Guess What? Mergers Are Back


IT'S time once again for a new round of mergers - perhaps thanks in part to Time Inc., as it moves forward in what looks like a successful merger with Warner Communications Inc. Quantifying the reasons for merger activity is almost impossible, say market experts, with the underlying impetus for mergers or consolidations varying from company to company.

``One would like to think that most management is thinking long term, and not running into this type of activity on a helter-skelter basis,'' says Perrin H. Long Jr., an analyst with Lipper Analytical Securities Corporation. But at the same time, he says, ``when you have one or two big ones in the works [like last year's $25 billion takeover of RJR Nabisco by Kohlberg Kravis Roberts or the prospective Time-Warner linkup], then it might well make management think that it's time for them to consider something similar.''

``Mergers have been going on for five years now,'' says Larry Wachtel, an analyst with Prudential-Bache Securities. ``In fact, 1988 was more dramatic than 1989 in terms of mergers. The Time story has captured the attention of the media.''

But mergers, says Mr. Wachtel, have become the underlying pattern of the market, adding up to more than $500 billion of equity changing hands in one form or other during the past half decade.

``Legislation and judicial action certainly impact the market in terms of mergers,'' says Paul Giovacchini, an associate with John Hancock Capital Growth Management Inc. in Boston. But he says he believes the merger impetus stems more from ``the disparities in valuation between public and private companies'' than from any particular court action. He notes, for example, that mergers tend to be sector related, as is now occurring in the airline industry, with several companies (such as United and Delta) the focus of possible mergers.

Whatever the causal relationship, takeovers are very much back in the news. Earlier this week, for example, Dow Chemical Company and Marion Laboratories announced a friendly linkup; Norteck, a large conglomerate, made a bid for Eljer Industries, a plumbing-products firm; and merger talk, or significant trading of shares, was linked to such diverse companies as B.F. Goodrich, Lockheed, Hilton Hotels, McGraw-Hill, and Honeywell.

What may be sparking new interest in mergers, according to some market analysts, is the particular way the Delaware Chancery Court ruled in favor of Time Inc.

The court's 79-page ruling upheld the right of company directors to manage the long-range strategy of a company. Paramount Inc., in seeking to acquire Time Inc. (and thus block the prospective Time/Warner merger), argued that Time's directors were thwarting Time's shareholders from realizing the best possible monetary value for their stock holdings. Paramount had originally offered $175 a share for Time; it subsequently upped the ante to $200 per share. But Time argued that by acquiring Warner it would be able to push the value of Time shares well above that $200-a-share level over time.

By affirming the right of directors to manage their company over a long-term period, the Delaware court may have sent a signal to other corporate boards worried about a hostile takeover that they too should consider friendly mergers such as the Time/Warner linkup to prevent their own companies from being snapped up.

Final arguments in the Time case will be held Monday before the Delaware Supreme Court. The Time-Warner merger is expected to be upheld.

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