Originally created 05/15/04

Economic growth seen in mergers



NEW YORK - With price tags as high as $63 billion and $58 billion, the merger business is awakening from the bear-market hibernation that made corporate marriages a tough sell during the past few years.

In the first quarter, 2,052 U.S. merger and acquisition deals were announced, up from the 2,031 recorded in the last quarter of 2003, according to Thomson Financial. They were the first back-to-back quarters of more than 2,000 deals in three years.

"It's a sign of strengthening corporate earnings and economic growth," said Richard Peterson, a chief market strategist for Thomson Financial. "When M&A was down in 2001 and 2002, the economy was in recession. Now that the economy is in a period of growth, M&A ... is resurging."

The value of merger and acquisition transactions is also climbing, to $226.8 billion in the first quarter from $216.4 billion in the final three months of 2003.

The last time the quarterly tally was bigger was in the fourth quarter of 2000, when announced deals totaled $346.3 billion. So far this quarter, there have been 770 deals worth $72.4 billion, according to Mr. Peterson's calculations.

Still, the mood in the merger and acquisition business is subdued as companies, facing greater scrutiny from their shareholders and boards of directors, seek to avoid a repeat of the excesses of the 1990s. The sky-is-the-limit attitude common in investment banking four years ago is no longer a given, analysts say.

"People have gotten used to idea of low-premium deals," said Michael A. Plodwick, a banking analyst at Blaylock & Partners. "Back in the 1990s, you would have assumed you would have to offer a 30 to 40 percent premium" of a company's stock price or value "to get the deal done."

He noted that J.P. Morgan Chase & Co.'s planned acquisition of Bank One Corp. for $58 billion in stock gives Bank One shareholders a 14 percent premium, conservative by '90s standards. That leads some to question how long the cautiousness will last.

"Yes, there's more cautiousness to pull the trigger, because of (the scandals at ) Enron and Tyco," said Judy Radler Cohen, the editor of Thomson Media's Merger and Acquisitions Newsletter. "But some of that bad stuff is starting to fade in our collective memory, and companies haven't lost their desire to grow through acquisitions."