23/06/2003 13:16
Merrill Lynch & Co. rose to No. 1 among global merger advisers in the first half, displacing perennial leaders Goldman Sachs Group Inc. and Morgan Stanley, in the weakest market for takeovers since at least 1997.
The value of announced acquisitions fell 17 percent from the same period a year earlier, to about $465 billion, according to data compiled by Bloomberg. Bankers' fees for arranging the transactions dropped to about $3 billion, a quarter of the total at the peak of the market in the first six months of 2000.
While the Standard & Poor's 500 index has risen 13 percent this year, investment bankers see little prospect of a revival in takeovers until 2004. Accounting probes at Freddie Mac and Royal Ahold NV, conflict in the Middle East and sputtering economic growth are weighing on the confidence of executives.
``In a market where you never know when the next scandal or stock-market correction is going to occur, talk about a rebound for mergers is just that -- talk,'' said Gerald Rosenfeld, chief executive officer of Rothschild North America Inc. in New York. Rothschild advised General Electric Co. on a $1.4 billion purchase of Abbey National Plc's consumer-lending unit in April.
Merrill, the world's largest securities company by capital, surpassed Goldman and Morgan Stanley, the top advisers for the past three years, because the firm worked with Japan's Resona Holdings Inc. on its sale to the government for $17 billion. The bailout of the bank, giving the government about three-quarters of the voting stock, was the biggest takeover this year.
``Merrill has fine-tuned its engine to concentrate on relationships with clients,'' said Greg Peterson, a partner in the mergers division of PricewaterhouseCoopers LLP. ``Goldman is still the pre-eminent firm and doesn't like to be second in anything. They will tighten their belt to get back to No. 1.''
Morgan Stanley Slides
The last time Merrill led in global transactions was in the first half of 1996, according to Dealogic, a London-based financial data company. Merrill, an adviser on $77.1 billion of acquisitions in the first half, was ahead of Goldman, the third- largest securities firm by capital, with deals of $75.3 billion.
``The level of activity is nowhere near as high as the bull market so there is even more reason for us to be humble about our No. 1 position, rather than complacent,'' said Philip Yates, Merrill Lynch's global co-head of mergers and acquisitions.
Morgan Stanley, the second-largest securities firm, dropped to seventh place from third in the first half of 2002, working on transactions worth $48.7 billion, Bloomberg data show. The bank's advisory revenue, which includes mergers advice, fell 44 percent in the second quarter from a year ago, to $141 million, the New York-based firm said in an earnings report last week.
Hostile Bid
Morgan Stanley did work with Iberdrola SA on its successful defense against a 15.5 billion-euro ($18.1 billion) bid from Gas Natural SDG SA, the year's biggest hostile takeover attempt.
``I'm confident that in the long term we will be near the top again,'' said Steve Munger, global co-head of mergers and acquisitions for Morgan Stanley. ``It's going to be a long, slow gradual sea change, not a sudden flurry of activity.''
Another hostile bid -- Oracle Corp.'s $6.3 billion offer for software-maker PeopleSoft Inc. -- may also fail. PeopleSoft, a maker of business software, wants instead to combine with rival J.D. Edwards & Co.
Credit Suisse First Boston is advising Oracle and has provided a $5 billion credit line to the company. The investment- banking unit of Credit Suisse Group, Switzerland's second-biggest bank, is the fifth-ranked mergers adviser this year.
``We've started to see a pickup in activity,'' Adebayo Ogunlesi, global head of investment banking at CSFB, said earlier this month at a conference in Durban, South Africa. ``What will be different is you won't see many of the large transactions you saw in the late 1990s-2000. Companies are focused on doing small strategic things that are close to their core businesses.''
Vodafone-Mannesmann
The smattering of recent acquisitions, including the offer by Oracle, the second-biggest maker of business-management software, pale in comparison with purchases made at the height of the stock- market boom. Vodafone Group Plc paid $185 billion for Mannesmann AG in 2000, the biggest-ever hostile takeover. America Online Inc. bought Time Warner Inc. in 2001 for $186 billion.
Many senior bankers are leaving Wall Street firms as transactions dwindle.
At Goldman, E. Scott Mead, who advised Vodafone on its purchase of Mannesmann, leaves this month; Nobumichi Hattori, the head of the firm's mergers business in Japan, will become a university professor; John Thornton, Goldman's co-president, plans to teach at Beijing's Tsinghua University.
Merrill Lynch's vice chairman of global investment banking, Guy Dawson, has started his own firm. Michael Marks and Paul Roy, two executive vice presidents, also left Merrill. Jean-Marc Forneri, who helped to expand CSFB's investment-banking business in France, may also start his own business.
Firing Bankers
The paucity of takeovers may put more jobs at risk. Securities firms have already shed more than 100,000 positions worldwide since December 2000. Last week, Morgan Stanley said it eliminated 986 jobs in the second quarter, taking the total cuts in the past year to 5,031, or 9 percent. UBS AG, Europe's biggest bank by assets, said last week that it was shedding 500 jobs in investment banking globally, or about 3 percent.
