exchange Commission--and insiders are barred from pocketing short-term profits in their company's shares.

To avoid becoming an insider, Bluhdorn would have been forced to sell part of his Armour holding--at Prince's price. Angered, Bluhdorn quickly arranged to unload 150,000 Armour shares at $56 to Richard Pistell's General Host Corp., a Manhattan baking and food-freezing firm. Pistell took an option on Bluhdorn's remaining 600,000 Armour shares at $60. Thus Bluhdorn escaped the patrician Prince's trap. With great help from Bluhdorn's stock, Pistell last month captured control of Armour, despite Prince's frantic efforts to resist.

Increasingly, friendly negotiations are being supplanted by unfriendly tender offers and outright raids. The raiders lay their plans with military precision, occasionally use industrial espionage to find a disgruntled inside executive who can be persuaded to help. Often the at tack begins in the stock market. Under the insider rules, a company may acquire up to 10% of another firm's shares without revealing the fact. The leader of the assault then confronts the target company. If management balks, the blitzkrieg begins. Its weapons include letters to stockholders, splashy ads in news papers and personal approaches to the board of directors -- all insisting that the offer is irresistible.

The Defensive Tactics

Companies sometimes use creative bookkeeping to inflate their profits in order to promote -- or stave off -- mergers. AMK Corp., a meat-packing and machinery conglomerate, almost doubled its reported income by making accounting changes during fiscal 1968. After the company altered the way a major subsidiary was keeping account of its depreciation, inventory and employee pensions, AMK Chairman Eli M. Black won control of Boston's United Fruit Co. by offering a package of stock and other securities. Would he have been successful without making the perfectly legal accounting changes that lifted earnings? The answer is elusive, but accountants agree that the question is pertinent.

Defensive tactics usually include an advertising campaign, press releases, phone calls to key Wall Street financiers, and letters to shareholders -- all insisting that the takeover is foredoomed to fail. To thwart takeover bids in advance, numerous public relations men specialize in "multiple flogging" -- boosting the price-earnings ratio of a stock by artfully touting a company's performance and prospects. Sometimes the target companies put considerable pressure on the attacker through suppliers or banks. After Saul Steinberg, the 29-year-old head of Leasco, Inc., brashly announced that he would like to acquire Manhattan's Chemical Bank, his company's stock plunged. The word in Wall Street was that other banks and mutual funds had dumped Leasco shares to help Chemical resist Steinberg.

Supporters of conglomerate mergers argue that they increase the efficiency of American business. After they take over, the new chiefs sometimes coolly fire aging veterans and replace them with bright young executives. After Charlie Bluhdorn acquired Paramount Pictures in 1966, he installed new management, increased the filming schedule, and began turning out such hits as The Odd Couple and Romeo and Juliet.

More often, mergers give old managements the courage to expand by providing them with new capital, ideas and expertise. After Jim Ling took over Wilson and split it into three separate, publicly held firms, he named presidents and many officers in each division and gave them generous stock options. At Braniff Airways, only the chief executive, Harding Lawrence, had options before Ling took control; now a score do. Ling also told Lawrence to change his advertising agency -- Wells, Rich & Greene -- because it was headed by Lawrence's wife, Mary Wells.

Criticism and "Chinese Money"

If conglomerates sharpen efficiency, why are they so severely criticized? One reason is that they are not always effective; they can stumble as easily as they succeed. Harry Figge's "Automatic" Sprinkler Corp. went into a nosedive last year when strikes and production snags crippled two divisions, while a third ran into cost-control woes. Ogden Corp. suffered after its shipbuilding subsidiary hit rough weather. Tex Thornton's Litton ran into multiple trouble: losses in shipbuilding, engineering snags on a new typewriter, slumping sales of office furniture. Much to the dismay of investors, the company blamed its plight on management deficiencies.

Another basic trouble, as SEC Chairman Budge warned last week, is that takeovers are too frequently financed with securities of doubtful future value. Such paper is commonly known to bankers and brokers as "Chinese money." The deals increasingly involve two little-understood kinds of securities:

> DEBENTURES are IOUs used to pay for companies. Like bonds, which they resemble, the debentures offer a fixed rate of return in interest. Usually the principal is repayable 25 years later, in two installments. Under that arrangement, recipients of debentures qualify for the so-called installment-sale tax provisions. If they swap shares in a target company for the conglomerate's deben tures, they pay no capital-gains tax on the deal until they get their money back in 25 years. Debentures are doubly attractive because they are generally convertible into common stock at an above-the-market price. For the companies that issue them, debentures offer an even bigger tax break. The interest payments can be deducted from corporate taxable income as a business expense. On the other hand, stock dividends must come from after-tax earnings. Using debentures, conglomerates can often grab control of other companies at little or no real cost to themselves. For example, Victor Posner, Miami conglomerator who has plucked a personal fortune from slums and money-losing corporations, has just captured Sharon Steel (annual sales: $225 million) after a bitter battle. Posner's NVF Co., a Delaware mini-conglomerate (annual sales: $30 million), offered a package of debentures and warrants backed by so few assets that Sharon accused him of planning to raid its coffers to bail NVF out of financial trouble. Even Posner's prospectus admitted that the combine might well earn too little money to pay the $4,500,000 a year interest cost on the debentures. Last week, as Posner was elected chairman of Sharon, six of its directors quit.

