Takeover Fever Seen Continuing : About $125 Billion of Mergers and Acquisitions in 1985

NEW YORK —  Billion-dollar mergers were all the rage on Wall Street last year, and takeover experts predict that the pace will continue into at least the first part of 1986.

The journal Mergers and Acquisitions estimates that there were 2,295 transactions completed in 1985 with a total value of $125 billion. That’s slightly more than the $124.8 billion for 2,999 acquisitions in 1984 but substantially higher than the $52.2-billion total for 1983.

“A radical change in the economical environment could cause this delicate confluence of factors, which has created the merger market, to dry up,” said Ken Miller, a managing director at Merrill Lynch. But he added, “I think there will be a vibrant (merger) market for the first quarter and probably the first half (of 1986).”

Broadcasting companies, consumer products companies, pharmaceutical companies, financial institutions, energy firms and technology companies were all involved in mergers and will continue to be, experts said.

Easy financing, a lax attitude on mergers by federal regulators, deregulation of some industries, the decline and shrinkage of other industries and Wall Street’s demand for increased shareholder values helped spur the spree, analysts said.

Backlash Develops

At the same time, however, a backlash to the buy-out frenzy has developed.

Several Wall Street professionals are beginning to question the unbridled creation of new debt that has developed as companies scramble to raise the vast amounts of cash needed to finance takeovers.

The question worrying Wall Street is how the debt is to be serviced as companies increase their debt and at the same time decrease their equity. They are particularly concerned about the prospect of a downturn in the economy some years down the road severely affecting companies’ ability to make their payments.

Salomon Bros. estimates that the volume of debt of non-financial corporations rose by $145 billion in 1985 to $1.6 trillion. Salomon Bros. senior economist Henry Kaufman has termed the amount of debt being generated--largely from takeovers--as “unwholesome.”

And the Federal Reserve Board is considering slowing the use of “junk bonds,” or high-risk, high-yield debt securities used in financing, by imposing limits on their use in takeovers.

Some of the companies that may see a lot of merger activity in 1986 are in high technology, such as the depressed semiconductor manufacturers and the financial sector, according to Martin Siegel, vice president and director at Kidder, Peabody & Co.

Experts said the atmosphere will cool only if the economy slows down, federal regulators once again clamp down, tax laws are changed, interest rates rise or one of the major companies involved in a takeover collapses in a bankruptcy.

Costly restructurings, such as CBS’ repurchase of $1 billion of its stock to fend off Ted Turner’s takeover bid and Union Carbide’s current “scorched earth” defense against GAF’s hostile takeover bid, which will leave the chemical company deeply in debt and stripped of lucrative assets, have become prominent as the takeover rally continues. Experts predict more corporate restructurings in 1986.