``If we don't see a recovery in the second half banks will certainly be looking for more job cuts,'' said Craig Woker, an investment-banking analyst for Morningstar Inc., a Chicago-based mutual fund researcher.
Lazard LLC, the top-ranked adviser on European takeovers this year, is betting on a rebound. Bruce Wasserstein, who runs Lazard, has hired more than a dozen colleagues from his old firms, First Boston Corp. and Wasserstein, Perella & Co., including Gary Parr, most recently Morgan Stanley's head investment banker advising financial companies.
Europe Ahead
European mergers and acquisitions, which outstripped the U.S. for the first time in at least five years in 2002, continued to outpace the U.S. There were $221.7 billion of announced transactions involving European companies in the first half, compared with $192.5 billion for the U.S.
In the U.S., the bankruptcies of WorldCom Inc. and Enron Corp., and a regulatory backlash aimed at improving corporate governance have also taken their toll on executives' confidence.
``Most companies don't want to do company-transforming events when they're worried about their business and their stock prices,'' said Gregg Polle, co-head of global acquisitions at Citigroup, the fourth-ranked mergers adviser this year.
U.S. regulators are investigating Freddie Mac after the No. 2 buyer of U.S. mortgages ousted top executives and restated earnings. Ahold, the world's third-largest retailer, said last month its U.S. Foodservice unit inflated profit by $880 million.
Lack of Confidence
Sarbanes-Oxley accounting rules, which require chief executives in the U.S. to sign off on quarterly financial statements, have increased the costs for documentation, legal advice, accounting and insurance. Executives also need more evidence the longest stock-market slump since World War II is over before rushing to combine, bankers said.
``It's a confidence game, and there's a gross lack of it,'' said Robert Cotter, co-head of global mergers at Deutsche Bank AG, the sixth-ranked adviser on acquisitions. ``I'm looking for a 2004 recovery.''
Top 10 Mergers and Acquisitions Advisers, First Half 2003
Firm Value of
Deals in $ billions
1) Merrill Lynch 77.1
2) Goldman Sachs 75.3
3) J.P. Morgan 67.3
4) Citigroup 67.3
5) Credit Suisse First Boston 65.1
6) Deutsche Bank 62.9
7) Morgan Stanley 48.7
8) Lazard 46.9
9) UBS 45.4
10) Lehman Brothers 40.0
Bloomberg data on fees for investment banks are based on the average charged by advisers to the companies that are being bought and sold, as disclosed in regulatory filings.
The value of announced acquisitions fell 17 percent from the same period a year earlier, to about $465 billion, according to data compiled by Bloomberg. Bankers' fees for arranging the transactions dropped to about $3 billion, a quarter of the total at the peak of the market in the first six months of 2000.
While the Standard & Poor's 500 index has risen 13 percent this year, investment bankers see little prospect of a revival in takeovers until 2004. Accounting probes at Freddie Mac and Royal Ahold NV, conflict in the Middle East and sputtering economic growth are weighing on the confidence of executives.
``In a market where you never know when the next scandal or stock-market correction is going to occur, talk about a rebound for mergers is just that -- talk,'' said Gerald Rosenfeld, chief executive officer of Rothschild North America Inc. in New York. Rothschild advised General Electric Co. on a $1.4 billion purchase of Abbey National Plc's consumer-lending unit in April.
Merrill, the world's largest securities company by capital, surpassed Goldman and Morgan Stanley, the top advisers for the past three years, because the firm worked with Japan's Resona Holdings Inc. on its sale to the government for $17 billion. The bailout of the bank, giving the government about three-quarters of the voting stock, was the biggest takeover this year.
``Merrill has fine-tuned its engine to concentrate on relationships with clients,'' said Greg Peterson, a partner in the mergers division of PricewaterhouseCoopers LLP. ``Goldman is still the pre-eminent firm and doesn't like to be second in anything. They will tighten their belt to get back to No. 1.''
Morgan Stanley Slides
The last time Merrill led in global transactions was in the first half of 1996, according to Dealogic, a London-based financial data company. Merrill, an adviser on $77.1 billion of acquisitions in the first half, was ahead of Goldman, the third- largest securities firm by capital, with deals of $75.3 billion.
``The level of activity is nowhere near as high as the bull market so there is even more reason for us to be humble about our No. 1 position, rather than complacent,'' said Philip Yates, Merrill Lynch's global co-head of mergers and acquisitions.
Morgan Stanley, the second-largest securities firm, dropped to seventh place from third in the first half of 2002, working on transactions worth $48.7 billion, Bloomberg data show. The bank's advisory revenue, which includes mergers advice, fell 44 percent in the second quarter from a year ago, to $141 million, the New York-based firm said in an earnings report last week.
