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Strategies & Market Trends : Zeev's Turnips - No Politics -- Ignore unavailable to you. Want to Upgrade?

To: lh56 who wrote (16989)	12/30/2001 8:32:24 AM
From: lh56	Respond to of 99280

Interesting commentary from some of 'da boyz'... December 30, 2001 Deal Makers Are Hoping for a Livelier 2002 By ANDREW ROSS SORKIN (http://www.nytimes.com/2001/12/30/business/yourmoney/30MERG.html?pagewanted=print) It has been a tough year for the corporate takeover business. A slumping economy, financial reverberations from Sept. 11 and an unwillingness by the European Union to approve some large multinational corporate marriages — most notably General Electric (news/quote)'s proposed $45 billion purchase of Honeywell — combined to depress the appetite for mergers and acquisitions. The volume of announced deals this year is about $1.6 trillion, versus the $3.4 trillion for all of 2000, according to Thomson Financial. Money & Business asked four prominent professionals who make at least part of their living from takeover deals to give their prognosis for 2002. Following are their predictions, which do not add up to a revived boom. But some see glimmers of a rebound. HENRY R. KRAVIS A founding member of Kohlberg Kravis Roberts, the buyout firm, which helped to foment merger mania in the 1980's. For financial buyers, it's back to basics. Chasing the fads — telecom and dot-coms — that's over. At the moment, the firms that care about their longevity are paying attention to their portfolios. Everyone has had one problem or another in recent years, and it takes a lot of manpower off the deal- making field to make fixes at portfolio companies. So there is a lot of inward focus to create value right now. For those of us that have cash, it's still very expensive to make acquisitions; companies are still trading at exceptionally high values today. And then there's the whole issue of visibility: I haven't talked to very many C.E.O.'s who know what the earnings will look like next year. I wouldn't even venture to guess when the economy turns. I just don't know. But let's assume that it does turn — what does that really mean? There's still a real question about the quality of a company's earnings due to the pressure to show improved results. Of course, there will continue to be consolidation in telecom, energy and financial services. I think financial buyers will look at industrial manufacturing, retailing and other back-to-basics, high-cash-flow companies. Having said that, we're not just buying 100 percent of a company these days. We're also working more and more with corporations to solve their capital structure issues by providing equity capital which will help de-lever a balance sheet. I think increasingly you'll see more of that. DAVID BOIES A lawyer who helped represent the Justice Department in its antitrust case against Microsoft (news/quote). He is a partner at Boies, Schiller & Flexner in Armonk, N.Y. If you look at the trends in antitrust enforcement, although there have been ups and downs with different administrations, there has been a remarkable consistency over the past two decades that I suspect will continue: the government will look at markets and competition more globally and broadly. One thing we do not yet know is whether this administration will be as ready to tailor merger deals the way the Clinton administration did. It's a relatively demanding approach and requires that the people looking at the mergers really understand every facet of it. You usually see a willingness on the part of Democratic administrations to do that. While there are still political overtones, they are only likely to influence people at the margins. I gave a speech at the beginning of this year in which I predicted the center of gravity might have shifted to the European Community. The problem is, the European Community is about a decade and a half behind us in terms of policy — you saw that with G.E.-Honeywell. The lesson there is that American companies have to understand the importance of the European Community and take it seriously. In G.E.- Honeywell, they may not have appreciated the role of the European Union's will. FRANK QUATTRONE Managing director in charge of the technology group at Credit Suisse First Boston, which became a powerhouse in the underwriting of emerging technology companies in the late 1990's but has since been hit by the dot-com collapse and a scandal over how public stock offerings were sold. In the current tech M.& A. environment, there are a lot of sellers but very few buyers. For M.& A. activity to pick up, there needs to be more stability in the business outlook for companies doing the buying. We don't necessarily need a bull market, but we do need confidence. I expect an increase in M.& A. activity in the capital-intensive sectors of technology such as contract manufacturing and semiconductors. Contract manufacturers are likely to merge in order to achieve the necessary scale to stay competitive, mirroring the consolidation of their customers. Semiconductor companies will merge because fewer and fewer companies can afford to pay $4 billion for a wafer manufacturing facility, and deep submicron technology and 300-millimeter wafers raise the stakes considerably. Other sectors are not so clear. Information technology services and software companies are typically hard to merge because of either people or technology integration issues. With I.T. services, because it's a people business, you pay a premium to buy the company and then pay again with adequate equity incentives to retain the talent. In a software merger or acquisition, products that may appear to be compatible often need to be rewritten to work within the buying company's overall architecture. The reaction by large investors to the Compaq-Hewlett Packard proposed merger will make boards more cautious about proposing similar transactions. Future tech M.& A. deals will need to show a strong strategic, cultural and financial fit. JACK LEVY Co-chairman for mergers and acquisitions at the Goldman Sachs Group (news/quote), the leader this year in dispensing advice on mergers, with a market share of 34.6 percent, according to Thomson Financial. Previous downdrafts in the equity markets of moderate duration have been followed within 6 to 9 months by a flurry of hostile deals. Companies often take advantage of a dip in the equity markets to launch unsolicited bids once they have confidence in their own share price and the prospects for a market recovery. The stigma of making an unsolicited offer is far less of a concern for many boards today, nor is it considered "poaching" someone else's deal to top an announced transaction by making a competition bid. Nevertheless, one of the greatest difficulties facing a hostile bidder is the lack of due diligence that can be completed prior to and during the bidding process. A hostile bidder's level of knowledge about a target is often a real stumbling block from a valuation perspective. In an environment where top- and bottom-line growth is tough to achieve and where P/E multiples are probably under pressure, I would expect that many companies will get aggressive hoping to buy themselves more certain prospects for the future. Copyright 2001 The New York Times Company \| Privacy Information