Mergers, Acquisitions, and Corporate Restructurings. Gaughan Patrick А.

of its defensive arsenal. Colt responded in kind and eventually acquired Garlock. This deal is notable for making hostile deals truly hostile. Such deals are commonplace today.

       LING-TEMCO-VOUGHT: GROWTH OF A CONGLOMERATE 43

      Ling-Temco-Vought (LTV) Corporation was one of the leading conglomerates of the third merger wave. The company was led by James Joseph Ling – the Ling of Ling-Temco-Vought. The story of how he parlayed a $2,000 investment and a small electronics business into the fourteenth-largest industrial company in the United States is a fascinating one. Ling-Temco-Vought was a sprawling industrial corporation, which at its peak included such major enterprises as Jones & Laughlin Steel, the nation's sixth-largest steel company; Wilson & Co., a major meat packing and sporting goods company; Braniff Airways, an airline that serviced many domestic and international routes; Temco and Vought Aircraft, both suppliers of aircraft for the military; and several other companies. The company originated in a small Texas electrical contracting business that Jimmy Ling grew, through a pattern of diverse acquisitions, into one of the largest U.S. corporations. The original corporate entity, the Ling Electric Company, was started in 1947 with a modest investment of $2,000, which was used to buy war surplus electrical equipment and a used truck. By 1956, Ling Electronics had enjoyed steady growth and embarked on one of its first acquisitions by buying L. M. Electronics. Various other electronic and defense contractors were then acquired, including the American Microwave Corporation, the United Electronics Company, and the Calidyne Company. Acquisitions such as these – companies that lacked the requisite capital to expand – were financed by Ling through a combination of debt and stock in his company, which traded on the over-the-counter market.

      By 1958, this master dealmaker sold an offering of convertible debentures in a private placement that was arranged by the Wall Street investment bank of White Weld & Company. This type of securities offering was particularly popular with the dealmakers of the third wave because it did not have an immediate adverse impact on earnings per share, thus leaving the company in a good position to play the “profits/earnings game.” With its stock price trading in the $40s, Ling started the process of buying targets that were much bigger than the acquiring company with the 1958 stock-for-stock acquisition of Altec Companies, a manufacturer of sound systems.

      After some other small acquisitions, Ling initiated his largest acquisition when he merged his company with the Texas Engineering and Manufacturing Company, Temco. This deal enabled Ling to accomplish a long-term goal when the merged company, Ling-Temco Electronics, became part of the Fortune 500. Shortly thereafter, Ling prevailed in a hostile takeover of the Vought Aircraft Company to form Ling-Temco-Vought.

      Ling-Temco-Vought went through a period of lackluster financial performance, which forced Ling to restructure the company by selling off poorly performing divisions. In 1967, Ling successfully completed a tender offer for Wilson & Company, a firm twice the size of LTV. This deal vaulted LTV to number 38 on the Fortune 500 list. Wilson was composed of three subsidiaries: Wilson & Company, the meat-packing business; Wilson Sporting Goods; and the Wilson Pharmaceutical and Chemical Corporation. Traders sometimes referred to these divisions as “meatball, golf ball, and goof ball.” The next step Ling took in assembling this massive conglomerate was to buy the Great America Corporation, which was a holding company with investments in a variety of businesses, such as Braniff Airlines and National Car Rental, as well as banks and insurance companies. Although few beneficial commonalities appeared to be associated with this acquisition, Ling was able to exploit several, such as the insurance companies' writing insurance for a variety of LTV units and employees.

