Cover Story: WHERE TO INVEST: INSIDE WALL STREET
BUYOUT BAIT: PCS, DRUGS, BANKS...
Mergers and takeovers. Investors have seen lots of them so far this year, and there are more to come. That's what the pros who forecast--and bagged--earlier deals are saying. They think the big fields will be technology, pharmaceuticals, and banking. Case in point: IBM's hostile $3.3 billion offer for Lotus Development.
Mike Metz, chief investment strategist at Oppenheimer, who predicted at the start of the year that acquisitions would become "more frenzied and bigger," says: "To a lot of companies, the pressure is still on to widen distribution networks and bolster research and development of new products."
Seasoned buyout spotters spy four that are ripe for picking: Apple Computer (AAPL), Alza (AZA), Upjohn (UPJ), and First Chicago (FNB).
Who's out to snare Apple? Several names are being bandied about, but the "most recent--and most logical--is Sony," says Metz. He argues that the Japanese giant could put its marketing and R&D to great use for Apple. "With its deep pockets and global vision, Sony can wed its entertainment values to Apple's technology to create novel interactive computer products," says Metz. Apple, for its part, needs an alliance with the likes of Sony to stay with the pack in computers, notes Metz.
Alza, a leader in controlled-release drug-delivery systems, is rumored to be a target of Pfizer, with which it developed Procardia XL for angina and hypertension. A European pharmaceutical giant is also rumored to be keen on acquiring Alza. Alza has research and marketing agreements with Marion Merrell Dow--which has agreed to be acquired by Hoechst, Germany's chemical and drug titan--as well as with Glaxo Holdings and Johnson & Johnson.
Upjohn is another drugmaker seen as "compelling takeover bait" for foreigners. Talk is that the stock is trading close to its high this year because some hedge-fund managers have put it on their new list of takeover targets.
First Chicago's stock has also bumped a new ceiling lately, thanks in part to buyout talk. Potential bidders include NationsBank, which analysts say is in a "good position to pay up" for First Chicago in a quest for broader markets, and Wells Fargo, said to be interested in the Midwest market. With its stock trading at a nice premium to many of its peers, the California bank could do a combined stock-cash merger, says Metz.BY GENE G. MARCIAL