Investors growing wary of high-profile mergers

By Gary Gentile

Associated Press

LOS ANGELES -- On the same day last week, news broke about two major mergers that mark the extremes in a merger and acquisitions frenzy that has clearly run its course.

Defense giant Northrop Grumman Corp. announced it would buy TRW Inc. for $7.8 billion in stock. The deal Monday was old-school, combining two solid companies in a growth industry.

A continent away, Vivendi Universal, the result of a heralded merger in 2000, was spiraling toward self destruction. Its flashy chairman, Jean-Marie Messier, was forced to resign as his dream of a cutting-edge media empire vanished under a mountain of debt and red ink.


The stock market's reaction to both developments says a lot about the skepticism and fear that has crept into financial markets over high profile mergers.

The Northrop Grumman-TRW deal, though praised, didn't cause a ripple in the market. In fact, shares of TRW, which would have been expected to rise on the news, actually fell 40 cents last Monday.

The Vivendi Universal woes, the latest in a series of troubles experienced by mega-mergers such as AOL Time Warner and WorldCom, sent investors scurrying.

"People are very suspicious, they are not enthusiastic about the market, so they are not willing to view things in the way the same merger would have been viewed three or four years ago," said Lou Altfest, a financial planner with L.J. Altfest &; Co.

Merger and acquisition activity is in a slump: In the first six months of the year, only $200 billion in transactions in the United States were announced, according to Thomson Financial. That's down 45 percent from the same period last year and down 77 percent from the $886.7 billion announced in the first half of 2000.

Executives are wary of the risks, said Steve Baronoff, global head of mergers and acquisitions for Merrill Lynch &; Co.

Combinations in sectors less sensitive to recession, such as the defense industry or, as with Nestle SA and Dreyer's Grand Ice Cream Inc., consumer products, are more likely than the grand strategy mergers such as Vivendi Universal, experts say.

Complicating matters is growing doubt over the reliability of corporate financial statements and questions of honesty on the part of CEOs.


"Corporate executives' collective confidence in doing mergers and acquisitions has been badly bruised for more than a year," said Judy Radler Cohen, editor of Mergers &; Acquisition Report. "So the recent spate of bad boy/girl CEO news has only further damaged an already skittish corporate America when it comes to doing deals."

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