The Friendly and Predatory Acquisition of Large U.S. Corporations in the 1960s: The Other Contested Terrain

Abstract

The 1960s represent an important chapter in U.S. business history, partly because they ushered in a new tactic of corporate combination-the predatory takeover Predatory takeovers not only facilitate the restructuring of corporate enterprises, they also alter the internal structure of the business elite. We explore the factors that led large corporations to be acquired through friendly and predatory means in the 1960s. Consistent with the "embeddedness" perspective, our results indicate that the likelihood of acquisition during this period was influenced by a firm's position in the resource-dependence network of the economy as well as the positions of its managers and directors in the firm's ownership structure and in the social network of the business elite. Specifically, firms run by central managers and directors were less susceptible to predatory takeover-ownership relationships dominated over ties among the business elite. However, consistent with traditional economic accounts, our results suggest that in the 1960s undervaluation of a firm's assets, the ratio of its stock price to earnings, its performance, and its size also influenced the likelihood of acquisition. C :orporate acquisitions have important economic and political consequences. When one corporation acquires another, it often replaces the acquired firm's top managers with its own, thereby redistributing economic resources among business elites in society. It also sometimes transfers the administrative or productive assets of the acquired firm to its own headquarters or plants in different cities, thereby redistributing eco-nomic resources among cities, states, and regions. Insofar as the control of economic resources is related to political power, these transfers of control can shape the power structure of society as well.We focus on corporate acquisitions in the 1960s. The wave of acquisitions that peaked in 1968, the second largest such wave in U.S. history (eclipsed only by the 1980s wave), was notable for its industrial character. Vigorous enforcement of antitrust policy in this period, influenced by the Celler-Kefauver of Michigan provided helpful comments on earlier drafts. The ASR editor and three anonymous reviewers provided thorough and helpful comments. Finally, special thanks to Tony and Ricki for their inquisitive spirit and to Tom-the rocks do hit the water like broken glass. [The reviewers acknowledgd by the authors are American Sociological Review, 1995, Vol. 60 (August:469-499) 469 470 AMERICAN SOCIOLOGICAL REVIEW I Uncertainty based on resource dependence is only one type of uncertainty to which firms may be subject. We are not concerned with other sorts of uncertainty (e.g., uncertainty that stems from exogenous factors like changes in state economic policies that alter the supply and demand for, and thus the prices of, inputs and outputs).

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“…We included control variables measured at both organizational and state levels to account for possible alternative explanations to our arguments and for factors found to affect acquisitions in previous studies (e.g., Davis & Stout, 1992;Palmer, Barber, Zhou, & Soysol, 1995;Stearns & Allan, 1996).…”

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“…For instance. Palmer and his colleagues suggested that inside director ties may have stronger effects on the diffusion of innovations than outside director ties, because insiders are likely to devote more time than outsiders to implementing innovations, leading to greater psychological commitment to them (Palmer, Barber, Zhou, & Soysal, 1995;Palmer et al, 1993). Similarly, directors' beliefs about corporate strategy might be influenced more by their experience as top managers at their home companies than by their experience as outside directors at other firms.…”

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“…Uzzi (1999) shows that firms receive lower interest rates when they have network ties to a bank. Palmer et al (1995) find that firms with interlocks to commercial banks were better able to fend off hostile predators in the 1960s. Mizruchi and Stearns (1994) show that firms with bankers on their corporate boards are more likely to borrow money.…”