The last 100 years have brought recurring business cycles of consolidation and contraction, internal growth and diversification, market booms and busts, and government efforts to break up monopolies and spur competition. These powerful forces have prodded executives to strike innovative deals with allies, rivals, and government entities. And the resultant mergers, acquisitions, take- overs, spin-offs, divestitures, joint ventures, and new alliances have transformed the business landscape.
What were the top deals of the past century? There is surely room for debate, but assembled below are the ones we believe helped alter the course of U.S. history.
Size Does Matter
The biggest deal of the twentieth century may have been one of its first. Between 1897 and 1904, the nation was in the midst of a merger craze; 4,277 firms melded into 257. And the financial force behind many of these deals was none other than imperious banker J.P. Morgan, creator of such behemoths as General Electric and AT&T.
In 1900, however, Morgan hadn’t been able to crack the nation’s largest industry–steel– nor its unchallenged leader–Carnegie Steel. Instead, he was content to back such consolidating upstarts as Federal Steel and National Tube. But when Scottish-born founder Andrew Carnegie threatened to further integrate Carnegie into finished steel products, Morgan grew concerned. His answer: a merger.
Carnegie’s terms –$480 million, or 12 times earnings–were unprecedented for the time. But Morgan was unfazed, and responded with a typically terse, “I accept this price.” On March 3, 1901, Morgan announced the merger of Carnegie Steel with Federal Steel and National Tube. The new company, U.S. Steel, was the largest corporation in the world, capitalized with $1.4 billion, or about 7 percent of the nation’s gross national product (more than $400 billion in today’s dollars). As Henry Adams put it, “Pierpont Morgan is apparently trying to swallow the sun.”
Everything about the deal, in fact, was huge. The billion-dollar combined company ran steel mills, coke ovens, railroads, and steamships. It made up half the nation’s steelmaking capacity. The deal made Carnegie, who owned 50 percent of the company, the richest man in the world–for a few years anyway, until he was surpassed by John D. Rockefeller.
More important, the deal set the stage for the American management revolution. Morgan’s cadre of professional managers were among the first to prove that a sprawling, billion-dollar company could be run efficiently and profitably. The agglomeration of U.S. Steel was emblematic of the way American industrial companies would gain unprecedented size and scope in the coming decades, and of the way they would tap into more-sophisticated domestic capital markets. No longer would managers’ visions be limited by the structures previously imposed by size.
Debut Of The Lbo
One of the greatest consumers of steel was Henry Ford and his nifty little invention, the Model T. Introduced in 1908, the mass-produced Model T revolutionized the automobile industry- -and the nation. The key to its success, however, was the assembly line, which required substantial investment.