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Strategies & Market Trends : Waiting for the big Kahuna -- Ignore unavailable to you. Want to Upgrade?


To: William H Huebl who wrote (39689)4/24/1999 1:50:00 PM
From: Amelia Carhartt  Read Replies (2) | Respond to of 94695
 
So, when and if we crater they all fall back into oblivion?



To: William H Huebl who wrote (39689)4/24/1999 2:17:00 PM
From: flickerful  Read Replies (1) | Respond to of 94695
 
Merrill Lynch Weighs European Fund to Revive Merchant Banking

Bloomberg News
April 24, 1999, 8:07 a.m. PT

Merrill Lynch Weighs European Fund to Revive Merchant Banking

New York, April 24 (Bloomberg) -- Merrill Lynch & Co., the
biggest U.S. brokerage firm, may raise a fund to buy European
companies, reviving a business it all but eliminated six years
ago, people familiar with the idea said.

Merrill's 18-member executive committee is considering a
report that examines merchant banking -- using a little cash and
a lot of debt to take over companies. The committee probably will
decide whether to enter the business later this year. A Merrill
spokesman declined to comment.

More choices for potential investments have lured merchant
banking firms to Europe, including Kohlberg Kravis Roberts & Co.
and Morgan Stanley Dean Witter & Co. KKR bought U.K. insurance-
broker Willis Corroon Plc for about $1.7 billion in November.

''Merchant banking can be highly profitable,'' said John
Keefe, an independent securities analyst. ''With all the mergers
and acquisitions activity in Europe, there are lots of
opportunities to buy misfit divisions from companies combining.''

To buy the companies or stakes in them, the firms use some
money raised from pension funds, insurance companies and other
institutional investors. They borrow the rest. Once they own the
company, they try to boost profits and may sell parts to help pay
off the debt. Eventually, they take the company public or sell it
to another buyer, multiplying their original equity investment.

European companies are selling units that aren't relevant to
their main businesses as they reorganize to compete in the
borderless market created in January when 11 countries adopted a
single currency.

Soaring Prices

In the U.S., prices for companies have soared with the stock
market and four record years for mergers. That's one reason the
average annual return for such funds last year was 17 percent,
down from an annual average of 19 percent between 1993 and 1998,
according to Venture Economics, a research firm.

Private equity funds are having a harder time finding
suitable targets. Last year, they raised a record $54.5 billion,
up 58 percent from 1997. The partnerships frequently borrow $2
for every $1 of capital raised. That means they had more than
$160 billion available to buy companies last year, primarily in
the U.S. They spent only $41 billion, or 25 percent of it.

''Europe hasn't been mined yet the way the U.S. has,'' said
Michael Holland, chairman of New York-based money manager Holland
& Co. ''Prices being paid aren't as high as in the U.S.''

Hicks, Muse, Tate & Furst Inc., Carlyle Group Inc., Clayton
Dubilier & Rice Inc. and Texas Pacific Group Inc. are raising
funds to acquire companies in the U.K., Germany, France and
elsewhere in Europe. KKR plans to raise $3 billion, Hicks Muse
has a $1.5 billion fund and Carlyle a $1.1 billion fund.

Merrill rivals in the securities industry, including
Donaldson, Lufkin & Jenrette Inc. and Goldman Sachs Group LP,
also have funds that can invest overseas.

Lucrative Business

Merchant banking can be a lucrative business. Morgan Stanley
Dean Witter paid $200 million for a stake in Equant NV, the
Netherlands-based co-operator of the world's largest commercial
data network, in 1995. Less than three years later, Morgan
Stanley took the company public and its stake was worth $2.25
billion.

It's not only the returns that make merchant banking
attractive. ''Investment banking business can also come from the
companies the funds invest in,'' said Raphael Soifer, who follows
the securities industry for Brown Brothers Harriman & Co.

Securities firms arrange stock and bond sales, for which
they receive fees. If they have a relationship with the company
through their private equity unit, they are likely to handle the
sales. Willis Corroon needed to sell $550 million of bonds to
repay bank loans that KKR had taken out to acquire the insurance-
broker last November.

