Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: SATURDAY, August 5, 1995 TAG: 9508080020
SECTION: BUSINESS PAGE: A-6 EDITION: METRO
SOURCE: DAVID E. KALISH ASSOCIATED PRESS
DATELINE: NEW YORK LENGTH: Medium
Disney buys ABC. Westinghouse buys CBS. NBC buys three television stations. Union Pacific buys Southern Pacific.
In the second-biggest weeklong merger blitz ever, these and other buyers agreed to pay nearly $30 billion for leading U.S. companies and upped the price of admission for future acquisitions.
Experts say there are good reasons for this past week's red-hot pace, second only to $48.4 billion in takeovers during one week in the late 1980s. Instead of a replay of earlier brawls like the battle for RJR Nabisco, the recent wave is merging like-minded partners in long-term marriages.
Even as the spate of new deals drives up prices of remaining potential targets, the cost of transactions has been lowered by a dramatic drop in interest rates this year and soaring stock prices. Acquisitions often are funded by combinations of debt and stock. ``Corporate executives are doing some long-term strategic planning,'' said Sung Won Sohn, chief economist at Norwest Corp., a banking company based in Minneapolis. ``They are looking down the road and trying to see how they can survive and prosper.''
Corporate acquisitions have totaled $228 billion so far in 1995, a record for the year to date, according to Securities Data Corp. That puts 1995 on track as the biggest year for mergers and acquisitions, exceeding the record of $311 billion in deals completed in 1989.
But unlike the debt-laden mergers of the 1980s, the recent acquisitions are viewed by corporate chieftains as crucial for expansion into intensively competitive domestic and international markets.
With Congress now easing restrictions in telecommunications, financial services and other industries, companies are snapping up the choicest targets ahead of likely legislative change - before prices rise even more.
``In one sense we are seeing as many mergers now as we saw in the heyday of the mergers in the 1986-89 period,'' said Michael Bradley, a professor of finance and law at the University of Michigan.
But we're not seeing the ``bust-up-driven takeovers of the '80s,'' he said. Those deals frequently lined the pockets of deal-makers and loaded up companies with debt but delivered few strategic benefits.
One of that era's most prominent examples was Kohlberg Kravis Roberts & Co.'s $20.3 billion initial bid for RJR Nabisco Inc., which came during history's biggest takeover week in mid-October 1988. The RJR buyout eventually burdened the company with billions of dollars of debt.
Walt Disney's $19 billion agreement on Monday to buy Capital Cities-ABC, in contrast, was an attempt by Disney to ensure continued distribution outlets for its movies and other entertainment.
Disney didn't want to be left behind competitors amid fierce recent industry consolidation, including Seagram's purchase of Disney rival MCA Inc. and Viacom's absorption of Paramount Communications and Blockbuster Entertainment.
Competition now is so fierce that Westinghouse Electric Corp.'s $5.4 billion bid on Tuesday for CBS has been muddied by speculation that another company might try to outbid Westinghouse.
One backdrop for the merger frenzy is the measure approved Friday by Congress that would free cable TV and local and long-distance telephone companies to get into each other's businesses. The House overwhelmingly put its stamp Friday on a version of a bill previously passed by the Senate.
Another proposal, to drop barriers between banks and brokerage firms, has helped further consolidation in the financial services industry. In a big deal last month, Merrill Lynch & Co., the No. 1 U.S. brokerage, agreed to pay $842 million for Smith New Court PLC, Britain's largest stockbroker.
Industrial companies seeking dominance in their field are also getting into the game. Union Pacific's agreement to acquire Southern Pacific in a cash-and-stock pact valued at $5.4 billion would produce the largest U.S. railroad.
Still, not all of the deals are entirely friendly. Bradley, the University of Michigan professor, sees many mergers as ``bear hugs'' in which huge corporations muscle smaller firms into deals that both eventually agree is in their best strategic interests.
One example was International Business Machines Corp.'s aggressive public campaign to buy Lotus Development Corp. IBM announced its intentions in June before the spreadsheet software maker had agreed to any deal. Big Blue eventually sweetened the offer to $3.5 billion and won over Lotus employees and stockholders.
by CNB