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Conglomerates were popular in the 1960s due to a combination of low Interest Rate s and a repeating bear/bull market, which allowed the conglomerates to buy companies in Leveraged Buyout s, sometimes at temporarily deflated values. Famous examples of the 1960s conglomerators include Ling-Temco-Vought , ITT , Litton Industries , Textron , Teledyne , and Gulf And Western Industries . As long as the target company had profits greater than the interest on the loans, the overall Return On Investment (ROI) of the conglomerate appeared to grow. For many years this was enough to make the company's stock price rise, as companies were often valued largely on their ROI. The aggressive nature of the conglomerators themselves was enough to make many investors, who saw a "powerful" and seemingly unstoppable force in business, buy their stock. High stock prices allowed them to raise more loans, based on the value of their stock, and thereby buy even more companies. This led to a Chain Reaction , which allowed them to grow very rapidly. However, all of this growth was somewhat illusory. As soon as interest rates started to rise in order to offset Inflation , the profits of the conglomerates fell. Investors also noticed that the companies inside the conglomerate were growing no faster than they had before they were purchased, whereas the excuse for buying a company was often that "synergies" would lead to more efficiency. By the late 1960s they were frowned on by the market, and a major sell off of their shares ensued. In order to keep the companies going, many conglomerates were forced to shed the industries they had purchased recently, and by the mid-1970s most had been reduced to shells. The conglomerate Fad was subsequently replaced by newer ideas like focusing on a company's Core Competency . Most conglomerates have generally proven unsuccessful. One exception is , and when Interest Rates went up they were able to turn this to their advantage as it was often less expensive to lease from GE than buy new equipment using loans. The best known British conglomerate was Hanson Plc . It followed a rather different timescale than the U.S. examples mentioned above, as it was founded in 1964 and ceased to be a conglomerate when it split itself into five separate listed companies between 1995 and 1997. It was quite a successful example of a conglomerate. The era of Licence Raj ( 1947 - 1990 ) in India created some of Asia's largest conglomerates such as the Tata Group , Reliance Industries and the Aditya Birla Group . Potential advantages of the conglomerate organizational form To modern business analysts, the best argument for conglomerate organizational form is that it may allow capital to be allocated in a more efficient way. For example, a hypothetical conglomerate consists of a candy store and an internet website. Suppose the candy store has high cash flow, but very few profitable investment opportunities. The startup has low cash flow, but lots of good investment projects. By combining the businesses together, the cash from the candy store can be used to make profitable investments that would otherwise not be made in the web site. The main question associated with this strategy is why this improves upon a market-based allocation of capital. That is, if the entities were standalone, then presumably the investors in the candy store could receive dividends, and then reinvest those dividends in the startup. If this market-based mechanism works well, then all profitable internet startup investments can be made without having the two entities be under common ownership. Research suggests that financial markets may not always operate efficiently due to the presence of asymmetric information. If this problem is severe, then the common ownership of the assets might yield a more efficient allocation of capital. See, for example, Chapter 5 ("Diversification") of the textbook "Economics of Strategy" by David Besanko, David Dranove, Mark Shanley and Scott Schaefer. Media conglomerates In her 1999 book No Logo , Naomi Klein provides several examples of mergers and acquisitions between media companies designed to create conglomerates for the purposes of creating Synergies between them:
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