Takeover artists see fertile new landscape after market slide
Washington — For takeover artist Asher B. Edelman, the stock market plunge earlier this week ``is more than a window of opportunity.'' It's a golden opportunity. Ignoring armchair analyses that uncertainty in the markets will discourage corporate takeovers, Mr. Edelman says, this is the time to strike quickly at companies with fire-sale stock prices. ``I'm accumulating specific companies,'' he asserts, adding that he will make a bid for at least one company on Monday.
Even if the stock market recovers, Monday's 508-point dive has rearranged the takeover landscape. With one dramatic shudder, investors and Wall Street merger specialists say, it created new tiers of investors:
Those, like Edelman, who were substantially out of the market before the plunge have the money - and inclination - to go after companies at bargain prices.
Others, like the Haft family, who were holding large chunks of companies saw their war chests shrink when the market fell. Those investors may have to settle for smaller acquisitions in the future.
And foreign investors, which have been snapping up cheap American companies since the fall of the dollar, are ``closely scrutinizing opportunities in the US market,'' says one investment banker representing several overseas clients.
United States companies are not just sitting ducks, however. Dozens of them - especially those that have been takeover targets in the past - see this time as a chance to get raiders out of their hair. They have been buying up shares of their own stock, which raises the stock price and makes it more expensive for takeover artists to acquire.
Over the next week, the secret maneuverings by investors will begin to emerge. Under federal law, investors who have bought more than 5 percent of a company have 10 working days to file documents, called 13-Ds, with the government. That means anyone who bought a big stake in a company when prices hit bottom on Monday must file by Nov. 2.
Overall, the merger business will likely quiet down for a while, says investor Jim Rogers. He forecasts ``a dramatic slowdown, and not just because the market has collapsed.'' Interest rates, which determine the cost of financing a takeover, are a ``big question mark,'' he says, and the tax bill being considered by Congress, which would eliminate most interest deductions for takeover players, ``will kill M&As [mergers and acquisitions] if it goes through.''
Still, the stout of heart are making their moves. Real estate tycoon Donald Trump (of Trump Towers fame) got out of the stock market in August, making a tidy $200 million in profit. He hasn't said which companies he's interested in, but he has said he has been buying since Monday.
The British-French financier Sir James Goldsmith, who has made several stabs at US companies, including Goodyear Tire, ``will definitely do something big,'' says one investment banker. He reportedly told one merger specialist, ``You can probably buy the whole paper industry in the US for $10 billion.''
Marvin Davis, whose interests in the past have been in the entertainment field - he once owned Twentieth Century-Fox, and made a run at CBS - reportedly has a $1 billion in cash. ``A couple of weeks ago he told me he was waiting for a big fall,'' says an investment banker. ``Well, it came.''
For other takeover artists, the events of the last week are a mixed bag. Irwin Jacobs, for example, got out of Gillette before the crash, but had holdings in other companies that fell. Still, he has said this is a ``lifetime'' opportunity.
And for still others, like father and son Herbert and Robert Haft, the plunge was a real setback. They could lose an estimated $70 million from their investment in Dayton-Hudson Corporation; on Tuesday, they withdrew their unwanted bid for the company.
``Some of these guys got pretty badly burned'' by the stock market drop, says David Wittig, head of Kidder Peabody's mergers and acquisitions department. ``None of them is going out of business, but when you take that kind of capital away from them, it makes it a little more difficult to do another billion-dollar deal.''
Mr. Wittig thinks the investors who were in the market when it fell - the Hafts, perhaps Irwin Jacobs, and T. Boone Pickens - will have to lower their sights. That could lead to a surge of takeovers in medium-size, ``mundane'' companies that have not rebounded the way the blue-chip stocks like IBM and Exxon have, he says.
And then there are the foreign investors. ``Our dialogue with foreign acquirers has stepped up considerably in the last week,'' notes Barry Friedberg, head of investment banking at Merrill Lynch & Co.
This should accelerate the trend of the past couple of years, when the falling dollar made US companies look like bargains for foreign buyers. The number of US companies purchased by foreign investors went from 109 to 153 went from 109 in the first six months of 1986 to 153 in the first six months of '87, according to Mergers & Acquisitions magazine. The value of those purchases more than tripled, from $6.1 billion to $21.2 billion.
Moreover, says Mr. Friedberg, the proposed changes in the tax law create uncertainties for American investors, putting them at an ``economic and accounting disadvantage'' vis-`a-vis foreign investors. He and others expect to see foreign bids rolling in over the next six months.
No one knows which companies will be targets of all this investor attention. But across the board, managers - who have everything to lose and little to gain by being acquired in an unsolicited bid - are acting to remove themselves from the takeover fray. By midweek, dozens of companies, including former takeover targets like USX, GAF, and Bally Manufacturing, had announced they intended to buy back shares of their own stock.
``The principal motive for stock buybacks is to enhance value for the continuing shareholders,'' says Robert Case, a principal in Morgan Stanley's mergers and acquisitions department. ``This also has the side benefit of reducing the company's vulnerability.''
Whether the coming raids and stock buybacks are a good idea is another matter. Investor Rogers predicts the same thing will happen in 1987-88 that occurred in 1929-30. After the first crash in October 1929, the market rallied, as it has this week, and rose 50 percent by the spring of 1930. ``Then it caved in,'' he says. The people who are banking on a rally, he says - those that are buying ``bargain'' stocks today - ``may regret it in a couple of months.''