Feeding Frenzy On The Continent

From the spires of the City of London to the glass towers of Frankfurt, dealmakers are dusting off their battle plans. After a two-year lull, Europe is suddenly seeing a surge of buyouts and mergers in industries ranging from cement to banking (table). "I've never picked up so much business in such a short period of time," says Dante Razzano, managing director for Morgan Grenfell Italia in Milan. In the past two weeks, he has received orders from five companies to sell off divisions.

As Europe tears down the remaining barriers to cross-border takeovers, well-heeled players are ready to pounce. With an eye toward slugging it out with Japanese and American rivals, European executives have become almost fanatical about building up their core businesses. As a result, the new acquisitions drive seems destined to lead to far greater industrial competition than previous wheeling and dealing.

Takeover action in Western Europe this year could surpass 1989's record level of $159 billion recorded by Acquisitions Monthly. First-quarter figures are up 57%--to $43 billion--over last year.

CEMENT MIXINGS. The promise of a unified Europe is drawing even insular executives into deals across the borders. And while friendly banks and shareholders still can gang up to block hostile outsiders in countries such as Germany and Italy, many barriers have already fallen elsewhere. Indeed, the easing of France's takeover regulations was crucial to Nestle's $2.3 billion acquisition of Source Perrier in March.

The late April consolidation in the prosaic cement industry is typical of the latest M&A phase. Plagued by losses, the French financial and industrial group Compagnie Financiere de Paribas agreed to sell 45% control of its Societe des Ciments Francais unit to Italy's Italcementi for $1.3 billion. In one shot, Italcementi, which dominates the business at home, becomes a $4 billion combine with a major presence throughout Europe. "It's clear 1993 is upon us," says general manager Roberto Giannini. "We can be the market leader in Europe."

In a move to protect his embattled empire, French financier Jean-Luc Lagardere on May 5 announced plans to merge his publishing company, Hachette, with missile maker Matra, which he also controls. Hachette is laden with debt and losing money from ill-timed media buys in the U.S. and heavy support of the now-defunct French TV channel, La Cinq. The company hopes to tap Matra's cash trove for help. Yet even Lagardere may have to yield to the potent new forces of change and unload some properties.

In fact, across Europe, economic pressures are forcing managers to dump businesses--or face predators who will do it for them. In some cases, powerful competitors are getting together to pool overhead costs in peripheral businesses, a trend that's likely to accelerate. That's happening with Air France and Lufthansa, which plan to merge their four- star hotel chains--Meridien and Kempinski--to share marketing and reservation costs.

In others, the fallout from big-company mergers is throwing up opportunities for newcomers. Apax Partners Ltd., a $1 billion investment fund, paid $78 million in March to British energy giant Burmah Castrol PLC for a collection of heavy industry operations the company had picked up in a 1990 acquisition. "We think we are buying at the bottom of the cycle a company with strong market share across Europe," says Apax Chairman Ronald Cohen.

BREATHE EASIER. In Britain, fears that a Labor government would crack down on mergers put many deals on hold. Now, with Prime Minister John Major reelected and the economy finally stirring, the floodgates have opened. "All of the uncertainty is out of the way," says Charles Irby, a director of Baring Brothers & Co., a British investment bank, which has recently put together $7.4 billion in potential deals, including Lloyds Bank PLC's attempt to take over rival Midland Bank PLC.

But nowhere is the merger frenzy gathering more steam than in Germany, where reunification and restructuring for global competition last year pushed merger and acquisitions activity to record levels of nearly 2,000 deals. Many postwar managers of the vital midsize companies known as the Mittelstand are nearing retirement and worrying about their companies being squeezed by the competition of "1992." The challenge, say management experts, may be to acquire or be acquired.

American acquirers are also hustling to keep from being left out of the big party they expect with the arrival of the single market. Companies such as Hershey Foods Corp. and Ralston Purina Co. have recently filled in theirglobal product lines in candy and batteries, respectively, with buys in Western Europe.

Of course, blending all of the cross-border deals into smoothly running com- panies could prove difficult. And the question remains how far and fast the Merger Task Force of the European Commission--a new factor in the takeover equation--will allow things to proceed. A strong clue may be forthcoming. Markets are abuzz with rumors of a possible combination of Volvo and Renault truck and auto operations. How regulators tilt will signal whether dealmania is officially blessed as European policy.

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