ROANOKE TIMES
Copyright (c) 1996, Roanoke Times
DATE: Tuesday, June 11, 1996 TAG: 9606110064
SECTION: BUSINESS PAGE: B-8 EDITION: METRO
DATELINE: NEW YORK
SOURCE: Associated Press
BUSINESS DEALS take place every day across the U.S. at a dizzying rate. So, just what's at stake? Everything from jobs to retirement.
Trying to keep up with the avalanche of mergers, buyouts, spin-offs and split-ups in corporate America these days can be trying.
If you don't want to miss anything, don't blink.
With the pace of U.S. mergers headed for a third annual record and with other types of deals surging in number and size, workers and investors alike need to pay close attention. Jobs, retirement savings and entire communities are on the line.
Just take Monday's activities:
Westinghouse Electric, which carried on one of the most highly publicized private negotiations in history to buy CBS, announced it is considering separating its traditional, old-line industrial businesses from its media operations.
Electronic Data Systems, the computer services company founded by Ross Perot and bought by General Motors Corp., began life - again - as a separate company. Its new stock was traded for the first time.
Forstmann Little & Co., a buyout firm made famous in the 1980s by purchasing companies such as Dr Pepper, made its first foray into health care with the billion-dollar purchase of a hospital company.
The scary part is that the day wasn't even particularly busy. Chalk it up to life in the '90s.
``I'm afraid that companies literally do try things they haven't tried before because it's new and it's different,'' says Kathryn Rudie Harrigan, a professor of business leadership at Columbia University's business school. ``There's a bandwagon effect.''
Given the moderate-growth, low-inflation economy engineered by the Federal Reserve, managers are desperate for new ways to generate profits.
With moderate economic growth, sales increases are also modest for all but cutting-edge companies. Low inflation means corporations can't raise prices for their goods. That keeps profit growth slow. And if profits aren't growing, neither is a company's stock price.
For executives, that's big trouble.
In their own way, each of Monday's deals represents an effort to get around that dilemma.
Westinghouse said it will decide by year's end whether to somehow separate its industrial businesses, which include power generation, from its broadcast operations, which include CBS.
There are several reasons, including the belief that on Wall Street a separate broadcast company will be seen as more valuable than the broadcast segment of an industrial concern. The news comes less than a year after Westinghouse paid $5.4 billion to buy CBS.
``The investment world hammers companies that don't focus,'' says Stephen Blum, a partner in corporate finance at the accounting and consulting firm KPMG Peat Marwick.
Such reasoning, as well as the contention that combined companies can sometimes operate more efficiently as separate, stand-alone units, has also driven other high-profile splits, such as AT&T Corp. and ITT Corp.
The first day of trading Electronic Data Systems stock following its spin-off from GM provides another poignant example.
Founded by Perot to run data processing systems for other companies, EDS was sold to GM for $2.5 billion in 1984. The automaker created a separate class of stock to reflect EDS' value, but the desire to expand further made ownership by GM a liability. Hence, the spin-off.
In its first day of trading, EDS showed its stuff. The combined shares were worth more than $25 billion.
Forstmann Little's $1.1 billion purchase of Community Health Systems Inc., an operator of hospitals in small communities, is a different story - but a deal still driven by financial considerations.
The hospital company stands to benefit from money Forstmann can infuse, purchasing even more hospitals and becoming even more profitable.
``It's basic Econ. 101 at work,'' says Stephen S. Roach, chief economist at the Wall Street firm Morgan Stanley & Co. ``It's the corporate sector responding to heightened global competition and making managers, workers and shareholders accountable for their own economic destiny.''
It's happening at breakneck speed.
Through Friday, the total value of announced U.S. mergers stood at $227 billion, up from $136 billion through the same point last year, according to Securities Data Co., a financial information provider.
A record $452 billion in mergers was announced for all of last year. 1994 was also a record, with $347 billion in deals.
For workers and the communities where their companies reside, the talk of records and billion-dollar deals is not all joyous. Often, with mergers come layoffs and plant closings as combining firms eliminate duplication.
``It stands workers' lives on end,'' says Richard Trumka, secretary-treasurer of the AFL-CIO, the nation's biggest labor organization. ``You have probably 2 million job losers a year out of this type of thing - 25 percent of them remain unemployed, and another 25 percent get lower-paying jobs.''
Despite the criticism, few believe the deal-making boom will end soon.
Companies react to the environment, and that doesn't appear likely to change unless the Federal Reserve uses its interest-rate lever dramatically to alter the economy's course.
LENGTH: Long : 102 linesby CNB