View from City Road: The conglomerate is an endangered species

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The Independent Online
For anyone schooled in the soaraway Eighties, the stock market is developing some curious reactions. Hanson is rumoured to be considering a big US acquisition, but its share price falls. Williams Holdings is selling off chunks of its business to concentrate on its core activities, yet in the glory days there were no cores - just badly run target businesses and good managers. So is the conglomerate now officially dead?

The odds are stacked against them. They have been a victim of their own success. Other companies have learnt from the sweet deals the conglomerates pulled in the 1980s - Hanson's takeover of Imperial still ranks among the best of all time - and are getting in on the act. Because they can also claim a deal makes industrial sense, they can afford to outbid the conglomerates. Other firms have also learnt to sweat their assets along with the best of them. The recession has shaken out old inefficiencies.

Moreover, the predators themselves, as they grew bigger and bigger, found it steadily more difficult to grow at the same pace and thereby to justify their fancy price- earnings multiples. But that in turn means that their paper is less attractive relative to their victims, putting another obstacle in the way of takeovers.

Conglomerates also depend on selling off peripheral parts of their targets to generate a quick return. But for the past few years companies have been more interested in selling parts of their own businesses than in taking on conglomerates' cast-offs.

Finally, conglomerates have to contend with tougher accounting standards. They are being forced to give far more detail of how their acquisitions perform - and are banned from hiding the effect of poor ones in below-the-line extraordinary charges.

The last nail in the coffin could come next year when they will be banned from charging years of rationalisation costs as pre-acquisition provisions, a neat way of making takeovers look profitable even when they are not.