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Conglomerate Combinations

A merger between two or more companies producing or marketing different products is a conglomerate combination. While horizontal and vertical combinations have been com­mon since the mid-1800s, conglomerate combinations did not become common until the 1960s and 1970s.

The classic example of a conglomerate is the International Telephone and Telegraph Corporation (ITT). Until the 1950s ITT manufactured only telecommunications equipment. During the 1960s and 1970s, however, ITT acquired hun­dreds of subsidiaries - acquired companies that have not been forced to abandontheir corporate identities.

Today ITT owns companies in more than 80 countries and is involved in such varied enterprises as in production of frozen foodsand plumbing supplies and in operation of com­puter services, consumer finance companies and hotels.

Trends in Corporate Combinations

The trend toward conglomerate combinations began in the 1960s and carried into the 1970s. Conglomerate mergers helped to build corporate empires for ITT, Gulf & Western, and many other major producers. During the 1980s, however, a trend toward vertical and horizontal combinations redevel­oped. Companies in the 1980s tended to merge with other com­panies that produced the same or related goods or services.

Advantages of combinations.

One of the major business advantages of corporate mergers is efficiency. By centraliz­ing decision making within an industry, corporate combina-Jions, especially horizontal and vertical combinations, can increase efficiency. Costs also can be cut by eliminating unnecessary or overlapping jobs and departments.

A second business advantage of mergers is that buying an existing business is often far less expensive than building new plants, hiring new employees, or acquiring additional capital in order to expand. In most mergers, the acquiring corporation obtains additional capital resources and experi­enced management and employees.

A third business advantage of mergers is that the increased size of merged corporations often makes it possible to borrow more capital. This additional capital can be used for such improvements as enlarging the sales forceor moderniz­ing production facilities. In general, larger corporations also are able to compete more effectively in the marketplace.

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