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Drop in 1st Quarter Merger Business

April 10, 1989

NEW YORK (AP) _ If you go by the numbers, U.S. mergers and acquisitions fell sharply in the first quarter of 1989 compared with the frenzy of last year, but experts say the figures are misleading and the outlook for more takeovers is good.

″I don’t see this as anything but a fluctuation,″ said Louis Lowenstein, professor of corporate finance at Columbia University’s School of Law. ″Nothing fundamental has changed.″

The numbers - at least on the surface - indicate merger activity slowed from January through March. Mergers and corporate transactions announced during the first quarter fell to 340 from 412 in the same period of 1988, according to statistics compiled by Securities Data Co., a Newark, N.J., research firm.

The transactions include include recapitalizations and stock buybacks.

The dollar value of the deals also plunged, to $74.36 billion in the latest quarter from $137.17 billion a year earlier, Securities Data said.

But the people who follow merger activity attach little significance to the figures.

″It’s much too short a period from which to draw any conclusions,″ said Isaac Shapiro, a partner in the law firm Skadden Arps Slate Meagher & Flom, which has a large practice in mergers and acquisitions.

″I don’t think quarter to quarter statistics mean a lot,″ Shapiro said.

Donald Margotta, an assistant professor at Northeastern University in Boston, agreed, saying, ″It’s not significant enough.″

″It’s simply cyclical activity,″ Margotta said. ″Mergers have gone through cycles - there are lows and there are peaks.″

Furthermore, there’s no reason for merger activity to fall off, the professor said.

″The basic forces driving the market are still there,″ Lowenstein said.

Recent developments support his statement. Gulf & Western Inc. announced this weekend it was in the market for acquisitions, and Beatrice Cos. also says it is looking for companies to buy.

Securities Data reported the number of acquisitions declined as ″the investment banking industry regrouped in the wake of the landmark deals of the previous year.″

The company referred to the record $24.3 billion buyout of RJR Nabisco Inc. by Kohlberg Kravis Roberts & Co., the $12.9 billion acquisition of Kraft Inc. by Philip Morris Cos. and other big deals.

Lowenstein acknowledged that ″the system was absorbing RJR,″ but said that should not have affected overall activity.

Interest rates moved higher during the first quarter, but Lowenstein also dismissed that as a possible factor.

″That has not chilled mergers in the past,″ he said, noting that when interest rates soared in the early 1980s, ″mergers went along at a splendid clip.″

Merger activity hit an all-time high in 1988, with Securities Data reporting 2,994 transactions totaling $365.09 billion.

Many analysts said last year that acquirers were moving up their deals to take advantage of the Reagan administration’s relatively lenient attitude toward mergers.

Lowenstein discounted that theory as a factor in the first-quarter drop- off.

″That would have accounted for some deals that had antitrust implications ... but you’re talking about such a high level of activity,″ he said.

The Securities Data report also noted a downturn in foreign merger activity in the United States, with the number of first-quarter acquisitions valued at $100 million and more falling to 27 from 30. The dollar value of the deals fell to $10.86 billion from $28.01 billion.

But, said Shapiro, a specialist in foreign mergers, ″I really don’t think it tells you much of anything.″

″The fundamentals remain the same,″ Shapiro said. ″As long as the dollar remains at its relatively low value ... U.S. assets continue to be attractive.″

Securities Data said the number of big U.S. acquisitions by Japanese concerns also slipped during the first three months of the year, but Shapiro again did not see any trend.

″The Japanese have enormous liquidity,″ and they and other foreign acquirers remain interested in U.S. properties, he said.

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