Corporate Takeovers

February 20, 1987

Report Outline
Special Focus

Overview

When Wall Street investment banker Martin A. Siegel pleaded guilty to insider trading charges on Feb. 13, and implicated three other securities traders, it was a major development in a scandal that earlier netted securities trader Ivan F. Boesky and now threatens to taint some of Wall Street's most prestigious financial institutions. The scandal also is raising broader questions about corporate takeover practices. Tips about lucrative takeover deals were central in the schemes by which Siegel and Boesky made millions illegally. As a result, takeover practices that critics say invite abuses by financial middlemen have become highly controversial.

The insider trading scandal has coincided with a period of heavy corporate merger activity of both the friendly and unfriendly variety. Since the early 1980s, many U.S. businesses, in an attempt to reverse their eroding position in world markets, have restructured their operations by spinning off marginal divisions and buying companies that might improve their competitive edge. In the past three years alone, almost 9,000 companies and divisions worth some $480 billion have changed hands.

One visible sign of how profoundly mergers are changing the corporate landscape has been the appearance of new corporate logos, as venerable firms have merged with other firms or changed their names to reflect drastic changes in product lines after selling divisions of their businesses. After Burroughs Corp, acquired Sperry Corp., the merged communications conglomerate was christened Unisys. In another metamorphosis, International Harvester buried its well-known name after selling off its beleaguered farm equipment division and renamed itself Navistar. R. J. Reynolds Industries Inc., long synonymous with cigarette manufacture, took over Nabisco, similarly equated in the consumer's mind with crackers, and renamed the conglomerate RJR Nabisco Inc.

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