Merger Rush Sweeps the US, With More Expected in '94

IT looks like the start of another banner year for mergers, takeovers, and new publicly traded companies in the United States.

Multimedia company Viacom Inc. recently announced that it will acquire video-rental giant Blockbuster Entertainment Corporation in a stock swap valued at $8 billion; medical company HealthTrust says it will acquire Epic Holdings, a hospital firm, in a deal worth $1 billion in cash and debt; and FHP International Corporation, another health-care company, will acquire TakeCare Inc. in a transaction valued at $800 million.

GT Global Development Fund, a closed-end fund with an initial public offering (IPO) of $480 million, was the first new stock offering tallied by Securities Data Corporation in 1994.

``We're anticipating another good year for IPOs,'' says Leslie Feldman, an expert on IPOs. Last year ``turned out to be the best year ever recorded for IPOs,'' she says, ``and economic conditions seem in place for more of the same in the months ahead.''

While some market watchers object to mergers and greater corporate concentration on philosophical grounds, the merger rush is clearly on. Older companies and firms in more mature markets often find that the logical way to reduce costs and expand market share is to combine operations with another company.

In addition, mergers can provide breathing space in a saturated market for new public companies, enabling those firms to carve out niches in the shadow of corporate giants.

Last year, there were 712 IPO transactions, a record compared with the previous high of about 700 IPOs in 1986.

More than $42 billion was raised through IPOs in 1993, up from $24 billion in 1992.

Merger activity was also brisk, according to Securities Data Corporation. The total value of mergers and takeovers last year was in excess of $300 billion. In 1988, the value of mergers and takeovers reached $336 billion.

The merger mania was not confined to the US. Global merger activity soared to around $479 billion last year, ``the third-best year ever recorded internationally,'' Ms. Feldman says.

HE biggest merger in the US last year was Bell Atlantic's $20 billion takeover of Telecommunications Inc. and Liberty Media.

More mergers in the communications/entertainment sector are expected, such as the current struggle by Viacom Inc. and QVC Network Inc. to gain control of Paramount Communications Inc., the film-multimedia company.

``Current merger activity is explained by the drive toward corporate downsizing and a nervousness on the part of senior management,'' says Perrin Long, a vice president with First of Michigan Corporation.

``Senior managers seek a merger so that they can better compete against other [often non-American] companies,'' Mr. Long says.

While the main thrust in mergers came from the communications/entertainment sectors last year, this year's activity will be largely among ``service-related companies,'' Long predicts.

He includes such sectors as book publishing, newspaper publishing, the securities industry, airlines, and the health-care field.

``There will probably be little merger activity in the older manufacturing industries,'' Long says, since those companies ``went through their own round of mergers'' during the 1970s and 1980s.

The strength of the IPO market is linked to the robust stock market, Long adds. ``Many private companies are eager to go public so they can cash in'' on the flows of billions of dollars in investor savings moving out of certificates of deposit and other non-equity investment instruments.