Takeover Fever Part Ii: The Mania Continues

Call it strategic alliances or synergistic combinations. In fact, it's becoming clear that mergers and acquisitions are back. Take the raging battle for Paramount Communications or BankAmerica's $1.9 billion deal to buy Continental Bank. They are sending some savvy pros back to the 1980s game of scouting for takeover targets.

Ed Kerschner, chairman of PaineWebber's investment policy committee, gives three reasons behind the rising takeover fever: First, despite the market's surge, many companies are still selling below their replacement values. Second, companies seeking revenue growth are acquiring other companies. And third, the rash of restructurings has opened up more opportunities for strategic linkups.

Kerschner is convinced takeovers will proliferate in entertainment, banking, telecommunications, and consumer products. In entertainment, Walt Disney tops the list. Kerschner insists Disney could start out as an acquirer or an acquiree. Who could be big enough to purchase Disney? One takeover investor says the company has been trying to woo CBS for the past three years. But it is possible, he adds, that CBS Chairman and CEO Larry Tisch may resort to a Pac-Man defense by stalking Disney instead.

Whatever the outcome, any such move will provoke General Electric, which owns NBC, into making a bid for Disney, says this pro. "GE won't just sit still and watch CBS gobble up Disney to become a much larger broadcasting giant." So whether Disney Chairman and CEO Mike Eisner "knows it or not, Disney is now essentially in play," argues this investor. The three companies declined comment.

IRRESISTIBLE BUY. In banking, Midlantic, a New Jersey bank-holding company with assets of $14 billion, says it will dispose of $290 million of troubled real estate assets. The move will greatly improve the bank's asset quality. "It is the last step necessary to put Midlantic in a position to be acquired," says PaineWebber's Lawrence Cohn. Its franchise, he thinks, will be irresistible to New York and Pennsylvania banks looking to expand in New Jersey. Cohn thinks a buyout of Midlantic, now at 29, "in the mid-to-high 40s is possible." Midlantic declined comment.

ALC Communications, a niche player in the U.S. long-distance market, could be attractive to foreign telecommunications companies such as France Tele-Communications or Britain's Cable & Wireless, which want to gain a U.S. foothold. Now at 31 a share, ALC's takeout value is around 50. Says ALC Chairman and President John Zrno: "We're not seeking but will not necessarily oppose an offer."

Gerber Products dominates 71% of the U.S. baby-food market, with $1.2 billion in sales. "It could be attractive to a large food company--whether U.S. or foreign--that wants to expand in the U.S. food business, says Kerschner. Possible buyers: Nestl , Unilever, BSN Group, and Quaker Oats. Now at 28, Gerber is well worth 20 times earnings, or 40 a share, figures Kerschner. Gerber declined to comment.

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