Are Corporations Becoming Pushovers in Merger Mania?
Kramer, Farrell, THE JOURNAL RECORD
NEW YORK -- Hostile takeovers have lost their stigma. Investment bankers pitch deals worth billions of dollars, and nobody blinks. Companies bathed in history like McDonnell Douglas and MCI have agreed to be bought out.
In that light, Hilton's $6.5 billion play for ITT Corp. shouldn't be much of a surprise. The rules have changed: It's eat or be eaten.
Back in the 1980s, when terms like "corporate raiders" and "leveraged buyout" entered the common lexicon, aggression was mostly a trait of the takeover artists, swashbucklers like Icahn, Goldsmith, Pickens. Corporations rarely pursued takeovers with the zeal they exhibit today, perhaps because they were too busy defending themselves. The realities of competition 1990s style, though, began to change that as companies came to believe they had to be more efficient -- and bigger-- to survive in a smaller world. They began to merge, and their mergers begat more mergers, and so on, and so on.... Now, companies in merger-frenzied industries not only view combining as an option, but as a necessity. If they don't become buyers or sellers, they stand to slowly shrivel as others grow. Hilton Chief Executive Stephen Bollenbach implied as much Monday after announcing his company's hostile bid for ITT, owner of Sheraton hotels and numerous casinos: "We want to be a leader in the consolidation of the gaming business." Investment bankers see it every day. "More companies are looking and feel like they don't have an option," said Gregg Polle, a managing director in the mergers and acquisitions department of Salomon Bros. One good example is the takeover battle for Conrail, the big East Coast railroad. CSX, a big freight carrier, signed an agreement to buy Conrail. Then, Norfolk Southern, another competitor, jumped in with a hostile bid of its own. "If Conrail were bought by CSX, that had profound implications for Norfolk Southern," Polle explained. The winner stands to be the dominant freight carrier in the East. Numerous deals driven by fear of being left behind helped push 1996 into the record books as the Year of the Merger, with about $650 billion in announced U.S. deals, according to Securities Data Co. Some of the most deal-frenzied industries were telecommunications, utilities and broadcasting. Banking, which saw heated action in 1995, also inked some notable combos. …