the island, why should it not be used to benefit all depressed areas? "Hearings must be held by the Interior Department to re-examine the rationale underlying the entire program as well as the special exemptions which keep creeping in," Sen. Proxmire feels.
Chemical industry favorable to discount rate rise Chemical industry reaction to the Federal Reserve Board's action in raising the discount rate from 5 to 5.5% is generally favorable. But it is not enthusiastic. Chemical company executives see it as a necessary move to restrain serious inflationary pressures that have developed in the economy. They also see it as an unavoidable move in the absence of a tax increase and a cut in government spending. Many chemical company officers claim the increasing cost of borrowing money resulting from FRB's action will have little immediate effect on company operations or capital investment plans. Most feel the move will at least put some rein on the nearly runaway inflation that has hurt the basic chemical industry badly. This latest boost in the discount rate is the third 0.5% increment added by FRB since devaluation of the pound last fall. It has boosted the prime interest rate—the rate at which bankers lend money to their most creditworthy customers—to a near-record 6.5%. Official aim of these boosts is to protect the international standing of the dollar. Patrick J. Dowd, Monsanto treasurer, says the interest boosts will
Dow treasurer Bennett Any fiscal responsibility
have no immediate effect on his company's capital investment plans. He stresses that Monsanto is in a good cash position. Allied Chemical's financial vice president Walter H. Sykes points out that his company will be less affected than others as it has just sold $100 million of debentures. Du Pont economist Ira T. Ellis points out that the interest boosts will have no direct effect on his company as it has no debt in this country. On an industrywide basis, Mr. Dowd says he will be rather surprised if capital investment plans are affected this year. He stresses that interest rates are only one of many factors behind investment decisions. However, he adds that these higher interest rates could affect industry plans for 1969 and 1970. On the overall economic effect of FRB's action, Robert B. Bennett, treasurer of Dow, says that as we are not getting any fiscal responsibility from any other branch of the Government it is just as well we are getting some action from FRB. Other chemical company officers generally concur—most stressing that the real answer to the nation's present financial problems is a combination of lower government spending and higher taxes. As Mr. Sykes puts it, "Increasing the discount rate only treats the symptoms, not the cause of the problem." Economist Ellis feels that the Administration has been leaning much too heavily on deliberate inflation to stimulate the economy. And with shortages of skilled labor, employment costs and therefore prices are rising.
Chemical merger activity slow compared with all industry's In its merger activity so far this year the chemical industry has been out of step with industry as a whole. A survey and analysis by W. T. Grimm & Co. shows mergers for chemicals and drugs to be down 2 3 % in the first quarter of 1968, compared to the first quarter of 1967. For industry as a whole, mergers continued at a record rate, increasing 24% in the first quarter over the comparable 1967 period. The survey by W. T. Grimm, a Chicago financial consulting firm specializing in mergers and acquisitions, turned up 33 mergers for chemicals and drugs in the first quarter of 1968, compared to 43 in the same period in 1967. The average ratio of price paid vs. earnings, however, has increased 27% to 19.3, compared to 1967's 15.2. According to L. L. Swinehart, W. T. Grimm's director of research, these results can be traced to the tendency
Grimm's Mr. Fillion Increased drive
for stock rather than cash to be favored as the method of financing mergers. And most of the transactions have been for stock. However, in chemicals and drugs, earnings of buyers interested in acquisitions have been down, as have stock prices. As a result, fewer contemplated mergers have gone through to completion. On the other hand, those that have sold have by and large taken stock as a premium. That is, they have taken a little more stock and closed the deals. For this reason, Mr. Swinehart feels, the increase in prices paid for chemical and drug mergers may be temporary. Industry as a whole posted 815 consolidations in the first quarter of 1968, compared to 662 for the first quarter of 1967. The total for 1967 was 2975. E. P. Fillion, Jr., executive vice president for W. T. Grimm, says that based on first-quarter activity, the number of mergers for 1968 should reach about 3400—an all-time peak. The factors contributing to the record, he says, include an increased drive by corporate buyers for new income sources, and increased seller needs for marketing support, working capital, and liquidity of ownership. Adding to the situation will be a greater number of spin-offs of marginal divisions of companies and their replacement by more profitable acquisitions. For industry as a whole in the first quarter, 5 3 % of all mergers were foistock, 4 1 % for cash, and 6% for a cash-stock combination. This represents a significant increase in cash transactions, which accounted for 33% of the mergers in the first quarter of 1967. At that time, stock transactions made up 6 3 % , and combinations 4%. Prices paid rose for industry as a whole, too. The average ratio of price paid vs. earnings in the first quarter of 1968 was 20.5, up from 16.3 in the same period in 1967. APRIL 29, 1968 C&EN
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