A banner '99 in mergers
Worldwide deals top $3.4 trillion, led by Europe; more ahead in telecom, Internet
NEW YORK (CNNfn) - Mergers and acquisition activity blossomed in 1999 like never before, led by a boom for deal-making in Europe as companies bulked up to tap hot growth prospects for the 21st century.|
Aside from Europe, whose stodgy world was unsettled somewhat by a handful of hostile bids; massive deals in the telecommunications and drug sectors were the highlight of 1999. Two telecom deals topped the eye-popping $100 billion level for the first time in history.
Worldwide, the aggregate value of deal-making ballooned to $3.44 trillion last year, up from $2.6 trillion in 1998, according to research firm Thomson Financial Securities Data Corp. in its year-end tally. One dealmaker said even more might be in store.
"The basic motivation for big mergers - scale - is going to continue to be a driver,” said Roger Altman of Evercore Partners, advisor to CBS Corp. (CBS) in its merger with Viacom (VIA). "That will continue to be the case in the ever-more global market. The year 2000 ought to be a frenetic year in merger volume, as it was in 1999.”
The gains were muted in the United States: total deal-making rose to $1.7 trillion, from $1.6 trillion in 1998, Thomson Financial Securities Data said. Houlihan Lokey Howard & Zukin’s Mergerstat, which focuses on U.S. deals, calculated a total of $1.4 trillion on 9,192 deals - a rise of roughly 18 percent from the count in 1998.
However, boosting those numbers was a record-setting $114 billion merger between long-distance companies MCI WorldCom Inc. (WCOM) and Sprint Corp. (FON).
"You take out WorldCom-Sprint and it’s a very different picture,” Richard Peterson, chief market strategist with Thomson Financial Securities Data, said. "But for one or two deals we would have had a down year.”
Investment banks that act as deal intermediaries cashed in mightily on the boom. Three Wall Street firms - league leader Goldman Sachs, Merrill Lynch and Morgan Stanley Dean Witter - each had their hands in more than $1 trillion worth of deals.
The hot spots for M&A 2000
Potential consolidators are Internet and media companies, increasingly cost-conscious, and the financial services sector, which is poised to benefit from new federal rules allowing a single company to offer banking, insurance, and brokerage services.
Cyberspace deal-making boomed last year, but there is still room for growth - particularly if stock prices in the sector continue to inflate, making for a solid currency to pay for deals.
Last year, roughly $80 billion in Net-related deals was struck, compared to about $25 billion in 1998. Largely behind the upswing was top Internet-service provider America Online Inc. (AOL), which unveiled 21 deals in 1999.
"The Internet, because it’s an emerging industry, is absolutely going to be busy this year,” Kindler said.
Flush with sky-high stock valuations, which make for a valuable currency to be used for buyouts, and facing the need to broaden their service offerings for customers, Internet companies are likely to be even more voracious in 2000.
"I would expect there to continue to be consolidation, driven by increasing valuation of some the sector’s key players,” said Lawrence V. Calcano, a managing director with Goldman Sachs.
With a role in deals such as Yahoo!’s (YHOO) $5.7 billion buyout of GeoCities and RedBack Networks’ (RBAK) $4.3 billion buyout of Siara Systems, the firm has more than a 30-percent market share in Internet deals advisory, Calcano said.
The recent liberalization of the financial services sector with the U.S. Congress’ repeal late last year of the Depression-era Glass-Steagall Act will now allow banks, brokerages and insurance firms to reside under the same corporate tent.
A tale of telecom
In 1999, it was largely a tale of telecom. The Internet’s coming of age, the mounting call for wireless phone service and the need to assemble contiguous territories to keep costs low spurred the explosion in merger activity in the sector.
The year began with Deutsche Telekom’s deal, announced in late 1998, to buy Telecom Italia for $35 billion. But that was upstaged by fellow Italian compatriot Olivetti, which swiped majority control of Telecom Italia through a shareholder vote with its $35 billion takeover bid.
In the starkest sign yet of the new bad blood in European deal circles, Vodafone AirTouch (VOD) launched a $125 billion unsolicited bid for Germany’s Mannesmann AG. Whether a deal comes about is still far from certain.
The United States is no stranger to hostile bids.
Emerging as winners from testy situations, AT&T (T) agreed to purchase MediaOne (UMG), while No. 4 long-distance company Qwest Communications (QWST) reached out to nab U S West (USW), the smallest of the "Baby Bell” regional phone companies.