Voracious Inc.

By Karl Taro Greenfeld

Bigger wasn't only better during the 1950s and '60s, bigger was best. The Cadillac Coupe de Ville was as long as a city block, with tail fins extending to the suburbs. Elvis had big hair, the Beatles came along with even bigger hair, and the Jackson Five arrived with stupendously massive hair.

It was only natural that American business, seduced by the same belief that size matters, would reshape the corporation into the gargantuan mass called the conglomerate.

The men who built the conglomerates were vastly different from the reigning generation of bosses. They were classic outsiders--non-Eastern, non-American, non-Wasp and non-Ivy. Rebels such as James Ling, founder of Ling-Temco-Vought, Charles Bluhdorn of Gulf & Western Industries (satirized as Engulf & Devour) and Harold Geneen of International Telephone and Telegraph stormed America's corporate towers even as students and protesters were laying siege to the nation's ivory towers.

Theoretically, a conglomerate made sense because it could balance out the business cycle by trading in a wide array of goods and services. Somewhat perversely, both the tax code and the antitrust policy at that time encouraged the strategy. ITT bought the maker of Wonder bread.

Astute risk takers and charismatic salesmen like Ling, Bluhdorn and Geneen were among the first to see the opportunities. The bull market that began in 1962 was kinder to some companies than to others, leaving many quality firms relatively undervalued and thus takeover targets. "We had a lot of different sources of financing," says Ling, 75, of LTV, in its heyday the 14th largest company in the U.S. "But we usually swapped our companies' stock for [that of] the firms we were buying."

The frenzied stock exchanges drove the price of diversified firms higher than that of the separated parts--the opposite of what happens today. "Investors came to overvalue growth by acquisition," says Walter Wriston, former chairman of Citibank. "That was because of this idea that a good manager could make two plus two equal five."

Austrian immigrant Bluhdorn took a run-down Michigan auto-parts distributor and built it into Gulf & Western Industries, a $2 billion marvel whose activities ranged from mining (New Jersey Zinc) to movies (Paramount Studios). By 1969, the former $15-a-week clerk was worth $50 million.

Ling, an Oklahoma high school dropout, went into the electronics business in 1946 with a $3,000 stake. To finance his earliest acquisitions, he hired salesmen to peddle shares of Ling Electric Co. door to door in Dallas and even set up a booth at the Texas State Fair. Brokers laughed, but investors did well. "The genesis of our business was diversification," says Ling of his rapid expansion, which included everything from aircraft to baseball mitts.

No one bought more companies than ITT's Geneen, who during the second half of the 1960s was called "the greatest businessman alive." ITT made telephone equipment, ran hotels, built homes, rented autos, sold insurance, made grass seed and rented billboards. He believed in big and swore that "if risk is a bucking bronco, a conglomerate is the best way to enjoy the ride."

When the Dow peaked at 985 in 1968, the conglomerate movement comprised dozens of America's largest companies, including Textron, Litton, Teledyne, Raytheon, Walter Kidde & Co. and US Industries. The movement would sputter to a halt in the '70s, its oxygen cut off by rising interest rates and a falling market. A surprisingly anticonglomerate Nixon Administration crimped the most aggressive expansions in the interest of protecting what Ling calls "the smokestack-industry crowd" of old-line executives. Ling was forced out of LTV in 1970 as part of an antitrust settlement. Bluhdorn died on a company jet in 1983. Geneen piloted ITT for nearly 20 years, acquiring more than 350 firms before retiring in 1977.

We still live in an era of buyouts. But diversification has largely given way to concentration. Gulf & Western was reduced to its media component, Paramount, and then taken out by another media company, Viacom. Geneen's successor at ITT was pressured by investors to break the company into pieces. By the time Geneen died last November, all that was left of ITT Corp. was a hotel company, which would disappear into a merger two months later.

--By Karl Taro Greenfeld