MCA Stock Seesaws on Word of Snag, Matsushita Denial
A Matsushita Electric Industrial Co. officer said his company’s talks to acquire MCA Inc. are continuing in “an orderly fashion” after MCA stock plunged 18.5% in response to a Japanese news wire report of a potential snag in the deal.
MCA shares traded as low as $48 on Wednesday, down from $58.875 at Tuesday’s close, before New York Stock Exchange trading in the stock was halted by exchange officials. Trading resumed but was quickly halted again when Matsushita’s announcement denying the report triggered a sharp reversal and an excess of buy orders.
The stock closed Wednesday at $50, down $8.875, as 1.61 million shares changed hands. Investors have been starved for information since the companies confirmed their talks a month ago but declined to disclose details.
The latest report, which reached Wall Street early Wednesday afternoon on Japan’s Nikkei news service, quoted an unnamed Matsushita official as saying his company wanted a “cool off” period in the talks, to let MCA’s stock price “run out of steam” before the companies agreed on a buyout price.
Industry observers have speculated that the deal might be valued at about $90 a share, or more than $8 billion for MCA, which owns Universal Studios and other media properties. But repeated news reports here and abroad have claimed that Matsushita officials expect a price closer to $60 or $70 a share.
The Nikkei report also quoted the unnamed executive as saying that, if the two sides could not agree on a price by mid-November, “it will mean that we aren’t meant to be merged, and we are prepared to pull out of the deal then.”
Matsushita Executive Vice President Masahiko Hirata, reached by his company’s U.S. representatives late at night in Osaka, said: “Discussions with MCA Inc. are proceeding in an orderly fashion and there are no new developments to announce. Any reports to the contrary are erroneous.”
An MCA spokeswoman declined to comment. But several MCA insiders said the company’s top officers, gathered in Palm Desert for a management meeting, were caught off guard by the report. “I can tell you, Lew knew nothing about this,” one person said of MCA Chairman Lew R. Wasserman, who is presiding over the management sessions.
Individuals familiar with the proposed deal said Wednesday that the talks have been proceeding at a slow but steady pace, without any word of a cooling off period. “If anything, the indications are exactly the opposite. Things have been going very well,” one such person said.
Wasserman is known as a tough negotiator, and people who know him have said that he has hoped to get $100 or more per share for MCA.
But Gordon Crawford, an analyst with Los Angeles-based Capital Group Inc., which holds a major MCA stake, discounted reports that the companies are far apart on price: “I can’t believe Lew would be asking $100 and Matsushita offering $60. For them to be $40 apart, I simply find unbelievable.”
People familiar with the deal nonetheless say that Matsushita hasn’t yet made any firm bid for MCA, and that the talks are considerably less developed--particularly regarding the value of MCA’s real estate--than some investors assumed when word of the proposed deal first surfaced in September. “The initial work was so amateurish, they’re now doing work that should have been done before word got out,” one such person said.
Those people also suggested that, even while Matsushita’s top executives clearly favor the purchase, other officers may not be completely in harmony with the decision and might be using the Japanese press to express their skepticism.
Matsushita’s statement Tuesday was the first official acknowledgment that Hirata, previously identified in press reports as the company’s key negotiator, was indeed involved with the talks.
Traders in the so-called third market, where stocks trade after the major exchanges shut down, said a few blocks of MCA stock changed hands late Wednesday at about $55, suggesting that investors had overreacted to the Nikkei report.
Market sources said a number of arbitragers--professional speculators who invest heavily in takeover candidates--were badly hurt by the sharp drop in MCA’s shares. “The ability to take risks has been reduced greatly by the (soft) market. Guys got shaken out” of MCA stock, said one arbitrager who has traded in MCA stock and declined to be identified.
Many institutional investors admit they’re exasperated by the rumors and by the stock’s wild swings. But many also believe that eventually MCA will be sold, and for that reason are reluctant to be out of the stock for long.
One West Coast mutual fund portfolio manager, for instance, said he had sold 30% of his MCA holdings at $57 to $58 a share. When the stock dived to $48, however, he jumped in and bought the same number of shares back.
Mario Gabelli, a well-known New York investor who owns about 3.5 million MCA shares, said the stock is worth $70 a share in any case. He also said he has always assumed “a 50% probability that on the first round of talks, (the companies) would walk.”