Merrill's former European mergers chief Edward Annuziato is
heading the firm's effort, said the people familiar with the
matter. The executive committee has an off-site meeting in the
coming weeks and merchant banking will likely be on the agenda,
though a decision isn't expected then, they said.

Scaling Back

Merrill scaled back its private equity business in 1993
after the high-yield bond market, often used to finance buyouts,
crashed following the collapse of Drexel Burnham Lambert. Lenders
also required buyers to put up more of their own money, reducing
leverage and the potential for profit.

In addition, Merrill was seeking to reduce risk. One way was
to tie less money up in investments that couldn't be sold easily
or quickly. And it was concerned its merchant banking business
put the firm in competition with its corporate clients that might
have wanted to buy companies themselves.

Today, the firm is returning to the business. For about a
year, it's had an emerging markets fund, Merrill Lynch Global
Partners LP, investing in companies. That fund on Friday joined
with Southern Cross Group to acquire Argentina's biggest armored
car service, Juncadella Prosegur Internacional SA.

Merrill has occasionally taken small stakes in U.S.
businesses since 1993, though it hasn't been nearly as active as
it was in the early 1990s.

In the first six months of 1992, for example, Merrill Lynch
Capital Partners took a 74 percent stake in food distributor
Unifax Inc., bought out music-store chain Wherehouse
Entertainment Inc. and acquired United Artists Entertainment
Co.'s movie theater operations.

Analysts warned there are potential pitfalls in Europe.

The competition is fierce, especially for companies worth
$500 million or more. Those are the candidates Merrill is likely
to pursue, partly because the firm wants to invest in
corporations that can become clients for stock or bond
financings, said the people familiar with Merrill.

''If Merrill is going to act as principal, Europe is a very
interesting place for them to make a lot of money -- whether they
execute it well is another matter,'' said Holland. ''There will
be plenty of losers, but the winners will be huge.''



To: William H Huebl who wrote (39689)4/24/1999 2:17:00 PM
From: flickerful  Read Replies (1) | Respond to of 94695
 
Is Nato past its sell-by date?

ft......21 april 99.

It was useful as a weapon of deterrence.
But it is ill-suited to the war in Kosovo writes Quentin Peel

Let us pause for a moment, as the great and good gather in Washington to mark the 50th anniversary of the North Atlantic Treaty Organisation, with Kosovo top of their agenda. Let us look back to the world as it was when Nato was born.

It was a moment of extraordinary tension in Europe. In February 1948, Jan Masaryk, the Czech foreign minister, was assassinated in Prague, as part of a communist coup. It was a brutal demonstration of Stalin's determination to impose communist rule throughout the area of Soviet occupation.

There were real fears that both France and Italy might fall to communist rule as well - and Washington was actively planning for military intervention if they did so. In June that year, the Soviet blockade of Berlin began, and the allied airlift was launched to keep the western part of that city alive.

In April, 1949, Nato was founded. And in September, the Soviet Union detonated its first atomic device.

It was, in short, the start of the cold war for real, and a very explosive start, too.

How the world has changed. Today, the Russian threat is of collapse, rather than aggression. The country is bankrupt. And Moscow's miserable failure to suppress the revolt of Chechnya in its own backyard suggests that it could scarcely mount a serious conventional onslaught on anyone else if it wanted to.

Of course, Russia still has a huge arsenal of nuclear weapons and that threat is unpredictable: no one knows if the weapons remain under adequate control or even if they remain operable.

Democracy in western Europe is thoroughly established. The communists have reinvented themselves as good social democrats, not just in the west but in central Europe.

The Czech Republic has joined Nato, along with Poland and Hungary. Their negotiations to join the European Union are well under way. All the former Soviet satellites are eager to join the western club.

And a thoroughly democratic, unified, federal Germany - with all the confusion and indecision that implies - has just celebrated the return of its parliament to Berlin.

