ECONOMICS
THE EC'S MERGER MANIA By Robert Weissman WITH THE JUNK BOND MARKET dashed and fears of higher interest rates growing, the mid-to-late eighties wave of mergers in the United States appears to have come to an end. Investors are now looking for a new outlet for financial wheeling and dealing. They may have found what they want in the turbulent European Community, whose leaders are hoping corporate consolidation and restructuring will create internationally competitive European companies. Merger mania has already begun lapping at the European shores. While the number of European targets of large cross-border deals numbered less than one quarter of the international total in the first half of 1989, it rose to over one-third the total in the second half of the year, according to Fortune magazine. Mergers and acquisitions (M&A) have occurred at an especially high rate in England; in the first three quarters of 1988, the value of acquisitions in the United Kingdom exceeded that of any previous year. Steven Wolitizer, co-head of the M&A department at Shearson Lehman, reports that one half of the business in his division is now European, up from approximately one-quarter. Analysts say the end of the merger run is not in sight. Randall Caudill, head of the international mergers and acquisitions office at Prudential-Bache, states that "gravity is on the side of continued transactions." Wolitzer says that European M&A "has increased dramatically in the past year" and that he "see[s] that being sustained." The merger trend does not meet with disapproval in the European Commission's offices in Brussels. In announcing a December 1988 directive regulating takeovers, the Commission stated that it "considers that in general takeover bids can be regarded as a positive factor which provides a mechanism for the market to select the most competitive firms and could stimulate the process of reorganization of European companies." Mergers are actually one of the desired outcomes of the consolidation of the European Community, says Ella Krucoff, head of press relations for the European Community's U.S. office. Krucoff anticipates that the high level of mergers will continue and does not expect the European Commission to intervene. "No one sees stopping the heart of the 1992 process," she says. The Commissioners hope that world-class European firms will emerge out of the corporate wrangling that 1992 is generating. They call European corporate reorganization "indispensable in order to face up to international competition." Attitudes such as this lead analysts to speculate that a relatively high level of market concentration will be permitted in Europe. The Commission is so enthused about promoting industrial restructuring that it is considering a proposal to create pan- European companies which would have no legal national origin. Companies registered under the European Company Statute would operate under European legislation independent of national laws. A European Company would be subjected to tax policy of the country in which it has its head offices, but would be able to offset losses sustained by its permanent establishments in other EC countries against any profits. To avoid creating an advantage for European Companies, the Commission is planning to propose similar rules for other firms. The Commission is also promoting research consortia in which competing companies engage in joint research in high-tech areas. In 1984, the European Council of Ministers approved plans for the European Strategic Program for Research and Development in Information Technologies (ESPRIT), allocating 750 million ecu (an ecu is roughly equal to one U.S. dollar) over five years. The next year it established the Research and Development in Advanced Communications Technologies in Europe (RACE) program. Both programs bring together multiple companies and universities, have widely been viewed as successful and have received additional funding from the Council of Ministers. Other collaborative efforts are also receiving encouragement from the EC. For example, Philips of the Netherlands, Thomson of France and Bosch of West Germany are working together to develop high- definition television. While the Commission has signalled its approval of joint research ventures, the vigor with which it intends to enforce other anti-trust provisions remains unclear. In January 1990, Air France, a state-owned airline which is the largest carrier in France, purchased the private company L'union des Transports Aeriens (UTA),the country's second largest carrier. Air France acquired control of Air Inter in the deal, giving it control of up to 97 percent of France's airline industry. Sir Leon Brittan, the European Commissioner in charge of mergers, ordered a review of the merger, but it is expected to stand, in large part because Air France is a state-owned company and therefore has substantial pull within the EC. The Air France acquisition followed similar takeovers of domestic competitors by West Germany's Lufthansa and British Airways. The concentration process will probably be checked from going further by the European Commission, but (balance of this article omitted here; unscannable) CORPORATE PROFILE MONSANTO'S MISDEEDS (omitted here; unscannable)