News story of interest:
(COMTEX) B: Market Jitters Slow Merger And IPO Activity
B: Market Jitters Slow Merger And IPO Activity
Oct 12, 1998 (Tech Web - CMP via COMTEX) -- The recent stock market
slides, the murky global economic picture, and the uncertainty
surrounding President Clinton's future have high-tech executives
backing away from deals that hinge on investor confidence.
Rather than leaping into mergers, acquisitions, and IPOs, where
dramatic market swings can lead to failure, companies are looking for
safety nets in their own stocks and are buying back low-priced shares
with expectations of strong long-term growth.
It's a trend that's likely to continue through the end of the year,
given the present climate on Wall Street, analysts said.
"We may get a pleasant surprise, but with the problems we're seeing
with world economies and the presidential turmoil, buy-side
institutional fund managers are cutting their losses, taking their
meager annual gains, liquidating their portfolios in favor of cash and
bonds, and looking to come back in January," said Chris Greer, vice
president of the mergers and acquisition group at BancBoston Robertson
Stephens, in San Francisco.
As a result, merger-and-acquisition deals and IPO transactions have
dropped off substantially as companies brave the roller-coaster ride.
In fact, while overall merger-and-acquisition volume in the just-ended
third quarter grew 70 percent year over year, activity fell 50 percent
from the previous quarter, according to Securities Data, in Newark,
N.J. For the computer-equipment, electronics, and communications
sectors, the number of deals dropped from 181 in September 1997 to 160
last month, the research company indicated.
The stock fluctuations are creating a few different scenarios among
companies that are hoping do some sort of stock swap this year, Greer
said.
One of the most prominent trends has been the renegotiation of
previously announced deals. Companies that have seen their stock prices
fall -- in some cases by as a much as 50 percent from 52-week highs --
are coming back to the bargaining table to hammer out a fairer
agreement, he said.
Late last month, for instance, distributors Reptron Electronics and All
American Semiconductor revised their $100 million stock-only merger
plan to include a combination of stock and cash. Unitrode and Benchmarq
Microelectronics also amended their pact before finalizing a deal that
created a $200 million power- and battery-management IC company in
August.
"It adds so much uncertainty and makes the planning process very
difficult," said Bruce Goldberg, president and CEO of All American, in
Miami. "You have to be careful not to lose sight of the positive
strategic opportunities that exist, and you cannot allow the volatility
of the Dow to override that. One of the driving factors in
renegotiating the deal was the companies felt very deeply about the
benefits of merging."
Another thing popping up in merger-and-acquisition circles is the
disparity between companies that have been battered and those that have
been only slightly grazed has started to make potential acquisition
targets nervous, according to Greer.
"They're worried about hostile takeovers in the light of their lower
valuations, and are putting in 'poison pills' to ward off potential
buyers who are looking for a bargain," he said.
That's what started the tug-of-war between AMP and AlliedSignal this
summer. AMP is hotly contesting AlliedSignal's unsolicited $9.9 billion
bid because the connector maker said the offer came at a time when its
stock was undervalued.
Besides the shift in merger-and-acquisition deals, IPOs also have been
scarce.
Compared with last year, IPOs in all industries dropped 56 percent in
the third quarter, with only 65 companies going public vs. 147 in the
year-ago period, according to Securities Data. In the high-tech
industry, only one company went public in September, down considerably
from the 18 offerings done last year.
"This is the worst IPO activity in 14 years," Greer said. "All of this
has happened in the past two months. Every bank is telling their client
base getting through the IPO process from now through December will be
tough."
While this will mean a healthy onslaught of IPOs come 1999,
cash-strapped companies that were counting on a capital infusion this
year are searching for other ways to keep the coffers full.
"This is the worst IPO activity in 14 years. Every bank is telling
their client base getting through the IPO process from now through
December will be tough." -- Chris Greer BancBoston Robertson Stephens
To make up any shortfall, several companies are turning to private
investors for funds, according to Greer. Private placements are usually
a quick way to bring in small amounts of cash. "They're not trying to
bite off the equivalent of what they would have gotten in a IPO," he
said. "But it will be enough to hold them off for a few months."
Other companies, particularly those that have cash on hand, have
decided to play the stock game. Getting over the initial shock of
watching their stock plummet, numerous businesses have opted to buy
back their shares at rock-bottom prices in the hope of seeing gains
when normal pricing levels return.
In the third quarter, $71 billion in repurchases were announced, up 82
percent from the year-ago period, according to Securities Data.
High-tech buybacks more than tripled in September compared with the
same month last year, with 63 companies announcing plans to repurchase
shares.
The long-term value of the stock appears to be the driving factor for
many of these programs, analysts and industry watchers said. Chip maker
Microchip Technology, in Chandler, Ariz., decided to repurchase up to 2
million shares because of the opportunity it creates, said chief
financial officer Philip Chapman. The company has repurchased shares
twice before, and in both cases, was able to sell them at nearly two
times the purchase price.
"We've worked through a lot of the things that happened in 1998,
including a massive inventory reduction, and semiconductors are being
used at a higher rate," Chapman said. "We believe the fundamentals are
in place, and we remain bullish on the company's long-term value."
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Copyright (C) 1998 CMP Media Inc.
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