When Merger Offers Aren’t at a Premium

Bell Atlantic Corp.'s plan to merge with GTE Corp. in a $52-billion stock swap has raised more than a few eyebrows because GTE’s investors aren’t getting a premium over their stock’s market price.

Yet such deals aren’t unusual--although they are less numerous this year than in the recent past.

There have been nearly 50 mergers announced so far this year in which the buyer offered a price below the target firm’s market price the day before, according to research firm Securities Data Co.

That total is down from previous years. There were 162 such deals in 1997 and more than 300 in 1996.


To be sure, such “discounts” have to be taken in context. For instance, word of many impending deals leaks out early, driving the target’s trading price sharply higher before the formal announcement is made. So the target’s holders still enjoy a nice run-up in price. For instance, when Bell Atlantic announced plans to buy regional telephone company Nynex Corp. for stock two years ago, it likewise didn’t offer a premium over Nynex’s market price. But Nynex’s stock had already surged in anticipation that the deal was coming.

Also, when companies agree to an outright merger--what they like to call a “merger of equals” rather than the purchase of one company by the other--the participants have the legal right to weigh other strategic factors besides price in deciding whether to approve a deal.

Whether the companies’ stockholders agree with that posture is another matter. GTE’s stock is down 6.7% since the news surfaced that the company is striking a deal with Bell Atlantic.