Latest Surge in Wall Street Takeover Battles Has Retro Feel.

Byline: James P. Miller

Feb. 15--Eighties-style leg warmers are making a comeback in women's fashion, this time worn in combination with high heels.

Hollywood churns out movies, like "Charlie's Angels" and the upcoming "Starsky and Hutch," that feed our nostalgia for the second-rate TV shows of our childhood.

In the same retro spirit, it looks like Wall Street is bringing back the takeover battle.

A number of hostile takeover efforts have been launched in recent months. And while Comcast Corp.'s bid for Walt Disney Co. isn't hostile--yet--it is expected to burst into open corporate warfare soon. If that happens, Disney would become one of the biggest hostile buyout fights ever.

Merger and acquisition activity of all kinds has been picking up since mid-2003 after a lull that began when the Internet bubble burst more than three years ago. And the most eye-catching element in M&A is the reappearance of the hostile takeover.

The lead example of the trend is Oracle Corp.'s hostile $9.4 billion offer for business-software rival PeopleSoft Inc., a donnybrook that has been going on for seven months.

In moving against PeopleSoft, Oracle Chief Executive Larry Ellison "kicked off in a very visible way a return of the forgotten art of the hostile takeover bid," said Ryan Kuhn, a principal with the Chicago-based merger and acquisition advisory firm Kuhn Capital.

Whatever the merits of the bid, Ellison's aggressive move "reawakened a lot of people" to the notion of hostile takeovers as a viable tool after years of disuse, Kuhn said.

Other current examples aren't hard to find.

As Britain's Barclay brothers maneuver to take control of Chicago-based Hollinger International Inc., Hollinger's board is using a squadron of attorneys to repel the suitors solicited by ousted chief executive Conrad Black.

Auto-parts maker ArvinMeritor launched a hostile $2.67 billion offer for Dana Corp. last year, but eventually quit--after spending millions on the pursuit--when Dana's board maintained its resistance.

In Canada, Alcan successfully brought down France's Pechiney S.A. with a $4.5 billion hostile bid.

Why the upturn now?

As the stock market stages an uneven recovery, experts note, some companies' shares are getting well while others' remain depressed. For acquisitions in which the buyer pays with stock, that temporary gap in valuation can create opportunity.

While there are numerous strategic reasons why Bank One last month agreed to a friendly $58 billion buyout proposal from J.P. Morgan Chase & Co., it is probably no coincidence that the price of Morgan's stock had climbed more than 80 percent in the 12 months prior to the deal. By comparison, Bank One's stock had risen a more modest 30 percent during the same period.

J.P. Morgan, at least temporarily, had a stronger currency.

M&A activity began to strengthen month by month the latter half of 2003, and "2004 opened up heavy," said Patrick Hurst, a managing director in the Chicago office of investment bank Houlihan Lokey Howard & Zukin.

"Over the last couple years, there's been a lot of pent-up demand" on the part of prospective corporate buyers and sellers, he said.

However, financing wasn't readily available, and that absence helped keep stock prices so low that buyers were not interested, Hurst said.

Now financing is becoming available, stock multiples are rising to a level where sellers are willing to say yes, and M&A activity appears poised for a sustained upturn.

Stock market moves are not the only factor behind the upturn in M&A, which totaled $256 billion worldwide through Feb. 13, according to Factset Mergerstat LLC.

Buyers planning an all-cash buyout effort are mindful that the current super-low interest rates are poised to rise soon; for some, it makes sense to make a bid and borrow the buyout funds now, rather than six months from now.

Still, notes Houlihan Lokey's Hurst, M&A lenders are not as frisky as they were in the go-go period before the market's tumble.

"In the last heyday, when money was all around, people were just doing deals," Hurst said. "This time the money is smarter, and more patient."

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(c) 2004, Chicago Tribune. Distributed by Knight Ridder/Tribune Business News.

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