>WARRANTS are often issued to sweeten takeover offers, especially unfriendly ones. The holder of a warrant has an option to buy shares of the issuing company in the future, at a fixed price. Warrants carry no voting rights, earn no dividends, involve pure speculation. Technically, they have no value at all unless the common stock climbs above the option price. They were in disrepute for most of the years since the Depression because their volatile prices make them extra risky for investors. But warrants caught on again after LTV and Gulf & Western used them to pay for acquisitions. Issued in moderate amounts, warrants may have no significant effect on a corporation's finances. But Manhattan's General Host Corp., which has only 2.6 million shares of common stock, last month offered 14 million warrants in its successful fight to win control of Armour & Co., whose $2 billion in sales are ten times as great as General Host's. If even half of the 14 million are ultimately exchanged for stock, General Host's profits-per-share could plummet.

Risks of Regulation

Many critics claim that too many bosses of conglomerates are too busy scrambling after Wall Street's Great God of Growth. These bosses are scorned as a phenomenon of the times, nurtured by inflation and a securities market possessed by the cult of performance. Yet many other conglomerates--ITT and Textron, to cite only two--are well-managed and amply financed. Quite a few more fit somewhere in between the two extremes. Saddled with debt and untested by any prolonged downswing in business activity, they present a considerable risk for shareholders. At the same time, they can offer correspondingly large opportunities for reward because they are widely diversified in expanding areas of the economy.

The problem for shareholders is to figure out which conglomerates are sound and which are shaky. The task for Government regulators is to devise ways to stop abuses without penalizing the innocent. Congress has not yet decided what to do about conglomerates. "We don't even know the symptoms yet," says New York Democrat Emanuel Celler, whose House antitrust subcommittee is beginning still another major investigation. Even so, Congress seems determined to write some new tax and banking laws this year to make it less attractive for companies to combine.

To help investors now confused by financial legerdemain, Congress might well order the SEC to shed more of its editorial timidity and demand plain language instead of euphemistic evasions in prospectuses and annual reports. The SEC already has considerable power to act. If accountants cannot agree to require straightforward and easily comprehensible reporting of profits, federal authorities may. On the other hand, it is arguable whether Congress would be wise to require stockholders to pay capital-gains tax on their profits when they swap stock for debentures. It appears to make better sense to deny corporations their tax deductions for the interest on debentures issued for mergers.

The dangers in all-encompassing regulation seem clear. Establishments -- political, social or economic -- need periodic shaking up. For all their faults, the conglomerates have certainly shaken the established leaders of American business and caused many to sharpen their management. They have also given meaning to the saccharine and often hollow phrase "shareholders' democracy." Today more than ever, a public company is public. When the shareholders are given an offer, they have the right to choose.

Where They Are Heading

Experts disagree on whether the conglomerates will continue their rapid growth. To some Wall Streeters, they represent the bright future of capitalism. Others insist that so many conglomerates have been built on such weak foundations that it may be necessary to take them apart and rebuild them. Often enough, conglomerate executives share that concern. "Our greatest worry," says Textron's Miller, "is that a merger bubble built on arithmetic will burst, hurting the whole economy." Adds Bluhdorn: "A shakeout we're going to get for sure."

The managers of many conglomerates -- especially the newer ones -- have not yet convinced skeptics that they have the talent to run the huge structures that they have built. Warns Chairman Willard F. Rockwell Jr. of North American-Rockwell, the aerospace-electronics combine: "Sooner or later, after all the crazy speculation, after all the manipulations, those acquisitions must be operated profitably. And it isn't easy to find the management." Conglomerates must cope with the problems of maturity -- the inevitable day when the pace of expansion slackens. Then, without the continuous growth-through-merger that has too often been the basis of their Wall Street appeal, the conglomerates will be come indistinguishable from such traditional multi-industry companies as General Electric. Only then will come the real test of whether they can survive and prosper. The conglomerates may indeed already be the corporate archetype of the future. They have yet to prove it.

-Anyone with 10% or more of a company's stock.

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