NEW YORK, DEC. 26 -- Despite some high-profile deals such as the planned $7.4 billion buyout of MCA Inc., merger activity fell by nearly half this year as the U.S. takeover market cooled following the hectic pace of the 1980s.
Merger activity fell 47 percent in 1990 to 4,486 deals valued at $199.9 billion, from the 4,763 deals valued at $377.9 billion for all of 1989, Securities Data Co., a financial research firm based in Newark, reported today.
The figures include deals announced during each year. The 1990 total includes Matsushita Electric Industrial Co.'s planned acquisition of MCA, the $6.2 billion stock-swap merger between GTE Corp. and Contel Corp., and Georgia-Pacific Corp.'s $3.6 billion hostile takeover of Great Northern Nekoosa Corp.
The planned MCA-Matsushita marriage -- the most recent of the big deals -- and American Telephone & Telegraph Co.'s pending $6.1 billion hostile bid for NCR Corp. have led to some speculation that the merger boom of the mid-to-late 1980s might be reviving.
However, said Bernard Black, a corporate finance professor at Columbia Law School, "It's a mistake to assume that an overall trend has changed because there happens to be a couple of big deals announced.
"It's very hard to do a highly leveraged deal, and neither the Matsushita nor the AT&T deal is inconsistent with that," he said. "They're both one big company buying another and there's no reason to think that kind of deal is going to disappear."
Black referred to the scarcity of financing -- particularly debt financing -- that has slowed the merger business to a crawl over the past year.
Mergers and takeovers peaked in late 1988 with the record $24.53 billion debt-financed takeover of RJR Nabisco Inc. by Kohlberg Kravis Roberts & Co. Activity declined early in 1989 and then skidded sharply after the failure of several big buyouts, most notably the $6.6 billion takeover of Federated Department Stores Inc. by Campeau Corp.
The Federated deal foundered in September 1989 after Campeau was unable to meet payments on junk bonds used to finance that takeover and the earlier $3.6 billion buyout of Allied Stores Corp. The market for the risky high-yield bonds crashed after Campeau's troubles became known, and financing for mergers and acquisitions was suddenly hard to come by.
Most of the mergers and buyouts done these days are known as strategic deals, undertaken by companies looking to expand or build market share. The MCA-Matsushita deal, GTE-Contel merger and the Georgia-Pacific-Great Northern takeover are all examples of such transactions.
While this trend remains in place, Black predicted another kind of strategic deal would become more commonplace: mergers or buyouts involving companies in trouble because of the difficult economy and in need of help to compete.
He pointed to the proposed merger between Trans World Airlines and Pan Am Corp. as a deal based on such concerns, and said, "I'm sure we're going to see a whole lot of bank acquisition activity related to competitive pressures."
On Friday, Pan Am said it was receptive to a buyout offer from TWA that values Pan Am at about $375 million, but the two companies are haggling over an interim loan for Pan Am. Both are considered among the weakest U.S. airlines.
While the U.S. merger market shrank considerably in 1990, Securities Data reported a boom in deals involving European firms. The company reported 667 transactions with European partners with a total value of $61.1 billion, up 109 percent from 717 deals worth $29.1 billion in 1989.
But the surge was confined to the continent, the company said. Worldwide merger activity was down 31 percent this year, as 8,157 deals worth $441.6 billion were announced, compared with 8,822 transactions valued at $643.6 billion last year.