With the one glaring exception of former Yugoslavia, it is a fairly reassuring scenario. But the Nato leaders will undoubtedly be obsessed with the exception. Thanks to their ill-considered intervention in Kosovo, and the bombing campaign they have launched, they will be urgently attempting to close ranks and find a way of bringing that undeclared war to a rapid conclusion.

What they will not be thinking about is the question that is going begging: Is Nato itself past its sell-by date?

It is no doubt a disloyal question to ask at this moment. Perhaps it is too late. It was asked back in 1991, when the Warsaw Pact was wound up, and the Soviet Union imploded. But it was rapidly dismissed as an irrelevance. After all, most of the old enemies wanted to join. And if it wasn't broke, why fix it?

The trouble is that the conflict in Kosovo, and the terrible human tragedy that has been unleashed there, does not just raise questions about Nato's tactics. It revives questions about the very structure and purpose of the organisation.

Every important success achieved by the alliance in its 50 years was won without a shot being fired in anger. But now the first shots have been fired, and the cracks are starting to emerge.

Nato's success was precisely as a weapon of deterrence, as one side of a military standoff that actually guaranteed the peace. The combination of strategic and conventional capacity ensured that neither side dared disturb the peace in Europe.

Today the alliance boasts massive military capacity without any countervailing balance. It is a mighty weapon, without an obvious role. The temptation is to use it, even if it is inappropriate.

In Kosovo, that has happened. Awesome technological equipment, represented by US-led air power, has been used as a hammer to crack the nut of a horrible, localised, medieval war. It not only appears to be failing but actually seems to have made matters worse.

In an articulate and persuasive new study of the transatlantic relationship*, Elizabeth Pond, former Christian Science Monitor correspondent in Moscow and Bonn, says Nato emerged from the cold war "with glory and perplexity". Its victory should have put it out of business. In the event, it was the Europeans, from both east and west, who decided (back in 1991) that Nato was "the only possible instrument" to keep the US engaged in Europe.

One reason, she argues, was the danger of "imperial recidivism" in Russia. Another was the "conspicuous preference. . . for American security leadership over the alternatives of German leadership, or no leadership". The third was the belief, because of the atrocities in former Yugoslavia, in the need for "credible force - which only the Americans could provide - to constrain local bullies on the peripheries of Europe".

All those reasons for preserving Nato can be queried today. As far as Russia is concerned, the threat of an unpredictable response, such as some crazed nationalist threatening to use its nuclear weapons, is more likely because of the alienation caused by Nato's continued existence and enlargement. The alliance may be seen as a benevolent force among its member states. But many outsiders suspect its motives, and not just in Russia.

As for maintaining a credible force to deal with the likes of Slobodan Milosevic, it is questionable whether the sort of force the US brings to Nato is relevant. It is becoming increasingly clear that his vicious militia can only be stopped on the ground. But that is precisely the sort of war Bill Clinton wants to avoid at all costs.

But what about the desire to preserve American security leadership in Europe? There lies the nub. Perhaps the time has finally come for the Europeans to resume security leadership on their own continent.

The US did not want to be involved in Kosovo. It is, thank goodness, a reluctant sheriff on the world stage. If Nato had not existed, and had not offered the option of a massive US-led bombing campaign, the Europeans would have been forced to tackle Mr Milosevic with more modest, and possibly more effective, means.

As for the Europeans, they continue to hide behind US security skirts. They did not even attempt to solve Kosovo alone, because they have ceded "security leadership" to Washington. The brave words of Tony Blair and Jacques Chirac at St Malo, promoting a new effort at building a European defence identity, are likely to remain so much hot air as long as they rely on US leadership in Nato.

The alliance should be replaced by a genuinely European defence initiative, which would finally allow the US troops on the European continent to go home.

It is ridiculous to suggest that the US will remain bound to Europe only if it has soldiers on the spot. The two-way economic ties of investment and trade are now so great - in spite of silly squabbles over bananas and the like - that the two sides of the Atlantic are condemned to ever closer co-operation.

If both sides can eventually realise that, it may be the one positive lesson to emerge from the present sorry story in Kosovo.

* The Rebirth of Europe, by Elizabeth Pond, Brookings Institution Press, price $26.95.