Crash Injects Reality Into Merger Fever

One of Black Monday’s small mercies is that the crash brought the merger game down to earth--although it may not have seemed that way last week as three of the business world’s more interesting characters made bids for large companies.

Paul Bilzerian, a 36-year-old raider from Tampa, Fla., offered $50 a share for Singer Co., the former sewing machine maker that now gets 85% of its business from military electronics.

And Santa Fe Southern Pacific, the railroad company with impressive assets in real estate and oil, held talks with deal maker Michael Dingman of Henley Group about a buyout at $63 a share, while Paul Reichmann of Canada’s real estate giant Olympia & York wanted to talk about a higher price.

It looked as if the merger pace that saw 3,336 deals worth $173 billion last year hadn’t lost a step.

But that is not the case. The free-for-all is over because assumptions have changed. “You can’t be sure assets you buy today can be sold at higher prices tomorrow,” says investment banker Carl White of Kidder Peabody’s Los Angeles office. “Financing is difficult because values are uncertain,” says Martin Secora, publisher of Mergers & Acquisitions magazine.

Last week’s events illustrate how things have changed.

Bilzerian, who owns 9.9% of Singer, was trying to put the company “in play”--arouse higher bids from other acquirers so that he could turn a quick profit. He made tens of millions with that tactic in the heyday of takeovers.

But now he’s playing against the wind. A year ago bidders would have competed for Singer, but no offers appeared last week. With defense budgets declining, buyers are not eager for military businesses. And with values in doubt, Bilzerian’s plan to pay for his $1-billion deal by selling Singer’s divisions no longer adds up.

Railroad Asks for Bids

Singer, based in New Jersey, where state law limits asset sales by hostile acquirers, said it would advise stockholders what to do on Nov. 16. But where only yesterday it would have had to seek “white knights” or borrow madly to restructure, Singer now can simply say no and go about its business.

Santa Fe Southern Pacific, on the other hand, is asking for bids because times have changed. Santa Fe has feared a takeover since the Interstate Commerce Commission ordered it a year ago to sell one of its railroads. Dingman, 56, a financier who specializes in buying companies, stripping down their payrolls and other expenses, and selling stock in the refurbished results, purchased 5% of Santa Fe at that time. Reichmann’s Olympia & York bought a 6% stake.

In September, Santa Fe--to preempt potential acquirers--announced a stock repurchase and restructuring in which it would sell off oil and real estate assets. But the crash clobbered plans for such sales. Meanwhile, Santa Fe management saw Dingman buying its stock at post-crash bargain prices in the low $40s.

So management specified a $63 a share price--$9.9 billion for the whole company--and asked Dingman to buy the lot. He responded by offering securities and cash, but Santa Fe insists on cash. Paul Reichmann, meanwhile, said he might pay more than $63.

Reichmann, 55, is no raider. He and his brothers, Albert and Ralph, purchased New York City real estate for $350 million in 1977, when the city’s fortunes were low, and turned it into $3 billion worth of prime properties--including the World Financial Center that they built. They are now working similar magic in London. If the Reichmanns are bidding for Santa Fe, it’s a good bet the values are there.

But changed times also mean those values may take years to be realized--which is why Santa Fe decided to try for a good price for shareholders today and let Reichmann or Dingman do the waiting.

So, in one sense, Black Monday has slowed down takeovers and given advantage to buyers with cash--as happens to houses when sales get slow.

But in another sense, the crash has restored perspective to values--meaning that shareholders once again may look to realize value over time through the profits of the company rather than through the calculations of quick sale and breakup that so characterized the merger game.