Mergers stoke stocks

Latest private equity targets are steakhouse, hotel chains

November 07, 2006|By Jamie Smith Hopkins | Jamie Smith Hopkins,Sun reporter

The investment bankers were busy yesterday.

Companies announced a flurry of proposed mergers and acquisitions, unrelated save for the fact that they come at a time when there's tons of money in search of firms to buy. At least five deals or offers, valued at $1 billion or more each, were unveiled yesterday.

OSI Restaurant Partners Inc., parent of Outback Steakhouse and other brands, said it agreed to be acquired by a private investor group for about $3 billion.

Health care products maker Abbott Laboratories said it will buy drugmaker Kos Pharmaceuticals Inc. for about $3.7 billion. Prescription drug distributor McKesson Corp. is acquiring health care services company Per-Se Technologies Inc. for nearly $1.1 billion.

Swift Transportation Co. Inc., a truckload carrier, said its largest shareholder has offered to buy it for about $2.2 billion.

Microsoft's Bill Gates got into the game yesterday, teaming up with other investors - including a Saudi prince - to try to take Four Seasons Hotels Inc. private for $3.7 billion.

Wall Street liked the sound of all the deals. The major indexes each rose at least a percentage point yesterday - the Dow Jones industrial average leapt nearly 120 points - while the target companies did especially well. Kos shares soared more than 50 percent, topping $77.

Traders, hypersensitive right now about any news that might suggest where the economy is headed, probably saw the deals as one reason to buy stocks yesterday, said Ken Stuzin, who manages a large-cap growth portfolio at Brown Advisory in Baltimore.

"M&A activity is ... just a general indicator of a relatively healthy market," he said.

The mergers and acquisitions market, at least, has been very healthy this year. Deals targeting U.S. companies totaled nearly $1.2 trillion so far in 2006, topping the amount racked up in all of 2005, according to Thomson Financial. It's the best year since the record-setting $1.7 trillion in 2000.

It's not just U.S. companies being scooped up, either. The Association for Corporate Growth is convinced that deals worldwide will break the $2.8 trillion global record this year.

"There are still ... a lot of dollars that are just looking to be invested," said Daniel A. Varroney, president and chief executive of the association. "We can expect a torrid pace and a white-hot deal market. What companies are looking to do is to position themselves for their investors."

It's not simply companies on the prowl to acquire competitors. Private equity funds in search of companies to buy, reposition and sell have emerged as big deal makers, too. They've accounted for 1 out of 4 deals in the U.S. this year, up from about 1 out of 10 last year, according to Thomson Financial.

"It's been basically a transformational event in the capital markets, the way the private equity is now bidding on every level," said Kurt Kunert, publisher of FactSet Mergerstat, a firm that tracks mergers and acquisitions.

Said Joel L. Naroff, president of Naroff Economic Advisors and chief economist for Commerce Bancorp: "The funds have huge amounts of cash to put to use, and that's what we're seeing happening."

The uncertainty about whether the economy is heading toward recession or settling in for a nice ride is also helping to drive activity, said Mark Vitner, a senior economist at Wachovia Corp.

"In order for deals to happen, you have to have a motivated seller and a motivated buyer," he said. "You have to have divergent views on where the economy's headed."

And then there are the usual variety of nuts-and-bolts business reasons behind the merger upsurge, from corporations trying to buy their way to the top of their sector to pharmaceutical firms in dire need of larger product lines.

"The pipelines are empty for the pharma companies, so they have to buy it," said Fariborz Ghadar, director of the Center for Global Business Studies at Pennsylvania State University.

A Maryland company also announced a merger and acquisition yesterday. United BioSource Corp., of Bethesda, which supports the development and commercialization of drugs and medical devices, said it had acquired BioCor LLC, of Yardley, Pa., another pharmaceutical services firm. It did not disclose a price.

Naroff isn't surprised that a bevy of unrelated deals would emerge all at once - at least, he's not surprised that it would happen on a Monday. "You try to complete the deals over the weekend when nobody's watching."

jamie.smith.hopkins@baltsun.com

The Associated Press contributed to this article.

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