Mergers like one facing Dana brought on by surging market

Something else appears to be rebounding with the stock market: corporate executives' urge to merge.

A flurry of big takeover offers were announced last week, including ArvinMeritor Inc.'s $2.2 billion overture for Dana Corp. in the auto parts sector. That offer was felt locally, as Dana has a 315-employee plant in Cape Girardeau, and ArvinMeritor has a plant with 600 employees in Dexter, Mo.

But there were others, including EMC Corp.'s $1.2 billion bid for Legato Systems Inc. in the tech arena and Yellow Corp.'s $1 billion proposal for Roadway Corp. in the trucking industry.

The hostile takeover attempt also may be in the early stages of making a comeback reminiscent of the bull-market era, analysts said. ArvinMeritor's unsolicited bid followed hostile offers by software giant Oracle Corp. for PeopleSoft Inc. last month and Alcan Inc. for rival aluminum producer Pechiney early last week.

"You're seeing several forces come together," said Lloyd Greif, president of Los Angeles-based investment banking company Greif & Co. "Banks are beginning to loosen the purse strings on credit. Low interest rates are making leveraged deals relatively easy to finance. And in a soft economy, strategic buyers see acquisitions as the surest way to grow earnings."

Last Tuesday marked the first time since Dec. 14, 2001, that there were three U.S. merger deals valued at $1 billion or more announced on the same day, according to Richard Peterson, chief market strategist at data-tracker Thomson Financial in New York.

Still, Peterson cautioned that merger data have yet to confirm that a major wave of deal-making has begun.

Announced merger-and-acquisition volume totaled $162.3 billion in the first half of this year, down 17 percent from the first half of 2002 and far off the mark of $885 billion reached during the first half of 2000.

"For the M&A market, this was a nice 'transaction Tuesday,' but let's see what the next few weeks bring," Peterson said.

Indeed, predicted Peterson, a return to the unprecedented bull market deal boom is unlikely. "No one thinks we're going back to the trillion-dollar-plus years of the late 1990s," he said.

Still, with interest rates low and stock prices surging, corporate executives may be sensing that there's no reason to wait to make takeover plays, analysts say.

Wall Street's recent surge has lifted the blue-chip Standard & Poor's 500 index 25.9 percent since mid-March. As stocks get more expensive, the risk for would-be acquirers is that the prices of their targets will climb out of reach.

Rising stock value

But the market rally also is raising the value of would-be acquirers' shares, giving them a stronger "currency" to offer targets.

Some potential acquirers, such as EMC and ArvinMeritor, have seen sharp increases in their share prices recently. EMC stock is up 63 percent since the market's low March 11; ArvinMeritor is up 58 percent.

"The sustained rally in the stock market gives corporations, CEOs and their boards the backbone to pursue acquisitions," said Brooks Dexter, senior managing director at USBX Advisory Services, an L.A.-based investment banking firm.

What's more, analysts say targeted companies may be sensing that the stock market has gotten ahead of corporate fundamentals. This could motivate them to accept an offer now that's at a decent premium to their share price.

The pickup in deal-making also could signal rising optimism about the economy in the second half of this year and in 2004, as executives appear more willing to take on major risks.

"There is a greater expectation of economic improvement," said Dennis McCarthy, managing director at Seidler Cos., a Los Angeles investment banking company. "Maybe not through-the-roof improvement, but an environment that can bring higher revenue and profit."

The revived merger itch also reflects many executives' continuing desire to boost market share for their businesses while creating more efficient operations, analysts say. Standard procedure after any takeover is sharp cost-cutting.

"One of the main drivers is the notion that consolidation creates value," said Scott Adelson, senior managing director at L.A.-based Houlihan Lokey Howard & Zukin. "That as a premise has not changed. What happened was a market crash, a terrorist attack and other shocks."

Wall Street clearly did not react with glee to any of Tuesday's news -- at least when it came to the prospective acquirers. EMC slid 50 cents to $11.24 and ArvinMeritor lost 71 cents to $20.29, both on the New York Stock Exchange. Yellow dropped $1.24 to $23.25 on NASDAQ.