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The conglomerate's founder figured he would just name the firm after himself and be done with it. That would be all well and good, but for one crucial fact: his last name was Slick. Slick Corporation, with it's slight tinge of larceny in its name, epitomized the go-go years of the sixties when conglomerates were created, rose to huge wealth, and, sometimes, blew up - all in the same year, or certainly, five years (Brooks, 174). 

Larceny is a pretty crucial word in that last paragraph. Because of inappropriate or inadequate accounting systems, owners of single companies figured out that by buying other companies and combining them with their current companies a crucial thing happened, at least for one year: the price of their stock compared with the earnings generated by the combined firms, rose substantially. This gave them enough new capital (the stock rose on the reportedly higher P/E ratio) to buy another company to add to the two already owned. This became a shell game in a way. All the purchases were predicated on a higher P/E and a higher stock price. A pretty cool way to make money, all in all.

This all worked marvelously, until the market, and the government, figured out what was going on and changed the accounting rules. It also didn't help when a couple conglomerates fizzled out. When investors (namely, folks who could do only one thing in finance, namely, divide the price of a stock by its earnings to figure out if it was a good stock to buy) finally figured out that all was a house of cards, the cards, indeed, came tumbling down.

Brooks book reads like a crime thriller. You can't put it down, especially Chapter VII entitled "The Conglomerateurs."

Let's say you were a CEO considering selling your business and you wanted to increase its value poste haste. Forming a conglomerate might have been the way to go as the accounting methodology at the time allowed to to almost instantaneously increase your paper valuation with no effort at all.

Do it today? Now we're getting to the real meat of it all. Conglomerate was the word for the sixties and early seventies. Synergy might be the word of the nineties and maybe the early two thousands. It still might apply. If the merger has attributes of synergy - namely, things work better because they are combined - maybe it makes sense.

My read on all this is that synergy, just like conglomerate long ago, is a risky reason to combine two companies.

Yes, this might be a good strategy to increase the value of your company short term. Longer term, it makes less sense. Maybe an exiting CEO is interested in the very short term until he or she sells and retires. If you are going to do that, be very careful and make sure you get cash for your business, as the likelihood of success of two combined companies is not very good, especially if you remember what really happened in the sixties.

Reference

Brooks, John. The Go-Go Years. Weybright and Talley. 1973.