A Red-Letter Day for Corporate Mergers : Consolidation: International Paper, J&J; among companies announcing plans worth a total of more than $19 billion.
International Paper Co., Johnson & Johnson, Central & South West Corp. and several other companies announced takeover agreements Monday, contributing to what appeared to be a record day for corporate marriages.
The deals, along with First Interstate Bancorp’s announcement of its proposed acquisition by First Bank System Inc., totaled more than $19 billion in value--clinching a record year for company mergers.
“It’s like a feeding frenzy, like sharks smelling blood or something,” said Joel Kotkin, a business author and public policy fellow at Pepperdine University.
Besides First Interstate’s $10.1-billion merger proposal, Monday saw word of the following deals:
* International Paper Co., the world’s largest paper company, said it had reached agreement to buy Federal Paper Board Co. for $55 a share in cash and stock, a deal worth $3.5 billion. It’s not the first major industry merger: Earlier this year, Kimberly-Clark Corp. said it would buy Scott Paper Co.
* Cordis Corp., a Miami-based maker of medical devices, agreed to be acquired by Johnson & Johnson for $109 per share, a takeover worth $1.8 billion. The agreement came after J&J; raised its previous hostile bid of $105 a share.
* Dallas-based utility Central & South West Corp. agreed to buy British utility Seeboard for $2.58 billion. The announcement came after C&SW; gave up an effort to acquire a different British power firm.
* United Biscuits agreed to sell its Keebler Co. cookie unit to Inflo Holdings, a joint venture between breadmaker Flowers Industries Inc. and a Luxembourg-based investment fund, in a transaction valued at $500 million. Keebler is America’s second-largest cookie company.
* Sherwin-Williams Co., the Cleveland paint company, said it would buy Pratt & Lambert United Inc., a maker of paint and adhesives, for $35 a share, or $400 million.
* Compaq Computer Corp. said it would acquire NetWorth Inc., which develops networking products, for $372 million. It would be the first major acquisition in Compaq’s history.
* Microsoft Corp. said it would buy Netwise Inc., a privately held maker of software for connecting small computers with large ones, for undisclosed terms.
* Marquette Electronics Inc. of Milwaukee will buy E for M Corp., a Torrance-based maker of medical devices, for $12 a share, or about $89 million.
Analysts attributed the remarkable day of deals in part to the soaring value of the stock market, which has left many firms cash-rich; to the desire by managements to boost profits and shareholder value through economies of scale, and to company desire to expand into new markets by swallowing competitors.
Like the merger boom of the 1980s, the current one--spanning industries and regions--is likely to result in layoffs and plant closures. But unlike the past boom, this one is financed less with debt and more with cash, analysts said.
“The problem with cash is that it burns a hole in your pocket,” said Hugh Johnson, chief investment officer with First Albany Corp. in Albany, N.Y. “Corporations with very strong profits and very strong cash flow are trying to use it productively. But there’s only so many . . . computers that you can buy and so many employees you can replace. . . . The next obvious step is to buy other companies.”
Monday’s confluence of mergers may have been coincidental, but the recent trend toward consolidation is not.
Merger activity in the third quarter of this year was worth a record $137 billion, well above the previous record of $107.2 billion in the third quarter of 1994, according to Securities Data Co. in Newark, N.J.
Monday’s rash of announcements sent the approximate dollar value of announced U.S. mergers this year to an unprecedented $363 billion, said Richard J. Peterson, a spokesman for Securities Data. The previous record was $347.1 billion set in 1994.
No data was available on same-day merger activity, though there have been individual deals worth more than today’s total. But analysts couldn’t recall so many major deals being proposed on any single day.
“It’s time to rewrite the history books,” Peterson said.
Analysts said mergers will probably continue as long as the stock market remains strong.
“The market’s at or near a record high, and that makes people feel frisky,” said Gerard Smith, managing director of UBS Securities Inc. in New York.
In many of these industries, mergers are a logical way to reduce overcapacity and gracefully exit markets, analysts said.
“You’re not seeing conglomerate mergers,” said Mark Weinstein, an associate professor of business and law at USC. “The market seems to like mergers in which corporate focus is increased.”
Another reason for the merger mania is the slowing economy, which makes it difficult for firms to expand their businesses otherwise, analysts said.
“We have tapped, it seems, almost every [other] possibility for growing earnings,” First Albany’s Johnson said. “For years we’ve been downsizing, by closing obsolete plants, financing early retirements. . . . For years we’ve been investing in technologies which enable us to eliminate or reduce employment. I think every company has worked on any way they can to expand revenues, profits and profit margins.”
Added A.C. Moore, senior strategist with Dunvegan Associates in Santa Barbara: “Corporate profitability is up. Optimism is up and funds are available to qualified borrowers. The confluence of those factors results in more deals than you’d see otherwise.”
Monday’s mergers come on the heels of several high-profile deals announced this year, most notably among media and entertainment giants.
Securities Data said the year’s 10 largest mergers so far are those between Walt Disney Co. and Capital Cities/ABC Inc. ($18.84 billion); First Bank System Inc. and First Interstate Bancorp; Chemical Banking Corp. and Chase Manhattan Corp. ($9.87 billion); Hoechst and Marion Merrill Dow Inc. ($7.12 billion); Time Warner Inc. and Turner Broadcasting System Inc. ($6.88 billion); Kimberly-Clark Corp. and Scott Paper Co. ($6.79 billion); Pharmacia and Upjohn Co. ($6.32 billion); First Data Corp. and First Financial ($5.76 billion); Seagram Co. and MCA Inc. ($5.7 billion), and NBD Bancorp and First Chicago Corp. ($5.3 billion).
Times wire services contributed to this report.
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A Banner Day
It would have been an extraordinary day for mergers even without the proposed First Interstate deal. The biggest of those others:
* International Paper Co. agreed to acquire Federal Paper Board Co.: $3.5 billion.
* Johnson & Johnson suceeded in its takeover bidding for Cordis Corp.: $1.8 billion.
* Central & South West Corp. agreed to buy British utility Seeboard: $2.58 billion.
* United Biscuits agreed to sell Keebler Co.: $500 million.