Word: merger
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...Merger Wave...
...stock surge was in part the product of encouraging economic signs: falling interest rates, low inflation, sagging oil prices, a declining dollar that will help reduce the U.S. trade deficit, and enactment of the Gramm-Rudman law to slash the federal budget deficit. The market was also driven by merger fever, as opportunistic investors pushed up the prices of companies thought to be takeover targets...
While most individual investors seek the relative safety of funds, a select breed plays the hazardous game called risk arbitrage. These daredevils buy stocks in companies that they think are vulnerable to a takeover. If one of these firms does indeed receive a merger bid, the arbitragers stand to make huge profits, but they can suffer staggering losses if no deal materializes. In 1985, arbitragers boosted the price of shares in dozens of companies before they were acquired, including General Foods, RCA, Revlon and Richardson-Vicks...
...takeover rush also increased the value of stocks in a more fundamental way. To guard against hostile merger bids, many companies bought back a portion of their own shares. In many cases, a management group acquired all the stock through a so-called leveraged buyout and took the company private. In all, at least $100 billion worth of shares, or about 5% of the stock in American companies, was taken off the market by mergers, acquisitions, buyouts and stock-repurchase plans. That made the stock that was still being traded more valuable...
...Editors: You did a public service by publishing the story on merger madness [ECONOMY & BUSINESS, Dec. 23]. There is nothing inherently wrong with mergers. Our corporation has often taken a stroll down acquisition avenue. But when we take over a company, we do it because we want to run it. People who issue junk bonds are different, as Felix Rohatyn points out. They are not interested in companies as institutions, but want to break up the business they are after. Takeovers using junk bonds rob stockholders of the value of their investment, throw employees out of work and make...