Originally created 08/05/98

Merry Land stock fall blamed on declining market



Almost a month after Merry Land & Investment Co. Inc. announced plans to merge with Chicago-based Equity Residential Properties to create more shareholder value, the Augusta-based real estate investment trust's stock price is back to what it was before the deal was struck.

Merry Land stock closed Tuesday at $21.63 a share.

But, Merry Land officials say, that does not mean all is lost.

Had it not been for the $2.2 billion deal announcement with Equity, the Augusta-based company's stock probably would be trading at a much lower price -- less than $20 a share, said W. Tennent Houston, Merry Land's president and chief executive officer.

Recent downturns in the stock market have caused companies' stock prices to drop across the board, analysts say. The Dow Jones industrial average plunged 299.43 points Tuesday in its third-biggest point drop ever, extending a 2 1/2 -week slide that has shaken confidence in the stock market's ability to keep rising.

Equity Residential's stock price fell to one of its lowest levels in the past year. It closed Tuesday at $40.69 a share -- $6 less than what it traded at when the merger was announced, and about $15 a share less than its 52-week high in October.

As a result, Merry Land's stock price -- which is tied to Equity Residential's because of the merger -- has dropped, too.

"The marketplace, right now, is trading lower," said Chuck Smith, an Edward Jones investment representative in North Augusta. "It's not just Equity Residential, it's everybody. It's the mood of the market."

Therefore, it appears that the declining market -- not the merger deal with Equity Residential -- is causing the stock prices to drop, brokers said.

"Equity Residential is a good company," Mr. Smith said. "I know a lot of people out there who have it as one of their top picks as a buy candidate."

The two real estate investment trusts announced a deal July 8.

The merger would give Merry Land investors 0.53 share of Equity Residential stock for every Merry Land share; and one share of Merry Land Properties Inc. -- a smaller, spinoff corporation -- for every 20 shares of Merry Land. The deal, which is expected to close in November, must be approved by shareholders.

The announcement created a bump in Merry Land's stock price, pushing it up to more than $24 a share and giving the company shareholders about a 20 percent premium. But since then, the stock price has steadily fallen.

Relative to what Merry Land's stock prices could be had there not been a deal, Merry Land shareholders are better off because of the pending merger, Mr. Houston said.

REITs, which were created in the 1960s, are different from conventional public stock corporations in that they pay little or no federal corporate income tax. Instead, they are required by law to distribute 95 percent of their taxable income as dividends.

Many investors think of REITs much the same way they do a mutual fund, utility stock, treasury bond or certificate of deposit. They have not been appreciating as rapidly as other stocks, but offer a return through dividends, analysts say.

Because of the tax status advantage, hundreds of REITs went public in the early 1990s. Now, many of the less successful REITs are being bought by larger REITs, analysts say.

Barry Wheeler, of Wheeler Securities, said Merry Land's stock price is not likely to be affected by much except changes in the price of Equity Residential stock because of the pending merger. And while both Mery Land and Equity Residential appear solid companies, the merger has not generated much excitement.

"Not everybody seems to be crazy about the deal," Mr. Wheeler said, "because if they were crazy about it, it would run the price up."