Tuesday October 28 4:32 PM EST
U.S. mergers seen favoring cash amid market unease
By Robin Sidel
NEW YORK, Oct 28 (Reuters) - The sell-off in world stock markets may trigger a brief slowdown
in the record pace of corporate mergers and acquisitions or spark a change in the way deals are
structured.
As U.S. markets on Tuesday recovered some of Monday's losses, Wall Street experts expressed
confidence that even if market worries prompt sellers to favor payment in cash over stock, some of
America's best-known dealmakers would likely come running to the bargaining table.
Leveraged buy-out firms headed by the likes of Henry Kravis and Teddy Forstmann are flush with
cash and could easily jump into deals if market worries drive sellers to favor cash over stock.
Known as financial buyers, some have been active in recent deals, but they still have plenty of cash
to invest.
''If the market goes down, it obviously increases the relative advantage of the cash buyer,'' said
Bruce Nolop, managing director at Wasserstein Perella & Co.
The knowledge that the buy-out firms could easily pick up any slack is providing an added layer of
comfort to Wall Street's investment bankers.
''The backstop is always the financial buyer, who is sitting around with a lot of cash,'' said one
banker who did not want to be identified.
The value of U.S. mergers and acquisitions earlier this month topped last year's record $649 billion,
flabbergasting many on Wall Street who had thought the deal boom would slow.
The current merger boom is widely considered to be healthier and more fiscally sound than the wave
in the late 1980s when deals were financed by high-risk junk bonds.
''It's a little bit hard to read right now, but no one is really nervous. I have not heard a lot of people
saying that deals are in trouble,'' said Steven Wolitzer, co-head of mergers and acquisitions at
Lehman Brothers.
Powered by global competition and corporate restructurings, the high-flying stock market and robust
economy also have driven the wave of corporate marriages.
But companies that had been considering stock transactions may be finding it hard to value their
businesses following Monday's steep drop and Tuesday's partial rebound.
''The companies with the sexy stocks are the ones that are disadvantaged in doing deals,'' said
Steve Blum, corporate finance partner at KPMG Peat Marwick LLP.
That is exactly the case in the bidding war for MCI Communications Corp (MCIC). Already in a
$21 billion merger agreement with British Telecommunications Plc (BT.L), the long distance carrier
is now assessing two other rival bids. GTE Corp (GTE) has offered to buy MCI for $28 billion in
cash and WorldCom Inc (WCOM) has bid $30 billion in an all-stock transaction.
Takeover experts say the battle for control of MCI is far from over and many expect WorldCom to
sweeten its bid in order to alleviate concerns about the offer.
''Buyers and sellers are going to think twice about stock for the next few weeks, at least, if not for
the next few months,'' Blum said. |
