As Reagan presidency wanes, takeover activity heats up again
It's acquisition and takeover time once again on Wall Street, sparked by buyout efforts aimed at a number of consumer-related companies such as Pillsbury, the Kroger Company, and Irving Bank. Last week, the chairman of Irving Bank Corporation agreed to recommend that his board accept a $1.45 billion takeover bid from Bank of New York. Meanwhile, Carl Icahn, the chairman of Trans World Airlines, is talking about buying Eastern Airlines from Texas Air. And in the rumor mills, suddenly no company seems safe, including such economic giants as Sears, Roebuck, McDonald's, and PepsiCo Inc., which have all have been mentioned in recent days as possible - although presumably unlikely - takeover candidates.
``Part of the reason for this new activity is that a lot of leveraged buyout funds are available right now,'' says Dennis Jarrett, market strategist with Kidder, Peabody & Co. ``There is also the perception that the new administration in January, whether it is a Bush administration or a Dukakis administration, will be far more critical about takeovers.''
One idea behind much of the current buyout activity is that ``raiders'' want to get such transactions out of the way now, before Washington digs in its heels, Mr. Jarrett adds.
Takeovers are not necessarily related ``to the level of where the market is right now,'' says Richard Bernstein, a strategist with Tucker, Anthony & R.L. Day Inc. Just from a look at underlying fundamentals, Mr. Bernstein says, Tucker, Anthony continues to suggest an overweighting of assets in bonds, rather than equities.
Inflation will probably not be as severe as many analysts were expecting some months back, Bernstein says. If inflation is harnessed, he adds, that will pave the way for a higher stock market. But he stresses that a higher market will more likely than not come a number of months down the road, not this week or next.
Much of the current takeover fervor is linked to consumer-related products, particularly in the packaged foods and grocery sector. Thus, Kroger, the nation's second-largest grocery chain, is being sought by several bidders. A&P, meanwhile, the fourth-largest chain, is seeking Delchamps, a Gulf Coast grocery chain. Grand Metropolitan PLC, a British food and beverage firm, is seeking Pillsbury at a cost of $5.23 billion. But liquor laws in Pennsylvania and Michigan could prevent such a takeover. Grand Met, among other things, is a distiller.
Takeover interest in the food sector makes a certain kind of sense, says John McMillin, a food specialist with Prudential-Bache Securities. For the ``third straight month,'' he says, ``packaged food stocks outperformed the market.'' Pru-Bache's group of 14 companies, he says, rose an average of 5.4 percent in September, versus a gain of 3.9 percent in the Standard & Poor's industrials.
Food companies ``represent a steady earnings stream,'' Mr. McMillin adds, which becomes increasingly important during a period of economic uncertainty or possible downturn, such as is now being discussed here.
The concern on Wall Street is that a still somewhat-supercharged economy might prompt additional belt tightening by the Federal Reserve Board, and thus push up interest rates.
Washington announced late last week that the US civilian unemployment rate fell 0.2 percent in September, to 5.4 percent.
The sudden takeover fervor was about the only element driving the market last week, other than the long-range prospect of lower oil prices.
Some analysts believe that oil could move down to $10 a barrel from the current range of slightly under $13 a barrel for west Texas intermediate. For the week ending Oct. 7, the Dow Jones industrial average closed up 37.34 points, at 2,150.25.