Hostile Bid
Morgan Stanley did work with Iberdrola SA on its successful defense against a 15.5 billion-euro ($18.1 billion) bid from Gas Natural SDG SA, the year's biggest hostile takeover attempt.
``I'm confident that in the long term we will be near the top again,'' said Steve Munger, global co-head of mergers and acquisitions for Morgan Stanley. ``It's going to be a long, slow gradual sea change, not a sudden flurry of activity.''
Another hostile bid -- Oracle Corp.'s $6.3 billion offer for software-maker PeopleSoft Inc. -- may also fail. PeopleSoft, a maker of business software, wants instead to combine with rival J.D. Edwards & Co.
Credit Suisse First Boston is advising Oracle and has provided a $5 billion credit line to the company. The investment- banking unit of Credit Suisse Group, Switzerland's second-biggest bank, is the fifth-ranked mergers adviser this year.
``We've started to see a pickup in activity,'' Adebayo Ogunlesi, global head of investment banking at CSFB, said earlier this month at a conference in Durban, South Africa. ``What will be different is you won't see many of the large transactions you saw in the late 1990s-2000. Companies are focused on doing small strategic things that are close to their core businesses.''
Vodafone-Mannesmann
The smattering of recent acquisitions, including the offer by Oracle, the second-biggest maker of business-management software, pale in comparison with purchases made at the height of the stock- market boom. Vodafone Group Plc paid $185 billion for Mannesmann AG in 2000, the biggest-ever hostile takeover. America Online Inc. bought Time Warner Inc. in 2001 for $186 billion.
Many senior bankers are leaving Wall Street firms as transactions dwindle.
At Goldman, E. Scott Mead, who advised Vodafone on its purchase of Mannesmann, leaves this month; Nobumichi Hattori, the head of the firm's mergers business in Japan, will become a university professor; John Thornton, Goldman's co-president, plans to teach at Beijing's Tsinghua University.
Merrill Lynch's vice chairman of global investment banking, Guy Dawson, has started his own firm. Michael Marks and Paul Roy, two executive vice presidents, also left Merrill. Jean-Marc Forneri, who helped to expand CSFB's investment-banking business in France, may also start his own business.
Firing Bankers
The paucity of takeovers may put more jobs at risk. Securities firms have already shed more than 100,000 positions worldwide since December 2000. Last week, Morgan Stanley said it eliminated 986 jobs in the second quarter, taking the total cuts in the past year to 5,031, or 9 percent. UBS AG, Europe's biggest bank by assets, said last week that it was shedding 500 jobs in investment banking globally, or about 3 percent.
``If we don't see a recovery in the second half banks will certainly be looking for more job cuts,'' said Craig Woker, an investment-banking analyst for Morningstar Inc., a Chicago-based mutual fund researcher.
Lazard LLC, the top-ranked adviser on European takeovers this year, is betting on a rebound. Bruce Wasserstein, who runs Lazard, has hired more than a dozen colleagues from his old firms, First Boston Corp. and Wasserstein, Perella & Co., including Gary Parr, most recently Morgan Stanley's head investment banker advising financial companies.
Europe Ahead
European mergers and acquisitions, which outstripped the U.S. for the first time in at least five years in 2002, continued to outpace the U.S. There were $221.7 billion of announced transactions involving European companies in the first half, compared with $192.5 billion for the U.S.
In the U.S., the bankruptcies of WorldCom Inc. and Enron Corp., and a regulatory backlash aimed at improving corporate governance have also taken their toll on executives' confidence.
``Most companies don't want to do company-transforming events when they're worried about their business and their stock prices,'' said Gregg Polle, co-head of global acquisitions at Citigroup, the fourth-ranked mergers adviser this year.
U.S. regulators are investigating Freddie Mac after the No. 2 buyer of U.S. mortgages ousted top executives and restated earnings. Ahold, the world's third-largest retailer, said last month its U.S. Foodservice unit inflated profit by $880 million.
Lack of Confidence
Sarbanes-Oxley accounting rules, which require chief executives in the U.S. to sign off on quarterly financial statements, have increased the costs for documentation, legal advice, accounting and insurance. Executives also need more evidence the longest stock-market slump since World War II is over before rushing to combine, bankers said.
``It's a confidence game, and there's a gross lack of it,'' said Robert Cotter, co-head of global mergers at Deutsche Bank AG, the sixth-ranked adviser on acquisitions. ``I'm looking for a 2004 recovery.''
Top 10 Mergers and Acquisitions Advisers, First Half 2003
Firm Value of
Deals in $ billions
1) Merrill Lynch 77.1
2) Goldman Sachs 75.3
3) J.P. Morgan 67.3
4) Citigroup 67.3
5) Credit Suisse First Boston 65.1
6) Deutsche Bank 62.9
7) Morgan Stanley 48.7
8) Lazard 46.9
9) UBS 45.4
10) Lehman Brothers 40.0
Bloomberg data on fees for investment banks are based on the average charged by advisers to the companies that are being bought and sold, as disclosed in regulatory filings.
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