NEW MERGER ETIQUETTE

THE BALTIMORE SUN

The suitors, not the stalkers, were the dominant force in mergers in 1993.

Although hostile bids were scarce, the transactions were hardly pikers -- with Mellon Bank Corp. offering $1.85 billion for mutual-fund manager Dreyfus Corp., pharmaceutical maker Merck & Co. paying $6 billion for mail-order druggist Medco Containment Services Inc. and, in the year's topper, Bell Atlantic Corp. agreeing to buy cable TV giant Tele-Communications Inc. for about $30 billion, to name but three.

The value of mergers and acquisitions leapt to $265 billion in 1993, a 73 percent gain on 1992, according to Securities Data Co. in Newark, N.J.

And 1994 could be even hotter -- at least that's the hope of Wall Street investment bankers grown accustomed to this year's fat advisory fees. Judging from clients' plans, "people are low" in their estimates of next year's activity, said Morgan Stanley Group Inc. Chairman and Chief Executive Richard Fisher.

Consolidation in the health care industry has just begun, Mr. Fisher said. Meantime, the finance and transportation industries are ripe for mergers, he added.

One thing has changed from the last merger wave that crested in 1988 and ebbed in 1990: Buyers have some putative strategic reason for making an acquisition.

That doesn't mean the mergers -- much less the prices paid -- make any more sense than the takeovers epitomized by Kohlberg Kravis Roberts' $26 billion buyout of RJR Nabisco in 1989.

But those at risk are often different. In the 1980s, cash more often than not was king, usually taking the form of bank debt or junk bonds. Nowadays, it's often shareholders who'll pay the piper if a merger goes bad, since a growing proportion of transactions now are financed all or in part with stock.

That phenomenon reflects not just greater wariness on the part of lenders, but also the lofty -- some say scary -- prices paid for the shares of companies in even fairly mundane, slow-growth industries.

That's one reason why corporations -- not raiders or leveraged buyout specialists -- are mounting takeovers or arranging friendly mergers. Their goals also are different. The money's to be made through profits spun off from the business being acquired, not from busting up a target or taking public a leveraged buyout a couple of years after it went private.

Merck, for instance, bought Medco to gird itself for the tougher world of health-cost controls where a low-cost distribution system could keep its proprietary drugs flowing profitably even as margins get squeezed by the emergence of giant buying groups demanding bulk discounts.

In a period where a 3 percent gain in gross national product is a world-beater among developed countries, "acquisitions become a way to grow," said Steven Wolitzer, an investment banker at Lehman Bros.

The activist administration of President Clinton -- notably his plans to overhaul the health-care system -- also is playing a role.

OrNda HealthCorp. said Dec. 2 that it would acquire Summit Health Ltd. for $264 million in cash and stock, creating the fifth-largest publicly traded hospital chain in the United States -- and a company with annual revenue of $1.6 billion and facilities in 17 states. Just one month earlier, OrNda agreed to buy American Healthcare Management Inc. in a $330 million transaction.

Deregulation also is leveling barriers in financial services. Mergers among banks, brokerage firms and mutual fund operators surged as companies sought advantage in size and marketing reach.

The biggest-ever brokerage merger began in March, when Primerica Corp. agreed to buy the Shearson brokerage and asset management operations of American Express Co. for $1.2 billion. Half a year later, Primerica said it would acquire the 73 percent of insurer Travelers Corp. it didn't own for $4.2 billion.

Technology and still-murky changes in the regulatory structure in Washington are fueling a wave of consolidation in telecommunications and media.

Besides Bell Atlantic's merger with Tele-Communications Inc., U West Inc. formed a joint venture with a unit of Time Warner Inc., while Southwestern Bell Corp. and Cox Cable Communications agreed to set up a $4.9 billion cable television partnership. American Telephone & Telegraph Co. agreed to buy McCaw Cellular Communications Inc. for $12.6 billion in stock.

But there were some reminders of the 1980s, particularly the battle for Paramount between home-shopping network QVC Network Inc. and cable programmer and operator Viacom Inc. Bidding exceeded $10 billion, a price many considered excessive.

Still, despite these echoes, it's the chairmen and CEOs that run the show. The limited role that investment bankers played in arranging Bell Atlantic's merger agreement with Tele-Communications reflects this shift.

Investment bankers weren't even invited when Bell Chairman and Chief Executive Raymond Smith and Tele-Communications CEO John Malone came to terms aboard Mr. Malone's yacht off Portland, Me., last August.

"Companies really are taking much more control of their own destinies," said Lehman's Mr. Wolitzer. "I don't think [bankers] are saying 'the good old days are back'."

