Cash for Deals Makes Some Investors Kings

Though some corporate takeovers and acquisitions have been derailed by Monday’s stock market crash, not all deals are in trouble.

One proceeding apace is a proposed $150-million buyout of Western Federal Savings & Loan in Marina del Rey, a financial institution with more than $2 billion in assets and 23 branch offices in Southern California. The buyers are wealthy private investors led by former Treasury Secretary William E. Simon.

In announcing earnings Wednesday, Western Federal Savings Chairman Hugh Evans confirmed the $41-a-share cash offer to stockholders still holds, adding that “we expect the transaction will proceed in the normal course.”

The Western Federal case illustrates how cash-rich investors like Simon--whose net worth has been estimated at more than $400 million by Forbes magazine--have become even more formidable in today’s corporate acquisition market in the wake of the uncertainty and turmoil caused by Monday’s 508-point stock market drop.

Cash is king now, and bargains are everywhere, takeover experts say.

“If you have been out of the stock market and have lots of cash, you’re going to see a lot of opportunities in the coming months,” said one private investor who asked to remain anonymous. “Companies will be willing to sell out at much more realistic prices.”

“People with a lot of cash now see themselves in a postion to effect much better deals for themselves,” added Arthur Fleischer, a New York attorney for Fried Frank Harris Shriver & Jacobson.

The Dow Jones industrial average rebounded a record 186 points Wednesday following a 102-point rebound Tuesday.

But one deal that didn’t survive the Monday plunge was TWA Chairman Carl Icahn’s $1.24-billion offer to buy the minority share of the airline that he doesn’t already own. The market price of TWA’s stock closed at $14 a share Tuesday, far less than what Icahn was offering to the minority shareholders. Icahn withdrew his offer Tuesday.

A hostile effort that fell apart early this week because of financing uncertainty was Dart Group’s proposed $6.3-billion takeover offer of Dayton Hudson, the Minneapolis-based retailer. Controlled by the Haft family, Dart said that it expects to report a $70-million loss on the 1.6-million Dayton Hudson shares that it sold.

The future of megadeals in corporate America, takeover specialists say, now depends on several factors, including how long the stock-market uncertainty and volatility lasts and the willingness of investors to buy the high-yield, or junk, bonds commonly used to finance the acquisitions. Junk bond prices fell this week as investors sought safer havens for their money.

Perhaps as important, though, is pending federal legislation in the House of Representatives that, though not given much chance of passage, has cast a cloud of uncertainty over all corporate acquisitions. The bill is part of an effort to raise revenues to offset the huge federal budget deficit, but has several aspects that bother mergers-and-acquisition specialists.

One measure, for example, would impose a $5-million limit on interest deductions for loans used to finance certain corporate acquisitions and buyouts.

“Let’s say,” said one money manager in New York, “that you’re a banker and you’re asked to fund an acquisition loan to someone who won’t be able to deduct the interest payments on that loan. Obviously, you’re not going to make that loan.”

If the stock market prices remain depressed, it’s likely to impact the sale and price of privately owned companies as well. That’s because these sale prices are often based on what similar public companies are selling for in the stock market.

“The stock market provides a benchmark (price) for these private firms,” said a major private investor in San Francisco.

And if the stock market’s depression and volatility impairs the ability of corporate raiders to effect hostile takeovers, then that’s fine with some investors, including H. Ross Perot, the outspoken multibillionaire from Texas.

“Most of the raids and takeovers are done by investors out to make a quick buck,” Perot said. “. . . Anything that slows that activity down is fine with me.”

Perot added that even investors flush with cash ought not initiate deals until the market volatility fades.

“That,” he said, “would be like trying to rebuild your home following an earthquake while the ground is still shaking.”