      After an unsuccessful takeover of the Youngstown Sheet and Tube Company, Ling set his sights on the fourth-largest steel producer in the United States, Jones & Laughlin Steel. Ling-Temco-Vought bought Jones & Laughlin in an $85 tender offer for a company with a preannouncement price of $50. This $425 million bid was the largest cash tender offer as of that date and represented a 70 % premium for a company in a low-growth industry. Unfortunately, the takeover of Jones & Laughlin drew the ire of Assistant Attorney General Richard McLaren, who saw it as another anticompetitive conglomerate acquisition. The Justice Department filed an antitrust lawsuit, which was bad news for any defendant because the government won a very high percentage of such cases. The market seemed to concur with this legal assessment because the stock price declined after the announcement. Because of the lawsuit, LTV was prevented from playing an active role in the management of Jones & Laughlin and taking steps to turn around the poorly performing steel company that had just announced its worst earnings performance in a decade. With the addition of Jones & Laughlin, LTV now had two major components of its empire – Braniff Airlines being the other one – reporting sizable losses. A settlement of the lawsuit was reached in which LTV agreed to sell off Braniff and the Okonite Company, a cable and wire manufacturer.

      Although LTV was able to achieve a favorable settlement, its stock suffered, partly as a result of the lawsuit, the poor performance of its subsidiaries, and the overall decline in the market. These factors gave rise to pressures from dissident shareholders and bondholders to remove Ling from control of LTV. Ling was not able to survive these pressures; he was demoted from his position as chief executive and eventually left LTV. The story of Jimmy Ling and the huge conglomerate that he built is one of a man who was ahead of his time. He was probably the most renowned of the great conglomerate builders of the third merger wave. Whereas the 1980s featured such raiders as Carl Icahn and Boone Pickens, Ling was joined in the third wave by other “conglomerators,” such as Lawrence Tisch of Loews, Charles Bluhdorn of Gulf & Western, and Ben Heineman of Northwest Industries. Long before the 1980s, Ling had mastered the art of the LBO and hostile takeover. Unlike many of the raiders of the 1980s, however, Ling was opposed to trying to turn a quick profit on acquisitions by selling off assets. He bought companies with a more long-term strategy in mind, which, nonetheless, many criticized.

      What was once LTV has undergone many changes since the 1960s. The company experienced financial troubles in the 1980s, as did many companies in the U.S. steel industry. It was acquired in 2002 by Wilber Ross, who rolled the company into the International Steel Group. This company was then sold by Ross to Mittal in 2004.

      Fourth Wave, 1984–1989

The downward trend that characterized M&As in the 1970s through 1980 reversed sharply in 1981. Although the pace of mergers slowed again in 1982 as the economy weakened, a strong merger wave had taken hold by 1984. Figure 2.4 shows the number of M&A announcements for the period from 1970 to 2013. The unique characteristic of the fourth wave is the significant role of hostile mergers. As noted previously, hostile mergers had become an acceptable form of corporate expansion by the 1980s, and the corporate raid had gained status as a highly profitable speculative activity. Consequently, corporations and speculative partnerships played the takeover game as a means of enjoying very high profits in a short time. Whether takeovers are considered friendly or hostile generally is determined by the reaction of the target company's board of directors. If the board approves the takeover, it is considered friendly; if the board is opposed, the takeover is deemed hostile.

Figure 2.4 Net Merger and Acquisition Announcements 1970–2013. Source: Mergerstat Review, 2014.

      Although the absolute number of hostile takeovers in the fourth merger wave was not high with respect to the total number of takeovers, the relative percentage of hostile takeovers in the total value of takeovers rose during the fourth wave.

The fourth merger period may also be distinguished from the other three waves by the size and prominence of the M&A targets. Some of the nation's largest firms became targets of acquisition during the 1980s. The fourth wave became the wave of the megamerger. The total dollar value paid in acquisitions rose sharply during this decade. Figure 2.5 shows how the average and median prices paid have risen since 1970. In addition to the rise in the dollar value of mergers, the average size of the typical transaction increased significantly. The number of $100 million transactions increased more than 23 times from 1974 to 1986. This was a major difference from the conglomerate era of the 1960s,

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For an excellent discussion of the history of this company during the conglomerate era, see Stanley H. Brown, Ling: The Rise and Fall of a Texas Titan (New York: Atheneum, 1972).