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'Preying on Business Is Un-American'

January 24, 1987

Lee Iacocca's article (Editorial Pages, Jan. 4), "Preying on Business Is Un-American," addresses a very important problem.

Corporate raiders are damaging for two major reasons. First, when they succeed, the company ends up with a very large debt burden, with no increase in their productive capacity to show for it. These large amounts of debt could be put to much better uses in an economy that is struggling to remain competitive on world markets.

Second, and more damaging in the long run, the current merger threats are forcing many businesses to emphasize short-run profits, frequently at the expense of long-run profits.

As usual, there are no simple solutions. An overreaction against corporate raiders could also protect bad managerment from legitimately dissatisfied shareholders. Thus the question becomes, are there any actions we can take that will deter raiders, yet not place undue burdens on shareholders

I think that Iacocca's suggestion that stock can't be voted for six months is one such idea. I would like to suggest another. Eliminate the tax deduction for all debt incurred in a hostile takeover. This will greatly increase the price of hostile takeovers. Thus a stock price will have to fall much lower before a takeover becomes profitable. This will give managers an extra cushion to run their companies for long-run profits without having to worry about corporate raiders.

CIARAN S. PHIBBS

La Jolla

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