Rush To Consolidate Fuels Merger Boom Merger Activity Shot Up 39 Percent In First Half Of 1997

As a survivor of two corporate buyouts, Rich Stiller has some simple advice for others who may find themselves staring into the jaws of acquisition.

“Have money in the bank … and you can always have the choice of walking away,” Stiller said. “The key thing is, don’t listen to what the company says because they’re going to say what they need to make the deal successful.”

If Stiller’s philosophy sounds a bit paranoid, it’s understandable. Merger activity among publicly traded U.S. companies rose 39 percent in the first half of 1997 with 3,461 deals announced, according to Mergerstat, a division of investment bank Houlihan Lokey Howard & Zukin. The aggregate value of the deals was $282.4 billion.

Securities Data Co., which tracks public and private companies, puts the number of deals at 4,723. The figure marks a 10 percent drop in volume, but represents a record value of $366.6 billion.

Five of the six biggest deals in dollars and cents involved financial services companies, led by software supplier CUC International Inc.’s $10.9 billion bid for HFS Inc., an investment brokerage.

California was the most active state, with 432 companies on the buyer side and 477 selling.

The trend isn’t limited to the United States. Japan’s Fair Trade Commission reported in June that it approved a record 1,476 mergers during fiscal 1996.

“Right now, the belief is consolidation is good as long as you don’t become a conglomerate, as long as you stay focused in your core competencies,” said Scott Adelson, managing director of Houlihan Lokey.

Consolidation isn’t always good for employees. According to the placement company Challenger, Gray & Christmas, nearly 30 percent of the 21,004 job cuts announced by corporations in May were the result of mergers.

Mergers can raise problems for corporations as well. Wells Fargo’s $11.3 billion merger with First Interstate last year was marred by incompatible computer systems and different corporate cultures.

Wells Fargo expected customers to pick from its array of fixed products and services. First Interstate customers were used to more flexibility and some were angered by computer glitches that affected ATM services and account balances. Those who left included Nevada’s State Industrial Insurance System, which did about $6 billion a year in banking.

“That new kind of thinking and cultural shift happened all at once,” said Bob Gross, former president of the 40-branch First Interstate of Utah, which was absorbed in the deal.

Gross, who lost his job in the merger, moved into the public sector as director of Utah’s Department of Workforce Services, and recently was appointed chief of staff to Gov. Mike Leavitt.

In the big picture, mergers are good for business and the consumer, he said, noting that small, individual investors often benefit as much as the corporate entity.

The current activity marks the fifth merger boom of the century, said F.M. Scherer, an antitrust economist at Harvard University. The first came at the end of the 19th century and continued into the first decade of the 20th century, producing such business giants as Standard Oil and General Electric. Merger mania recurred in the 1920s, the 1960s and 1980s.

“I suppose the (common) themes are ‘lookout for corporate culture mismatches’ and ‘look out for biting off more than you can chew,”’ he said.

Several factors are driving the current boom, including low interest rates and the strong stock market to help keep investors calm as the transactions proceed, Adelson said.

Much of the consolidation has come among midsized companies trying to increase market share, said Jon Kutler of Quarterdeck Investment Partners of Newport Beach, Calif.

“I think it’s a positive sign,” he said. “For somebody to be a buyer means it’s a vote of confidence for that particular business.”

Stiller, now a human resources manager for Sun Microsystems Inc. in Mountain View, Calif., twice worked for companies that were acquired, and also has had to pink-slip workers when his employers have made acquisitions. He doesn’t like either process.

“What stinks is that you know from the standpoint of the people who are being acquired, they’re not going to feel good about it,” he said. “You spend a lot of time with people going through their pain, and you yourself may be going through it.”