A Bullish Year Surging U.S. Markets Fueled Worldwide Stock Rally In 1996

The U.S. stock market’s sixth straight annual gain led the 1996 rally in most equities worldwide, spurring companies to set records for mergers, acquisitions and initial public offerings.

U.S. stocks rose more than 24 percent - on top of a 33 percent gain in 1995 - helped by an expanding economy that drove the dollar 10 percent higher against the yen and up 8 percent versus the deutsche mark.

Brighter prospects in the U.S. boosted trade worldwide, producing cross-border acquisitions and helping other stock markets. In Russia, for instance, the stock exchange posted a dizzying 130 percent gain. Stock rallies in Germany, Venezuela, Brazil, Taiwan and elsewhere helped fuel a record 1,150 IPOS totaling $137 billion worldwide - 840 of them, totaling $49 billion, from the U.S.

Optimism about the future also infected companies, which had an insatiable appetite for huge mergers and acquisitions. In fact, the most expensive cross-border acquisition ever took place in November when British Telecommunications Plc reached across the Atlantic and bid $25.5 billion for MCI Communications Corp., the U.S.’s second-biggest long-distance telephone company.

U.S. computer and chip stocks led the rally that pushed the Dow Jones Industrial average to record highs.

U.S. bonds didn’t fare as well, partly from concern that Federal Reserve Bank Chairman Alan Greenspan would raise interest rates to guard against inflation. Yields on benchmark 30-year Treasury bonds rose as much as 1-1/4 percentage points, peaking at 7.19 on July 5. An investor who bought 30-year Treasuries at the beginning of the year would have lost about 1.6 percent, assuming a reinvestment rate of 5.164 percent.

In the largest-ever IPO, Germany’s telephone company Deutsche Telekom AG sold 24 percent of the company to the public, raising $11.4 billion. Lucent Technologies Inc., AT&T Corp.’s equipment arm, broke away from its corporate parent in April, raising $3 billion in the largest IPO in U.S. history.

More than 38 percent of the money raised in the U.S. IPO market was by companies based outside the U.S., said William Smith of Renaissance Capital Corp., up from 29 percent a year ago. “The number of IPOs in the U.S. increased 46 percent in 1996, but the most interesting trend was the increase in foreign companies tapping into the U.S. market,” Smith said.

Russia’s RAO Gazprom which accounts for about 8 percent of Russia’s economic output and produces 23 percent of the world’s natural gas - became the first Russian company to list shares on the London Stock Exchange.

Stock market advances gave many companies the ability to acquire rivals in share swaps. Businesses initiated more than 22,000 mergers and acquisitions in 1996 worth $1.04 trillion, topping by 20 percent the previous record of $866 billion in 1995.

In the world’s biggest-ever corporate combination, Ciba-Geigy AG and Sandoz AG - two Basel, Switzerland drug manufacturers - in March announced their $36 billion merger into Novartis AG, the world’s second-largest drug company.

In the U.S., a sweeping telecommunications bill allowed local telephone companies into the long-distance business and ushered in a wave of consolidation among the nation’s Baby Bells. SBC Communications acquired Pacific Telesis for $16 billion and a month later Bell Atlantic Corp. agreed to buy Nynex Corp. for $22 billion, the secondbiggest U.S. acquisition.

Utilities also were up for grabs. Five U.S. electricity companies bought out natural gas concerns in 1996, led by Duke Power Co.’s $9.8 billion acquisition of PanEnergy Corp.

Amid the merger wave, AT&T, once the largest company in the U.S., split into three: its main phone business, Lucent and NCR Corp., its money-losing computer maker. Japan’s telephone giant Nippon Telegraph & Telephone Corp. said it would split into three companies, a move that would unseat AT&T Corp. as the largest corporate split-up.