After Short Lull, Merger Fever Again Grips London

A flurry of takeover bids, with cheap stock prices attracting cash-rich corporations, has hit the London stock market.

In recent weeks, companies have offered billions to take over other firms--a contrast with the lull that immediately followed the October stock market collapse.

“Companies with cash see this as a good time to buy,” said analyst Nick Whitney at Warburg Securities. “The market is cheap.”

Tim Brown, head share salesman at Phillips & Drew, said businessmen were looking at acquisitions they previously could not afford.

“Industrialists are saying that with prices a third below the pre-crash level, there are lots of affordable buys around, and the general feeling is that things are not as bad as people had thought when the market collapsed,” he said.

Many companies now have a lot of cash due to healthy profit margins over the past year. Over the past few weeks some have reported interim or year-end profit increases of up to 100%.

Most analysts forecast corporate profits, overall, to rise 10% to 15% next year.

On Thursday, Barker & Dobson Group PLC, a relatively small food retailer, launched a $3.7-billion bid for supermarket group Dee Corp. Dee’s sales are 37 times bigger than Barker & Dobson’s.

Dee has rejected the offer. But one food industry analyst, who asked not to be identified, said he thinks that Dee shareholders might want to consider the offer.

“Dee has made too many acquisitions too closely together,” he said. “The results didn’t come through in the interims, which showed an 18% drop in profit. The bid stands a good chance.”

Other pending bids include British Airways’ revised $365-million offer for British Caledonian Group, Ste. Nationale Elf-Aquitaine’s $247-million offer for Tricentrol PLC and a $331-million agreed takeover by British & Commonwealth Holdings PLC for Abaco Investments PLC two weeks ago.

In addition, British Petroleum Co. has snapped up nearly a quarter of North Sea oil producer Britoil.

“Companies are taking the view that others are cheap and this is the right time to buy,” Whitney said. “Also, the outlook is good for the economy and corporate earnings.”