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Big Mergers Are Back, But Raiders of the ’80s Are Not

August 20, 1993

NEW YORK (AP) _ Absent are the raiders of the 1980s, who rode in armed with junk bonds and tender offers and made off with some of the nation’s greatest corporate treasures.

But the Big Deal is back.

Mattel Inc.‘s announcement Thursday that it will buy Fisher-Price Inc. for $1 billion follows two other huge, recent acquisitions: AT&T’s $12.6 billion buyout of McCaw Cellular Communications Inc. and Merck & Co.’s $6 billion purchase of drug-distributor Medco Containment Services Inc.

Driven by long-term strategic concerns rather than pressure from outside investors seeking a quick profit, the new megadeals represent a resurgence of the merger business.

″This is not going to be a land rush, but there’s a lot of very large things being talked about,″ said Michael Koeneke, co-head of mergers and acquisitions at Merrill Lynch & Co. in New York.

Investment bankers at other firms, too, confirm they are working on a greater number of large deals than they’ve seen in the recent past.

But the megadeals of the 1990 won’t be ″1980s craziness,″ Koeneke says. Instead these mergers, like the AT&T, Merck and Mattel deals, will be highly focused and rationally conceived.

During the prior decade, financiers like Sir James Goldsmith and Carl Icahn stalked big companies they believed could net them big profits. These raiders, as they became known, argued they could run the corporations better than existing management, squeezing out underlying efficiencies.

They often knew little about the businesses they were stalking and made their offers with junk-bond financing - borrowed money.

Today’s takeovers are quite different.

They often involve companies acquiring or merging with others in the same or related business to improve their competitive positions. Payment often is in stock of the acquiring company.

Moreover, the acquiring companies are coming up with these deals themselves, rather than having decisions forced upon them by a raider who has come knocking.

″Companies today are much more sophisticated than they were back in the ’80s about what their acquisition targets are and ought to be,″ said Jeffrey Sechrest, co-head of mergers and acquisitions at Lehman Brothers Inc. in New York.

″They have their own corporate development staffs,″ he said. ″They know their industries better than the investment banks.″

For many corporate executives, worried about their own jobs and impatient shareholders in a slow-growth economy, acquiring other companies is one obvious way to improve profits.

″They’re on a treadmill,″ said Kathryn Rudie Harrigan, professor of strategic management at Columbia Business School in New York. ″They do have to hit these hypothetical performance numbers or they’re toast.″

Gordon Rich, co-head of the merger group at First Boston Corp. in New York, says the surging stock market has created high expectations. For companies in industries that aren’t expanding fast, they could prove difficult to meet.

″What you may think of doing is merging with someone who’s in an associated kind of business and taking out costs,″ he said.

That partly explains the toy company merger of Mattel and Fisher-Price and perhaps the acquisition of Medco by pharmaceutical giant Merck, Rich said.

But the AT&T-McCaw deal is more a reflection of how telecommunications companies are trying to position themselves in a fast-changing industry.

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