Friday, April 01, 2005

NEWS: WSJ- Wave of Megamergers

Big Companies Look to DealsFor Spurring Profit Growth;Private Equity's Brief Pause
By DENNIS K. BERMAN Staff Reporter of THE WALL STREET JOURNALApril 1, 2005; Page C13

Wall Street calls them "elephant deals," multibillion-dollar mergers and acquisitions that can roil an industry, shock the stock market and leave tens of thousands of job cuts in their wake.
A herd of elephants paraded through the first three months of 2005, and by all indications the procession will continue through the rest of the year.

One by one they came -- first Procter & Gamble Co.'s purchase of razor maker Gillette Co., a deal valued at $55 billion when it was announced; then telecommunications concern SBC Communications Inc.'s $14.7 billion purchase of business icon AT&T Corp.; followed by Verizon Communications Inc.'s recently sweetened $7.5 billion takeover of MCI Inc.; and lastly, Federated Department Stores Inc.'s $10.5 billion acquisition of May Department Stores Co

Inside big companies, "there isn't much more cost cutting to be done, so the only way to drive earnings growth is to drive revenue growth, and a lot of people are looking at M&A," says Peter Lyons, co-head of the mergers-and-acquisitions group at law firm Shearman & Sterling.

...Jack Levy, head of mergers at New York investment bank Goldman Sachs Group Inc., takes a more cautious view, saying, "The market is certainly good, and the market will continue to be quite healthy, but in a restrained way." He says directors of the nation's largest companies still are very critical when assessing a merger plan, taking months to weigh the merits of a deal.

...What pushed these deals to the finish line? The bankers and lawyers who craft the deals cite a number of factors: Low interest rates, solid stock prices and the announcement of other deals -- which is making deal making acceptable to managers and boards.

...One driving force are private-equity funds, which are sitting on hundreds of billions of dollars of cash and are eager to put the money to work before their borrowing costs -- directly affected by interest rates -- increase.
"The private-equity players, hedge funds and pension funds have a trillion dollars to invest," says Boon Sim, head of Credit Suisse First Boston's merger department for the Americas. "You're going to see a lot more $10 billion-plus deals."



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