As stocks struggle, corporate execs ramp up merger offers

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From Times staff writer Walter Hamilton:

Depressed stock prices are good for one thing: They’re keeping company executives interested in snapping up rivals.

The latest cases in point: Drugstore chain CVS Caremark Corp. late Tuesday rolled out a $2.6-billion deal for Longs Drug Stores Corp., and Japan’s Mitsubishi UFJ Financial Group announced a $3-billion tender offer for the 35% of California’s UnionBanCal Corp. that it doesn’t already own.

Although the U.S. merger market overall remains in the doldrums because of a drought in private-equity deals, so-called strategic mergers -- one company buying another -- are ahead of their pace in 2007, at least in dollar terms.

Through Monday, slightly more than $800 billion in strategic deals had been announced year to date, up 5% from the $761 billion at this time a year earlier, according to research firm Dealogic Inc.

Deal activity has heated up as stock-market weakness has persisted. There were almost $456 billion in strategic deals announced in May, June and July, easily outdistancing the roughly $339 billion registered in the first four months of the year, according to Dealogic.

Although the total number of strategic deals this year is down 11% from the same time last year, to 4,112, that’s a modest erosion compared with what’s happened to transactions by private-equity investment funds.

With credit tight, many private-equity funds find themselves shut out from the financing they need to make leveraged buyouts happen.

Private-equity buyouts have slumped 85% this year, to just $51.5 billion from almost $348 billion at this point a year ago, Dealogic data show.

The number of private-equity deals is down a less-severe 35% -- to 371 from 567 -- indicating that smaller deals are managing to get done even though headline-grabbers are at a virtual standstill.

Still, ‘Strategic M&A is really where the action is these days,’ said Joel Cohen, chairman of Sagent Advisors Inc., a boutique investment-banking firm in New York. ‘With [private-equity firms] out of the market to a great extent because of a lack of financing, the strategic people don’t have as much competition as they had in the past.’