SJ Mercury. Investors loving merger mania [More networking mergers to come]
BY ADAM LASHINSKY, Mercury News Staff Writer
Posted at 7:38 p.m. PDT Tuesday, May 12, 1998
sjmercury.com
CONSUMERS and other worrywarts are fretting over what the
megamergers sweeping the land will mean to them. But some of those
same people -- in the guise of investors -- are licking their chops over
the opportunities of merger mania. That's because while the
billion-dollar takeovers that have been announced on Monday
mornings like clockwork in recent months mean consolidation in
consumer goods and services, they also mean hefty premiums for
investors who placed their bets on the companies to be acquired.
Megadeals have eluded the tech world so far, with one exception:
Compaq Computer Corp.'s (NYSE, CPQ) pending buyout of
Digital Equipment Corp. (NYSE, DEC). That will change,
assuming the overall stock market keeps surging and adding value to
the stocks acquisitive companies use for their transactions.
So how do investors ''play'' the trend? Only one way: Invest where
the activity is.
Expect the most consolidation in three sectors where size matters:
''enterprise'' hardware, or equipment targeted for big companies;
networking gear, which increasingly means the machines that handle
voice and data transmissions; and software, again, the type favored
by large organizations.
Investment bankers, who reliably salivate over merger mania, say that
to understand where the next deals will come it's necessary to look at
the ones in progress. Combinations of phone companies, auto makers
and banks provide a window on future deals. Anyone who wants to
sell to the combined giants better have wide enough product offerings
to satisfy their oversized customers.
The biggest deals fit this bill. Daimler-Benz AG (NYSE, DAJ) and
Chrysler Corp. (NYSE, C), Citicorp (NYSE, CCI)and Travelers
Group Inc. (NYSE, TRV), and SBC Communications Inc.
(NYSE, SBC) and Ameritech Corp. (NYSE, AIT) all are major
purchasers of hardware, software and networking equipment.
''At the end of the day, there are only so many sales people that the
(information technology) manager can see in a single day,'' says D.
Rex Golding, managing director of Morgan Stanley Dean Witter's
Menlo Park office. ''You have to get bigger to stay successful in the
game.''
Adds J. Stuart Francis, the top tech banker for Lehman Brothers Inc.
in San Francisco: ''The pressures are going to continue for
technology companies to get bigger, one way or another.''
It's easy to see that hardware and networking deals will continue.
Software is a little tougher to envision. That's because so much of a
software company's value is tied up in its people. Software deals tend
to happen when the principals want to buy and sell, not necessarily
when they make the most strategic sense.
''To predict what somebody's motivation is going be is unclear,'' note
software analyst Sanjiv G. Hingorani with Furman Selz LLC in New
York.
Contact Adam Lashinsky at the San Jose Mercury News, 750
Ridder Park Drive, San Jose, Calif. 95190 or
siliconstreet@sjmercury.com or (408) 271-3782. |
