Mergers, acquisitions, attempted hostile takeovers, oh my

Let`s face it: Mergers, acquisitions, and even attempted hostile takeovers are the buzzwords in big business today. And if you`re involved in the data-communications or telecommunications industries, you may have experienced one or more of these activities firsthand.

Many telecom companies are looking to acquire or divest to stay competitive.

Mark A. DeSorbo

Let`s face it: Mergers, acquisitions, and even attempted hostile takeovers are the buzzwords in big business today. And if you`re involved in the data-communications or telecommunications industries, you may have experienced one or more of these activities firsthand.

According to Securities Data Co. (Newark, NJ), a provider of merger and financial information, total announced domestic merger and acquisition transactions exceeded $1.62 trillion from more than 11,400 deals in 1998. That`s up from last year`s record volume of $907 billion from 11,148 deals and more than the combined total of all announced domestic merger-acquisition deals from 1990 to 1995. The 1998 total marked the fifth consecutive annual record for domestic merger activity.

About $220 billion of the 1998 merger activity involved the telecommunications industry, Securities Data indicates. Topping the sector was Bell Atlantic`s pending $72.6-billion merger with GTE Corp. The top deal in its group, it was also the fourth largest announced in 1998.

Other big merger-and-acquisition plans include SBC Communications Inc.`s purchase of Ameritech Corp. for $69.9 billion, WorldCom Inc.`s acquisition of MCI Communications Inc. for $37 billion, AT&T Corp.`s agreement to buy Tele-Communications Inc. for $32.8 billion, and Lucent Technologies` (Murray Hill, NJ) $20-billion purchase of Ascend Communications (Alameda, CA).

Big get bigger

Securities Data reports that more than 54 deals valued at $72 million have already occurred within the first two months of 1999. For big companies, the future looks bright. The smaller ones, however, are going to be faced with tough choices.

"The big players will get bigger. The smaller ones will sooner or later have to make some decisions," says Jay Moran, a partner and vice president of Trudeau & Trudeau Inc. (Braintree, MA), a merger-acquisition firm that handles transactions for middle-market companies in the wire and cable industry. "Remaining stagnant will put your company in jeopardy. You have to change with the market."

Company president Bill Trudeau, who founded the firm in 1982, says most companies in the industry are looking to acquire or divest to stay competitive. "We work with privately owned companies and evaluate what direction they need to go. We help them determine what their strategy might be, and that could be buying companies or selling some of their other companies," he says.

The newsmakers are always going to be the big companies like Lucent, say Trudeau and Moran, adding that the majority of merger-acquisition transactions, though, occur among middle-market companies. "When CommScope bought Alcatel`s coaxial-cable division in January, it was front-page news," Trudeau says. "Most of the time you don`t hear about some of the other players like cdt and Belden, which have grown their companies internally and externally by purchasing some of the Mom and Pops of the world."

So, why is this happening? Trudeau and Moran say it`s because society is becoming global. Companies are regularly re-evaluating marketing and distribution strategies. In many instances, mergers and acquisitions become more attractive because they increase their sales and provide greater distribution. That feeds the larger companies in the industry, which are constantly striving to maintain growth. The best way to grow, Moran explains, is to buy another company. "Acquiring other companies is a much faster way to grow than developing new technology," he says. "When smaller companies begin to realize this, they can either stay independent or join the trend and be protected."

Another reason for the merger-acquisition trend is that the founding shareholders of many companies are approaching retirement. "They are looking for a way out, either through a family-succession plan or to sell the company," Trudeau says. "Often to prevent family in-fighting, founding shareholders sell the company because it protects the company and the family."

Trudeau and Moran warn that the industry will continue to consolidate. "There are a lot of elephants in this industry," Trudeau adds, "and you have to ask yourself, `Do you want to dance with giants?` "

Getting an edge

Perhaps the greatest merger-acquisition phenomenon in 1998 was seen among manufacturers of handheld testers. In the span of 21 days, three manufacturers of handheld test equipment announced that they were either merging with or acquiring other companies.

Two announcements came last September when Fluke Corp. (Everett, WA) revealed that it had acquired Pomona Electronics (Pomona, CA) from ITT Industries. Three days after Fluke released the news, Wandel & Goltermann (Eningen, Germany) and Wavetek Corp. (San Diego, CA) announced their merger. Then, last October, Hewlett-Packard (Palo Alto, CA) announced it had acquired Scope Communications Inc. (Marlboro, MA).

Before that, Datacom Technologies (Everett, WA) was acquired by Textron Inc. (Rockford, IL).

Jim Bordyn, vice president of marketing at Datacom Textron and former vice president of marketing at Datacom Technologies, says that teaming up with Textron "gives us the backing we need and our customers reassurance." He adds, "We retain our own identity and we gain the advantages of a large selling force."

Striving for an edge over a competitor was evident when Lucent Technologies purchased Ascend Communications, a provider of wide area network core switching and access data-networking equipment for telecommunications carriers and Internet service providers. Announced last January, the deal was thought to give Lucent and Ascend an edge on chief rival Cisco Systems, another company collector, in the hotly contested Internet-based networking equipment sector, according to a CBS MarketWatch Report. Mory Ejabet, Ascend`s president and chief executive, called the deal "a perfect fit."

The vision of a perfect fit, however, is not always shared by the wooed. AlliedSignal Inc. (Morris Township, NJ) made a play for AMP Inc., which the Harrisburg, PA-based company staunchly and repeatedly rejected. AlliedSignal, a maker of automobile and aerospace components, did not take "no" for an answer. AlliedSignal`s attempted hostile takeover failed last November when AMP announced a plan to merge with Tyco International Ltd. (Hamilton, Bermuda), a manufacturer of electric and electronic components and underwater telecommunications systems. Nevertheless, AlliedSignal still managed to purchase 20 million AMP shares before the deal with Tyco was completed last month.

Happily ever after?

When two companies do agree to marriage, growing pains are bound to arise after the honeymoon and the compromising begins. The merger that formed Wavetek Wandel & Goltermann Inc. created some unique challenges, one being the result of mixing the cool, chic ways of southern California with the intense German work ethic.

"It`s a balance, and it`s also a major challenge," says Jack Krupicka, director of corporate strategy for the newly formed company, which has 11 divisions worldwide and more than 30 sales companies. "Certainly, when you bring different cultures together for the first time, there`s a combination of tensions, of `How is this going to change my world?` "

Some of the issues company officials are hammering out, Krupicka explains, are natural, such as figuring out which groups should work together. For example, the former Wavetek fiber-optics division in France and a portion of the Wandel & Goltermann German division were combined to create "a larger, more-powerful division."

"All meetings are conducted in English. Everyone is using the same presentation software. We even dress the same way," he adds. "At the end of the day, even though we talk the same and dress the same, we are all coming from different places, and from our point of view, this is one of our strengths."

The merger-and-acquisition trend can trigger the thrill of the hunt as well as the fear of eat-or-be-eaten.

Scott Anixter, chairman and chief executive of Anicom Inc. (Rosemont, IL), keeps a list of about 100 potentially acquirable companies in the breast pocket of his suit coat, saying there are many conversations in various stages with different companies that may or may not be meaningful. Since going public in 1995, Anicom has acquired 16 distributors and generated revenues of more than $440 million in 1998. "If you don`t hunt elephants, how will you bag one?" he adds. "Hey, we may even be prey for someone else, for all I know."

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