Mergers Could Be Snowballing Toward Record
A rush of U.S. merger activity in the first months of 1988 will shatter records if it keeps up.
So far in 1988 more than $32 billion worth of mergers have been completed, according to IDD Information Services. Billions of dollars more have been proposed.
For the record year of 1986, there were $220 billion worth of U.S. mergers completed. Experts say that if deals keep entering the pipeline as fast as they have been so far this year, the record will easily be toppled.
“My guess is that it will continue,” said John Perkowski, head of investment banking at Paine Webber Group. “There’s an awful lot of capital out there.”
Analysts say that U.S. corporations are flush with cash or in a position to borrow to make strategic acquisitions.
One merger chief says that many corporate raiders and takeover speculators have been sidelined since the Oct. 19 stock market crash.
The mere presence of those raiders tended to keep more legitimate business deals from being done, by artificially driving up prices, he said.
“It’s a little more level playing field for corporate buyers,” says a senior merger chief, who requested anonymity. “They no longer have to compete with professional raiders and bust-up acquirers.”
But a more important factor is the favorable economic environment. In many instances U.S. corporations, having squirreled away lots of cash during a long period of slow but steady economic growth, see the current climate favoring acquisitions, especially to build up businesses in which they already operate.
A case in point is the agreement for IMS. International to be acquired by Dun & Bradstreet Corp. for $1.77 billion. The acquisition expands Dun & Bradstreet’s information business and also gets the company into medical information for the first time.
Robert Willard, head of mergers and acquisitions at Prudential-Bache Securities, says that immediately after the October crash there was concern about whether there was a new risk of a recession. But now, he says, economic worries have receded while stock prices have recovered only partially.
Robert Willens, an accounting specialist at Shearson Lehman Hutton, says that in many instances stocks are trading at 50% to 60% of a company’s private market value.
“You’re buying one dollar’s worth of assets for 50 cents or 60 cents,” he said.
Another impetus, Willens says, is the perception that “antitrust policies of this Administration have been rather lenient” and a new Administration in 1989, whether Democrat or Republican, may not be as flexible.
TOP MERGER DEALS OF THE YEAR
Figures in millions. Source: IDD Information Services.
Date Target Acquiror Status Jan. 24 Federated Dept. Stores Campeau Pending Feb. 29 Federated Dept. Stores R.H. Macy Pending Jan. 4 American Brands E-II Holdings Unsuccessful Jan. 22 Sterling Drug Eastman Kodak Completed Jan. 13 Farmers Group Batus Pending Jan. 14 Societe Generale Cerus Pending Jan. 21 E-II Holdings American Brands Completed Jan. 26 American Standard Black & Decker Pending Feb. 29 Homestake Mining Mesa Pending Feb. 7 IMS International Dun & Bradstreet Pending Feb. 29 Media General Barris Industries Pending Feb. 5 First Executive Investor Pending Mar. 2 Koppers Acquisition Group Pending Feb. 16 Firestone (Tire Division) Bridgestone Pending Feb. 29 Stop & Shop Kohlberg Kravis Pending
Date Amt. Jan. 24 $6,720 Feb. 29 $6,667 Jan. 4 $6,000 Jan. 22 $5,100 Jan. 13 $4,200 Jan. 14 $3,550 Jan. 21 $2,645 Jan. 26 $2,120 Feb. 29 $1,940 Feb. 7 $1,770 Feb. 29 $1,737 Feb. 5 $1,350 Mar. 2 $1,270 Feb. 16 $1,250 Feb. 29 $1,230
