Mergers Fuel Wall St. Activity

MERGERS and takeovers - involving such companies as Time Inc., Avon Products, and Northwest Airlines - are once again the talk of Wall Street. ``But if you think the sudden interest in mergers is an interruption in an otherwise steady market, think again,'' says Larry Wachtel, an analyst with Prudential-Bache Securities. ``This [merger activity] is the market. Mergers never really went away, though after some of the big ones during the past year, it looked like they did. The bull market of 1988-1989 has been in large part fueled by mergers''

During the early part of the year, of course, the Time Inc. and Warner Communications linkup captured public attention, as well as speculation regarding the takeover of NWA Inc., the parent company of Northwest Airlines. There has also been much speculation regarding a number of large entertainment conglomerates, such as MCA, the parent company of Universal Pictures.

In recent weeks, two distinct patterns have emerged:

A number of fairly large-scale mergers or takeovers have either been discussed or actually begun. The rivalry to gain control of NWA has intensified. NWA is now courted by Pan Am, Marvin David, an oilman, and Michael Stern, an investor. Raider Irwin Jacobs wants control of Avon Products. And late last week Time Inc. stock rose on reports that Wall Street suitor Robert Bass and entertainment giant Gulf & Western might each seek a Time Inc. takeover.

A number of midrange mergers or takeovers are under way, including Gordon Jewelry, to be taken over by Zale Corporation and WestMarc Communications, to be bought by Tele-Communications. Other companies discussed in terms of takeovers or mergers include Agency Rent-A-Car, McClatchy Newspapers, Thrifty Rent-A-Car, Middleby Corporation and Hussmann Corporation.

John Hoffmann, an analyst with Smith Barney, Harris Upham & Co., notes in a recent report that the announcement early this month that Middleby would acquire food-service subsidiaries of Hussmann suggests that the merger/acquisition fervor has ``hit the small stocks.''

Middleby makes commercial ovens. Hussmann is in the food-service business, with such brands as Toastmaster, Victory, South Bend, and Seco Products.

Jack Conlon, who heads up equities trading at Nikko Securities Company International Inc., says that ``the midrange level,'' involving corporate transactions valued between $50 million to $250 million, is where much of the merger momentum traditionally tends to take place. Mr. Conlon, like Mr. Wachtel, does not believe that there has been much of an actual falloff in merger activity from the first quarter of 1988 to the first quarter of 1989. Indeed, much of the rationale for the current mergers, he suggests, is because of investor interest in seeking ``underlying value'' within companies - assets such as brand names, subsidiaries, or other corporate entities that have high monetary value in and of themselves.

Much of the merger activity, experts note, is structural - i.e., taking place within the same industry. Case in point: Carolina Bancorp, in the financial services area, which recently agreed to be taken over by BB&T Financial.

Patricia Bowers, a professor of economics at Brooklyn College of the City University of New York, believes that mergers and consolidations will continue to occur within the financial services/banking sector. Eventually, she says, ``we're going to end up with a few very large banks in the US specializing in the domestic and international market.'' There will perhaps be 10 or 20 of these very large banks, she says. Then there will be a second or third tier of smaller banks at the regional and local level, dealing with commercial and consumer-banking. Not only will the merger activity continue to take place within banking, she says, but it is to be welcomed if the US is to be ``competitive in global banking.''

``The best type of merger is one where the two companies fit together somehow,'' argues Arthur Lichtendorf, director of research for Tucker, Anthony & R.L. Day Inc.

``There's only going to be so many of the giant mergers in the $25 billion range like RJR/Nabisco,'' says Mr. Lichtendorf. ``But a lot of small and medium-sized companies are acquiring other companies.''