“He was small, low key and lived humbly even after he became wealthy, a brilliant connoisseur of the ins and outs of the law, and one of the most aggressive lawyers of his time. (Madrick 74)” Joseph Harold Flom, a well-known lawyer, holds an impenetrable reputation for conducting one of the first merges and acquisitions in specializing businesses and companies of his era in the 1970’s. A business innovator, Flom was craft fully became the man responsible for the hostile takeover movement in time when the semiconductor revolution was changing the face of the business system.
Flom, being independently sharp, opened a small law firm after graduating from a prestigious law school in the 1950’s. Like many, Flom struggled through his first years as a lawyer something that was no stranger to him. Throughout his life Flom faced a variety of challenges and hardships, his father unable to provide for his family benignly pressured Joe into obtaining a prestigious profession. Flom became a lawyer and one of the most important mergers in business contributing to the “Age of greed” and imprinting his business skills in the field up to this day.
Helping building Skadden, Arps, Slates and Meagher into the nation’s leading law firms stand as Flom’s long living legacy up to this day. Parallel to the General electric Company and their merge in the 1970’s. Today we see similar companies performing identical transactions in the corporate world. Companies, such as, Verizon with Vodafone and Heinz with Warren Buffett’s Berkshires Hathaway stand today where GE stood several decades ago. Born into a family of immigrants, Joseph Flom faced hardship while pursuing his profession. Coming from a Jewish household, Floms parents emphasized the importance of obtaining a well -paid profession.
His Father, from Russian decent, was a union organizer in a garment industry while his mother worked with what was called piecework. The family experienced financial adversity but benefited from free rent due to constant moving alleviating the burden. Flom, always excelling in his work at a young age performed well in his entrance exam and was admitted to the elite educational institution of Townsend Harris public high school were he simultaneously attended while enrolled at his local community college. In addition to performing phenomenally in his studies, Flom worked part time in order to make ends meet.
Accustomed to hard work, after finishing high school Flom enlisted in the army where he served four years. After completing his service, eager to start his education in law but without a bachelor’s degree Flom cunningly wrote to Harvard explaining why he was the answer to sliced bread. Intrigued by his letter Harvard contacted Flom and after a brief interview formally enrolled the young student. According to Robert Pirie, a fellow law school colleague, Flom was considered by the faculty as one of the most brilliant minds to have ever graduated.
Seizing an opportunity to serve as a legal adviser to an acquirer, Joe soon gained several years’ worth of experience in hostile acquisitions early in his years as a lawyer. One of his early and most significant involvements was with the giant mining company, Inco. Product of a merge early in the century, Inco, directed by founder and investment banker Morgan Stanly, solicited Floms expertise for a hostile acquisition on battery makers ESB, The electric service company. After a long exhausting struggle Inco, guided by Floms advice, finally obtained ownership of ESB.
Floms soon became a well-known lawyer, admired for his aggressive and skilled work. The merger of General Electric Corp. and RCA during Flom’s era is one example of a landmark event in the rapid alliance of foreign powers in the American Marketplace. A wave of mergers and buyouts were conducted by three major lawyer; Arthur Fleischer Jr. , Martin Lipton, and Joseph Flom, of Skadden, Arps and Flom, through the insurance of “junk bonds. ” Firms pioneered on these not so highly rated bonds by Wall, inaugurated the era of giant mergers.
The European Economic Community, or the EEC, whose sole purpose it to provide food from “free” nations of Europe to the Soviet Union, unnoticeably is affiliated with the merge of GE and RCA. Having provided the Soviet Union with “621,000 tons of food in 1978; 3,000,000 tons of food in 1980; and 6,500,000 tons of food in 1984,” and furnishing the Soviet with food prices far below the market prices,” In effect, [has] the “free” European nations engaged in a gigantic effort to maintain the Soviet Union.
(Mullins Online)” Inconspicuously, reduces American workers to faceless serfs who according to Mullins sole mission it to “provide for the Soviet Union, as the citizens of our European allies are now doing. ” However in order to have achieved this objective, it was vital to have merged the productivity capacity into a single corporation who would be managed from the Rothschild headquarters in Brussels. This fuse has gained General Electric the control of the three major networks.
While General Electric is thought to be a major manufacturer of consumer products; television sets, electric irons, etc. ; in fact, two-thirds of its production is made to industry and the federal government. Similarly, RCA is likewise a key defense contractor. However, surprisingly these merge, while both firms engage in similar enterprises and are comprised by same costumers, did not raise any worries of a “monopoly” occurring in conflict with the interest from the Department of Justice.
Originally founded by the great innovator Thomas Edison, General Electric, previously Edison Electric; merged the firm after advised by J. P Morgan. Unable to acquire the funds necessary to expand the firm from the bankers, Edison allied with GE who from the outsets was controlled by J. P Morgan and their interests which in turn were controlled by the Rothschild interests. Presently General Electric Co. of England is advertised to have no relation with the U. S firm.
