Is it takeover time again?

Herb Greenberg

December 07, 1990|By Herb Greenberg | Herb Greenberg,Chronicle Features 1990

AT&T's offer to buy NCR, on the heels of Matsushita's offer to acquire MCA, sparked speculation about whether those deals will usher in a new wave of takeovers. Maybe -- and that's a weak maybe -- but don't expect a return to the hectic days of the 1980s. There are likely to be fewer deals and they'll be higher in quality, since they'll be done for strategic reasons. And the hostile offers will pose more of a threat, since the buyers -- such as AT&T -- are likely to have more money in the bank.

More important, perhaps, is such unexpected aggressiveness by a company as conservative as AT&T. That could be signaling an important change in the way corporate America thinks about expansion -- thanks in part to lessons learned at the hands of the raiders.

"It's a huge sign of the times that a company as stodgy and as old as AT&T would do a hostile tender offer," says arbitrageur John Runnells of Paddington Partners in Summit, N.J. "It's an indication of what corporate thinking is. If corporate thinking is this way in one place, then it's that way at other places." Says another arb who was fascinated that a company with a blue-chip board of directors would agree to launch a hostile deal: "If these are the new breed of raiders, it points out that hostile transactions aren't necessarily bad."

RETAIL ROUNDUP: You wouldn't know it from looking at retail stocks, which have been rallying lately -- Montgomery Securities' retail index has shot up about 20 percent in the past month, compared with about 8 percent for the Dow -- but pre-Christmas sales don't portend a very merry Christmas for retailers.

The all-important post-Thanksgiving weekend was a bust, notes PaineWebber analyst Margo McBlade, who estimates that 20 leading chain stores she follows showed a meager 1.7 percent rise in sales for November. She thinks that sales might even decline slightly in December. While the retail climate is worst in California and the Northeast, she adds, the sluggishness appears to be geographically widespread, which could result in another season of higher-than-expected inventories and another hoisting of the "sale" signs.

As for the recent strength in the stocks: "They're looking over the valley to the mount beyond," she says. Translation: Investors are hoping that lower consumer interest rates will spark a retail recovery by the second half of 1991. But she adds that "it's hard to know whether that rationale stands up against negative fundamental news." Retail stocks, she warns, tend to react to the reported results of holiday sales.

FUN AND GAMES: While on the subject of retail, here is a Toys 'R Us update. McBlade is the latest of a handful of analysts who have sliced estimates on the Paramus, N.J., toy chain's earnings in recent days. Some analysts scoffed at concerns several months ago that the video games the company sells -- especially Nintendo brands -- would lose steam.

McBlade is one of those who had thought the Nintendo boom would last through Christmas. She told me yesterday: "That last gasp expected before Christmas isn't happening; it's hitting the wall sooner than we expected." She now thinks Toys will earn $1.13 this year, an improvement over last year's $1.09 but well below her earlier estimate of $1.29.

Adding to Toys' woes, notes one money manager, is that the company doesn't have another fad to fall back on this year. But McBlade and others, even the bears, don't expect Toys' stock to dip much below the high teens. The shares currently trade at about $23 on the NYSE.

Seasonal seesawing is typical for Toys stock; there's always hand-wringing about Christmas prospects. The betting in some investment circles hinges on whether the stock will repeat what it has done for the past seven years, rebounding by the first or second quarter. Unlike those years, however, there wasn't a recession on the horizon.

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