Mergers Make a Comeback in US, Pushing Up Stock-Market Prices

New unions reflect need for survival; '80s deals hinted at `greed'

MERGER-MANIA is once again under way in the United States, despite the Democratic administration currently in the White House and what some financial experts had thought would be tougher enforcement of federal antitrust laws. And the mergers and takeovers are helping to propel the stock market to new highs.

Mergers were increasingly commonplace throughout the mid-to-late 1980s, during the Republican administrations of Presidents Reagan and Bush. But many prominent Democratic lawmakers criticized the mergers as evidence of widespread ``greed'' within the US corporate community.

The pace of mergers fell off during the economic downturn of the early part of this decade. But starting again last year, merger and acquisition activity once again became routine, fueled by an expanding economy. Many of the more-prominent mergers of last year involved the telecommunications, computer, and entertainment industries.

By the start of this summer, mergers were valued at around $125 billion for 1993, according to Securities Data Company, a financial-research firm based in Newark, N.J. While this amount remains far below that of the biggest year for mergers - 1988, when $336 billion in transactions were recorded - the 1994 surge appears to be on track with 1993.

Mergers talk is in the air again

Last year was the third-best year recorded for mergers.

In the past few weeks alone, merger/takeover activity, or just speculation about mergers, has been evident in such industries as aerospace, defense, pharmaceuticals, entertainment, finance, personal care, and food.

The recent linkup of defense firms Martin Marietta Corporation and Lockheed Corporation - resulting in the largest US defense contractor, worth $23 billion in government and civilian revenues -

is only the most-visible merger. Other recent consolidations include American Cyanamid Company and American Home Products Corporation; Sandoz Corporation and Gerber Products Company; and Roche Holdings Ltd. and Syntex Corporation.

And a number of market analysts believe that both the giant Walt Disney Company and Time-Warner Inc. are contemplating linkups - Disney, possibly by buying CBS Inc.; and Time-Warner, by buying NBC.

Combining rival companies

Some mergers are consolidating longtime rivals. On Sept. 1, the E. J. Brach Corporation, for example, acquired the Brock Candy Company. The new candy company will be called Brach & Brock Confections Inc.

``These are all largely strategic takeovers,'' says Hildegard Zagorski, an analyst with investment house Prudential Securities Inc. in New York. ``Many companies find that to compete in the global economy, you have to be very large. In that sense, these mergers are the direct opposite of the mergers of the 1980s.''

Those mergers were often based on acquiring financial assets, or gaining access to a steady cash flow - steps designed to quickly boost the profit position of the company initiating the takeover, Ms. Zagorski says.

The merger surge of the past few months ``is probably not over,'' says Daniel Seto, an economist with investment house Nikko Securities Company International Inc. in New York.

In the case of health-care and pharmaceutical mergers, many consolidations are occurring because of the need for companies to gain ``better control over the entire distribution process for their products,'' Mr. Seto says.

Mergers within the defense and entertainment sectors will spur even more takeovers and consolidations, Seto says. ``When one set of major companies merge, that means that other companies are quick to follow suit.''

One unhappy result: job reductions, as companies mesh payrolls. A case in point: Last week, the Coram Healthcare Corporation announced that it was laying off 590 workers and consolidating some 80 offices. Coram was formed in July through a merger of four health-care companies. In August, the new company added a fifth company.

Mergers drive the stock market, experts note, because they push up share prices. When American Home Products made a $9.7 billion bid for American Cyanamid last month, the latter's stock shot up sharply.

Companies that have not yet entered into mergers, but are likely candidates for mergers, are also watching their market share prices rise. Warner-Lambert, The Upjohn Company, and Marion Merrell Dow have all seen their stock prices scoot upward lately, based on speculation about possible future mergers.

Still, the stock market, as measured by the Dow Jones industrial average and the Nasdaq over-the-counter index, showed signs of strain late last week, based on investor concerns about a possible resurgence of inflation.

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