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EMU: a feast of deals
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December 8, 1998: 11:58 a.m. ET
The single currency is driving frantic M&A activity, with more to come
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LONDON (CNNfn) - Takeover mania has hit European stock markets this year, and experts say the introduction of the single currency will mean even more deals for investors to feast on.
The flurry of mergers and takeovers has played an important role in rescuing European stock markets from their Asia-induced summer despair.
It's not about to stop there, though, and stock watchers say deals will continue to come thick and fast.
"We'll see an acceleration of M&A activity in 1999," said Gary Dugan, European strategist at J.P. Morgan.
Bankers and lawyers have been kept on their toes by the huge number of deals as companies scrap for position in the run-up to EMU.
"Trends always start first among the financial stocks" before moving to other sectors, according to Jerry Evans, European strategist at Enskilda Securities.
So far in 1998 there have been several attempts at consolidating the fragmented Italian banking sector, and Dutch groups ING and Fortis have flirted with an enormous merger.
German banks have been active as they try to cement a position in the capital markets. Deutsche Bank (FDBK) pulled off a huge deal in its takeover of Bankers Trust (BT) recently, but it also unveiled the acquisition of the Belgian unit of Credit Lyonnais for about $600 million.
"The consolidation wave among European banks is a direct result of concerns on this issue (the euro)," said Neil Crowder, European banking analyst at Goldman Sachs. He added, "The series of bank mergers has not ended."
"The euro has clearly accelerated some people's focus on cost-saving synergies," said Ian Harnett, director of European strategy at BT Alex. Brown.
He pointed out that a single pan-European currency means price transparency, with companies fighting hard to be the price leader in their industry.
There are other factors at play in addition to the euro. J.P. Morgan's Dugan pointed out that mergers have been running at a red-hot pace in the U.S. too, reflecting the trend toward globalization.
Too, as top-line growth has proved harder to come by, executives have had to look elsewhere to justify their compensation packages, analysts said.
With interest rates low, financing for that big deal is readily available, and a recovery in share prices has fueled a surge in all-stock mergers.
Next on the block?
The trick now is to find the next takeover candidate. Analysts are united that the financial sector hasn't thinned out enough yet, and they say there are plenty of other sectors due for consolidation.
BT Alex. Brown's Harnett pointed to heavy industry in core EMU countries such as Germany. He said chemical companies, for example, "are desperately trying to get size." A clear example is the recent tie-up between Germany's Hoechst (FHOE) and France's Rhône-Poulenc (PRPP).
A lot of deals are originating in high-cost countries such as Germany, Harnett said, "but we'll see a lot more cross-border deals, as companies look to get hold of low-cost producers in countries like Spain and Italy."
Price visibility will mean lower margins for companies without dominant positions or niche specialties, according Enskilda's Evans.
He said he sees consolidation "in almost every sector, from autos to paper, steel and pharmaceuticals."
AT J.P. Morgan, Dugan reckons the real action will be in formerly state-owned sectors. He picked out the telecom industry and utilities "because these industries tend to have domestic champions."
It appears there are few corners of European industry that won't be touched by the wave of consolidation sweeping across the continent.
For investors, the introduction of the euro seems sure to herald exciting times. 
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European Union
The euro
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