However it is reputed to have $2 billion in cash and is one of the largest operators in the United States in addition to having Chairman Lord Carrington working closely with its American counterpart, Henry Kissinger. Conditions in the 1970 proved to be unstable. Purchasing energy companies or Corporations with specialized commodities appeared to be the most suitable hedge against inflation. Large companies swimming in profits took this opportunity of instability to achieve diversity by purchasing struggling, yet well run companies.
Many floating corporations, facing the threat of a takeover changed corporate values in order to avoid involuntary takeovers. “Vulnerable companies were desperate to raise the value of their stocks to make them less attractive and avoid a takeover, which usually required focusing on improving profits in the short run, often by cutting wages and jobs, just as if they had been taken over. Others bought entities they did not necessarily want or need in order to use up their idle cash in the bank, which otherwise made them tempting targets for hostile acquirers.
” (book) Unsympathetic to all, the recession of the 1970’s was felt by all including long standing American giants. Determined to find companies that could guard against inflation, General Electric sought to find a suitable entity to profit from and maintain afloat in the economic crisis. An acquisition was made in 1976 by General Electric, the fifth largest company in America and known for its well managed institution.
In late 1975, Chairman, Reginald Jones announced to the investment community its intentions in acquiring Utah international, a highly profitable mining company whose rates had been increasing throughout the decade. As surprising as it was to have the company stray so far from its usual investments, friendly merger and Utah chairman suggested a deal to Jones. Close the finally of 1976, the largest merge up to date was performed by General Electric and it counterpart Utah international. In exchange for a share of General Electric’s worth $2. 2 billion Utah International concluded the acquisition of its entity.
As promising as the transaction appeared to be for General Electric’s and other corporate giants, by the late 1970’s and early 1980’s inflation rose once more preventing any profits to be earned by the investments. GE concluded by selling Utah International at a loss. The era of hostile takeovers consisted of recession, inflation, high interest rates foreign competition and securing money for new business. Divided by those who benefited and those afflicted, the era smiled upon those with sensible business deals, driving the urge of greed and the want to become richer in the world of Wall Street.
The role played by Joe Flom and other key mergers, stands as evidence of the influence these men had over decisions made in the decline of America. “Corporations would not have been nearly as aggressive about acquiring other companies had Wall Street and the legal community led by Flom not provoked them. ”(book) Correlating to the past, there are a variety of Mergers and acquisitions occurring in present time. Recently the buying of Heinz by Warren Buffett’s Berkshires Hathaway has individuals well educated on the M&A (mergers and acquisitions) discussing whether there will be a sixth formation of a wave.
In addition to Heinz, announced in July, advertising giants Omnicom of America and Publicis of France broadcasted their intentions in combining their industries. Soon after that a third merge was announced by Verizon with their intent to buy out American Mobile-phone Vodafone’s for an astonishing $130 billion. The Merge and Acquisition has been divided into 4 well defined stages. Stage one consists of and average of 10-18% bid premiums and typically occurs in a poor economy with just a handful of deals.
The second phase rises slightly to 20-35% and is seen when the economy is improving, however the bids are still considered risky and are only performed by the most confident buyers. The third and most productive phase experiences a rapid surge past 50%. In this stage the merger boom is legitimized and boosts the confidence of the investors. The final and most catastrophic phase faces premiums above 100%. Sadly most of their “corporate marriages” fail and chances of the fail increase as the stages progress. “As with unions between Hollywood stars, corporate marriages all too often end in tears.
Messrs Clark and Mills reckon that as many as two-thirds of all mergers and takeovers fail, meaning that they do not deliver the benefits promised when the deal is struck (jkas). ” Like with many situations a cause and effect scenario is applicable to the merges of today and of those that occurred in the 1970. When comparing past merges, such as the General Electric Company and that of present time, Verizon or Heinz; one can understand that the main, in not sole purpose of the merge is to gain benefit or to save a business when the coming gets tough.
We are able to track the progress of the GE Company and see how it benefited from the merge, while the merge between GE and Utah International ended in “Divorce” General Electronics still stands today and is currently experiencing stability in its productivity and finances. However, the company merge with Lufkin, as of June was approved and is looking to be very optimistic. Once the transaction is concluded, Lufkin will become the sole owner of General Electrics and Lufkin shareholders. He will receive $ 88.
50 in cash for every common stock owned at the time of the transition according the Christopher L. Boone. Continuing on, as mentions prior, lawyer protegee, Joseph Flom continues to be a key player in the world of acquisitions. His valid advice expertise continues be respected an acknowledged up to this day. His experience and well established knowledge can still be seen in his early works as a merger. The success of companies where he advised stand as evidence of his skills up to this day and will continue to show his work as long as they continue on.
To conclude, the age of greed can be summed into the general longing of companies fusing to prevent the terrifying demise of a company. While not in all cases both parties benefit, the ultimate goal of a merge is to wreak profit form the fusion. As the title of Jeff Madricks “Age of greed” volume reflects, this and the preceding era consists of avaricious individuals seeking to create as much profit regardless if that means the demise of those around them.