From banking to retailing, aerospace to Mexican food, mergers and restructuring have wrought massive changes in California's corporate landscape.
Of the 100 largest publicly held industrial corporations headquartered in the state last year, eight do not appear on the 1987 Times roster of leading California companies because they were acquired or converted to private ownership.
Corporate restructuring also gave rise to major new players in the state. Henley Group, a La Jolla-based conglomeration of 32 businesses with $3.2 billion in revenue, placed No. 14 on the list after being spun off last year by Allied Signal. Henley Group, in turn, spun off Fisher Scientific Group, which is ranked No. 39 in its first year on the list. Los Angeles-based Kaufman & Broad took its home-building business public and created Kaufman & Broad Home Corp., which made its debut at No. 55.
Like the rest of the nation, California has seen merger and acquisition activity increase steadily since the late 1970s. The current Times roster reflects a flurry of business combinations in 1986 and so far this year. Safeway Stores has gone private by buying its shares back from investors, Thrifty has been acquired by Pacific Lighting, Western Airlines has been swallowed by Delta Airlines, AirCal has been purchased by American Airlines and Lloyds Bank California has merged with Sanwa Bank.
Top State for Takeovers
In 1986, 261 firms in California were acquired, making it the leading state for corporate takeover targets. That was up from 258 corporate acquisitions in 1985, according to W. T. Grimm & Co., a Chicago consulting firm that tracks corporate mergers.
The attraction of the state's companies is clear. "California has many companies that are perceived to be in high-growth industries," said Grimm President James Kelly. "It's just a big marketplace."
California companies, however, were no wallflowers when it came to acquiring others. They purchased 221 corporations, up from 216 in 1985.
Some of the state's acquisition-minded concerns included Occidental Petroleum, which shelled out $2.6 billion for natural gas pipeline operator Midcon and $860 million for the industrial chemical subsidiary of Diamond Shamrock; Wells Fargo, which purchased Crocker National from its British parent in a deal valued at $1.07 billion; Wickes, which paid $1.16 billion for Collins & Aikman, and Maxicare Health Plans, which coughed up about $453 million for two health maintenance organizations.
Many Jobs Eliminated
While some analysts argue that such mergers will result in more efficient companies in the long run, the immediate result of merger mania in several instances has meant the loss of jobs: Up to 5,000 Crocker Bank employees will have lost their jobs by the end of this year as a result of last year's merger with Wells Fargo; 14,000 Gemco employees in California, Arizona and Nevada were out of jobs when Lucky Stores shut down the subsidiary last October in a corporate restructuring to thwart a takeover threat; 2,000 Western Airlines jobs were transferred out of Los Angeles to Atlanta and other cities after the carrier was taken over by Delta in April.
"It's hard to determine to whether it (merger activity) is positive or negative for the state economy," says Joseph Wahed, chief economist at Wells Fargo Bank. "There are no hard and fast rules."
As economists argue about what effect the shuffling of corporate assets will have on the state's economy, California's robust economic expansion, which began in early 1983, is showing its age:
- The gross state product, the value of all goods and services produced, last year rose 3.2%--slightly slower than it did in 1985, and only half as fast as in 1984, according to the UCLA Business Forecasting Project, which studies the California economy. Still, the state continues to outpace the United States, which saw the gross national product grow by 2.6% last year.
- Personal income rose 3.7%, adjusted for inflation. While relatively unchanged from the 1985 pace, that was well below increases in the 5% range recorded in 1984 and 1983. Personal income is expected to grow even slower this year, increasing 3%.
- Non-agricultural employment rose 2.4%, the lowest increase since 1983, says UCLA. About 400,000 new jobs--primarily in service, trade and financial businesses--were created in the state last year.
- The pace of consumer spending, which had been driving economic expansion, slowed down dramatically in 1986. Taxable retail sales increased only 0.2%, adjusted for inflation. By comparison, retail sales pushed ahead 2.6% in 1985.
Overall, "California saw fairly solid growth in 1986," said Robert Skinkle, an economist at Wells Fargo Bank. "But the pace of growth slowed," he added, describing the state's economy as "unspectacular."
Export Gains Likely