"Buyouts Are Back"

So says Mario Gabelli, whose Gabelli Asset Management steers $23 billion. It's focusing on takeovers through its Enterprise Mergers & Acquisitions Fund formed on Feb. 28, 2001. With Pfizer's purchase of Pharmacia and with HSBC angling for Household International -- among big deals -- Gabelli thinks buyouts will perk up in 2003 and 2004. Buyers have lots of incentive: low interest rates, cheap assets, and a favorable regulatory environment. Sellers, as well, have reason to unload: long-term economic woes, including an explosive geopolitical situation.

Gabelli's M&A fund buys into companies it expects to be acquired. It has 70 on its list. Among them: Paxson Communications (PAX ), Metro-Goldwyn-Mayer (MGM ), and Tootsie Roll Industries (TR ). Gabelli also buys stocks involved in deals for arbitrage gains. Paolo Vicinelli, Gabelli's arbitrage research chief, says that arb plays such as Scios (SCIO ), which Johnson & Johnson is buying, will yield decent gains. In the past two years, the fund has gained 2.8% -- as the Standard & Poor's 500-stock index fell 29.9%.

Gabelli's Managing Director Regina Pitaro says Paxson, whose TV holdings include family network PAX TV, is worth 10 a share, based on recent deals. It's now at 2.40. Paxson could be bought by the likes of Disney, she says. MGM, with its huge library, could be a target of News Corp. (NWS ) or General Electric's NBC, adds Pitaro. Now at 10, MGM, 67% owned by Kirk Kerkorian, is worth about 18. And Tootsie Roll, at 28, is worth 35 -- and is apt to entice Wrigley's, which had tried to buy Hershey Foods. Even if these undervalued potential targets don't get bought out, adds Gabelli, the risk in holding them is minimal.

Unless otherwise noted, neither the sources cited in Inside Wall Street nor their firms hold positions in the stocks under discussion. Similarly, they have no investment banking or other financial relationships with them.

By Gene G. Marcial

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