Merger, acquisition new mantra for growth

Himalayan News Service

New York, January 3:

Merger and acquisition (M&A) has become the mantra of corporate growth in the US, with deals worth about $120 billion reported in the past few months.

Low interest rates, strong cash reserves and a turnaround in the economy at the beginning of 2004 were all ingredients of the M&A boom. The M&A market is considered at its hottest now since it started five years ago in 1999 when the booming technology market fuelled a near maniacal spree. 2004 started well with J P Morgan Chase acquiring BankOne in a $58 billion deal and Cingular Wireless taking over AT&T wireless for $41 billion in the early part of the year. While the market did slow down after spring with the US presidential election heating up and uncertainties over Iraq war growing, it picked up again in the latter part of the year. With the elections out of the way and a clear verdict being delivered in November, it picked up exceptional speed. December alone saw M&A deals worth nearly $75 billion.

Sprint bought Nextel Communications for $35 billion, Johnson & Johnson acquired Guidant for $25 billion, Symantec agreed to buy Veritas for $13.5 billion, Oracle finally conquered PeopleSoft for $10.3 billion, Kmart acquired Sears for $11 billion and IBM sold its flagship personal computer business to Lenovo of China for $1.75 billion. Earlier Bank of America acquired FleetBoston for $47 billion.

According to M&A insiders, December 2004 was the busiest in history worldwide with deals worth over $230 billion being struck. Mark Lipton, one of America’s most prominent takeover lawyers whose law firm structured many of the mega merger deals, has said 2005 will likely see a merger and acquisition boom. In the latest annual newsletter of his Wall Street law firm Wachtell, Lipton, Rosen & Katz, he wrote, “The recent increase in M&A activity reflects a return to confidence in the economy and to accommodation to the new accounting and corporate governance requirements.”

This coming from a man who has in recent times been wary of the M&A is considered an endorsement of the trend. With debt financing available easily and many companies sitting on strong cash reserves the market is expected to become stronger in the coming months. Market experts say with the dollar becoming weak against the euro and other currencies, it is possible that many American companies could become a target of acquisition by European as well as Japanese companies. The M&A deals last year were up by 50 per cent, the biggest rise since 1998. The trend is reflective of the market’s faith in the economy but it could easily erode if terrorism returns to the US in a significant way.