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Deal-making goes into a deep freeze

Jul 30, 2001  •  Post A Comment

The decline in U.S. and global mergers and acquisitions is the largest in nearly a decade and isn’t likely to improve anytime soon, despite the recent spate of announced media deals.
The sale or merger of AT&T’s broadband business and some television station groups is still likely to be announced this year, and The Walt Disney Co.’s proposed $5 billion acquisition of Fox Family is an already done deal. But they wouldn’t collectively generate enough returns to make up the massive difference, experts say.
In the United States there were 1,050 media, entertainment, telecommunications and Internet deals valued at nearly $43 billion announced the first half of 2001, compared with 1,848 such deals valued at more than $367 billion the first half of 2000, according to Thomson Financial Securities Data.
Globally there were 2,993 media, entertainment, telecommunications and Internet deals valued at $111 billion announced in the first six months of this year, compared with 4,998 such deals valued at nearly $702 billion the first half of 2000, the firm said.
Overall, merger and acquisition activity in all industries is way down in the United States and globally this year.
The first half of 2001 saw 4,043 announced mergers and acquisitions valued at $376 billion in the United States in all industries, or less than half the $878 billion and 5,845 deals announced the first half of last year, which included the mega-union of AOL and Time Warner.
Although the relative amounts of deals are way down, the number of deals the first half of the year are off only about 20 percent in all industries.
Total value of U.S. mergers and acquisitions in 2001 is expected to fall short of the $1 trillion in deals that occurred in all of 2000, putting it more on par with 1997, when announced deals barely hit $900 billion.
About 8,400 total mergers and acquisitions are expected in all industries this year, which would be the lowest number of total deals announced since 1994.
The weakness in the U.S. deal market is due partly to the collapse of telecommunications deals-the $7.4 billion value from 147 announced deals the first half of 2001 is down about 80 percent from $35 billion and 259 announced telecommunications deals in the first six months of 2000.
“The real culprit is overcapacity,” said Richard Peterson, chief market strategist for Thomson Financial Securities Data. “Many of these companies went on a buying spree for Internet or telecom and cable assets. Their strategy hasn’t worked and led to harsh results. Even if you wanted to do a deal now … most companies doing deals had been using stock, and now their stock prices have collapsed,” he said.
“It’s hard to justify any strong pickup in deals for the foreseeable future,” Mr. Peterson said.
The weakening and uncertain economy, eroding corporate earnings and stagnant deregulation have ground much deal activity to a halt.
In the United States, there were 135 announced radio, television and publishing deals valued at $12.6 billion the first half of 2001, compared with 269 announced deals in those categories valued at more than $30 billion the first six months of 2000.
U.S. entertainment deals, numbering 82 and valued at more than $4 billion during the first half of 2001, were way down from 84 entertainment deals valued at $189 billion the first half of 2000.
U.S. Internet deals also were down. The first half of this year saw 736 Internet deals valued at $19.5 billion, compared with the first half of 2000 when 1,301 Internet deals valued at $125 billion were announced.
U.S. radio and television broadcasting deals are down more than 50 percent from a year ago to $12.5 billion for the first half of 2001 from $30 billion the first half of 2000.
“It’s almost a depressionlike environment in the advertising world,” Mr. Peterson said.
The numbers for U.S. entertainment are skewed because 90 percent of the first half of 2000 numbers were due to the union of AOL Time Warner. If you didn’t count that deal, there would be a 50 percent drop in year-to-year volume.
The fallout is severe enough that some investment banks on Wall Street will continue to contract their operations and lay off personnel as deals remain sparse. Many public companies now are looking to the second half of 2002 for earnings and revenue relief.
Last year’s reigning deal champion, Morgan Stanley Dean Witter lost its lead on media, entertainment, telecommunications and Internet deals in the United States to Credit Suisse First Boston and globally to Merrill Lynch in the first half of this year.