Rather than spending that kind of money, some banks may decide it's time to sell out. By some estimates, half a company's technology budget could be spent fixing the problem over the next two years. As one of the most data intensive of industries, banks are going to have to shell out to address the problem. Just when you thought all the eligible banks had been married off, the rush to the altar got a boost from-of all things-the year-2000 bug. By 1995, there were only 10,000, and about 500 more were taken out last year. Within those groups, we've singled out five companies that have compelling takeover stories but are also positioned to do well if the M&A parade passes them by.īANKING In 1985, there were 15,000 banks in the U.S. In this story we focus on three consolidating industries-banking, medical technology, and radio stations. But as he points out, "That means 288 of them didn't get bids, so we have to do well with those stocks too." Jim Schmidt, manager of the John Hancock Regional Bank fund, for example, got takeover bids last year on 42 of the 330 stocks in his portfolio, contributing nicely to his 54% return in 1997. That's the tack taken by the pros we talked to, even some who have picked a good number of merger winners. If not, all that happens is that you wind up with a stock you'd like to own anyway.
If an acquirer then takes you out at a premium, congratulations.
That's why the better way to play the merger game is to ignore the rumor mill and instead buy great stocks in merger-heavy industries. If you were to buy Data General, say, and neither Dell nor anyone else popped the question, you'd be stuck with a company that has been missing its earnings estimates and suffering from slowing sales. The problem is, chasing rumors is risky business, especially since stocks that rise on takeover speculation have a way of tumbling when the rumors don't pan out. And some tech analysts say Dell is eyeing Data General in the wake of Compaq's offer to buy Digital. Warner Lambert rose 3.6% the day after the announcement of the (since annulled) SmithKline-Glaxo wedding. Morgan is up 9.4% since rumors began flying that it may be up for sale. A number of stocks have risen sharply on takeover speculation in recent weeks: J.P. "M&A activity should accelerate because companies need to do deals to grow sales, and they have the ability to do them," says Ed Kershner, Paine Webber's chief investment strategist.īut recognizing that fact and profiting from it are two different things. Another way to grow quickly is by making acquisitions." Meshing perfectly with that demand-side imperative are such factors as deregulation, the need to keep pace with technological innovation, and even the year-2000 problem-all of which are creating a steady supply of companies willing to be swept up into an acquirer's arms. "But it's hard to improve earnings when the economy and the top line are growing slowly. "Takeovers happen because companies have to continue to grow earnings to justify their high stock prices," says Christian Stadlinger, manager of Black Rock Small Cap Value fund. Corporate buyers have both the wherewithal and the incentive to keep doing deals. According to Securities Data, there were over 11,000 deals announced last year, with a total value of more than $900 billion. Here we are, just coming off the third straight year of record merger and acquisition activity.
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