THE BIG ONES

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Mergers and acquisitions announced in 1993

Target Acquirer Value*

Tele-Communications Inc. Bell Atlantic Corp. $30 billion

McCaw Cellular Communications Inc. AT&T; $17.6 billion

Paramount Communications Inc. QVC Network Inc.** $10.3 billion

Medco Containment Services Inc. Merck & Co. $6.0 billion

HCA-Hospital Corp. of America Columbia Healthcare Corp. $5.5 billion

Galen Health Care Inc. Columbia Hospital Corp. $4.2 billion

Travelers Corp. Primerica Corp. $4.2 billion

KeyCorp Society Corp. $3.9 billion

MCI Communications Corp. British Telecommunications Plc $3.5 billion

Liberty Media Corp. Tele-Communications Inc. $3.4 billion

Quantum Chemical Corp. Hanson Plc $3.4 billion

AMAX Inc. Cyprus Minerals Co. $2.7 billion

Time Warner Entertainment Co. U S West Inc. $2.5 billion

El Paso Electric Co. Central & South West Corp. $2.2 billion

ITT Financial Corp. Investor Group $2.1 billion

LDDS Communications Inc. Resurgens Communications Group Inc. $2.0 billion

IMC Fertilizer Group Freeport-McMoRan Inc. $1.9 billion

Dreyfus Corp. Mellon Bank Corp. $1.9 billion

Price Co. Costco Wholesale Corp. $1.7 billion

Motorola Inc. Nextel Communications Inc. $1.6 billion

*Value includes debt assumed and other considerations.

**Paramount has reserved the right to negotiate further with other bidders.

ANSWERS TO QUIZ ON PAGE 14D

1. Provident in December agreed to pay about $10.6 million for Sterling Bank & Trust, a $70 million (in assets) two-branch company specializing in private banking services.

2. Maryland IPOs in alphabetical order: American National Savings Bank F.S.B.; Atlantic Beverage Co. Inc.; Martek Biosciences Corp.; MicroCarb Inc.; Prime Retail Inc.; Sylvan Learning Systems Inc.; Town & Country Trust; Washington Homes Inc.; and World Technology Group Inc. (parent of Baltimore's Albert Gunther Co.).

3. Ferris President Richard P. Sullivan left to take the helm of J. L. Wickham Co., but he remained vice chairman of Ferris.

4. Easton Bank & Trust Co. became the first new commercial bank in Maryland this year.

5. Wilbur D. "Woody" Preston Jr., who was special counsel to the governor during the 1985 savings and loan crisis, dusted off his expertise in scandal as counsel to the National Commission on Financial Institution Reform, Recovery and Enforcement, the federal panel charged with investigating the national thrift crisis and recommending reforms.

Jeffrey A. Levitt, sentenced to 30 years in prison for stealing $14.6 million from the defunct Old Court Savings and Loan, was released from prison this year, paroled after serving seven years of his sentence.

6. FCNB Corp., parent of the Frederick County National Bank, tried to buy shares of the closely held HomeTown Bancorp Inc., a move HomeTown fought, characterizing it as a "creeping tender offer." HomeTown ended up finding a "white knight" buyer in Oakland-based First United Corp., the parent of First United National Bank & Trust.

7. Alex. Brown Inc. paid its chairman, Benjamin H. Griswold IV, and his brother, Jack Griswold, $10.5 million for the rights to the name of the company's founder, Alexander Brown, who was the two Griswolds' great-great-great-great-grandfather.

8. First Union Corp., also of Charlotte, bought First American Bankshares Inc.-- with subsidiaries in Virginia, Maryland and Washington -- in a sale approved by a court trustee who was supervising the breakup of the BCCI empire in the United States.

9. MNC Chairman Alfred Lerner gave up his post in October; he remains chairman of MBNA Corp. and of Town & Country Trust, a Baltimore-based real estate investment trust. Frank P. Bramble Sr., former president and CEO of MNC, was named chairman of NationsBank/Maryland and the state's senior banking executive, but he decided to resign as of this month. He hasn't announced his plans for the future.

10. Susan C. Keating in January was appointed to head the new Regional Banking Division at MNC, and then in June was named president of NationsBank/Maryland. After Mr. Bramble announced his resignation in October, Ms. Keating replaced him as senior banking executive for Maryland.

11. NationsBank paid $15.17 per share for MNC, or $1.38 billion.

12. In 1929, the Baltimore Trust Co. opened its 34-story headquarters building on 10 Light St. With half its capital invested in the building, the stock market crash and the resulting real estate depression devastated the company, and it collapsed two years later. In 1933 the Baltimore National Bank was organized from its ashes by a socialite, businessman and political kingmaker named Charles Bruce.

13. Bonus question: Al Lerner's cigar brand is Monte Cristo Habana.

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