Business Matters U.S.-style merger-mania in offing

By Kevin FitzGerald

I’ve been reading about deregulation and the numerous mergers that have been taking place in the U.S. With Ireland’s strong growth, are companies there expected to latch on to this trend?

– M.M., Hoboken

The trend toward global consolidation certainly seems to be accelerating and Irish-based businesses are clearly participating. Over the last several years, Irish companies have done their share of expanding globally by acquiring companies outside Ireland. As reported in the Wall Street Journal, for example, less than two years ago Elan Pharmaceutical purchased Athena Neuroscience, a U.S.-based biotechnology firm that enabled them to gain access to a research-based pharmaceutical company. Just recently, The Dow Jones News Service reported that Elan added two other companies to their roster – U.S.-based GWC Health, Inc. (Carnick Laboratories) and another U.S. company that specializes in drugs for pain management called Neurex. These last two acquisitions by Elan are valued at $850 million, bringing the total Elan has spent on mergers and acquisitions over the last two years to $2 billion. As a testament to Elan’s coming of age, last month, the stock was added to the pharmaceutical sector within the Dow Jones Stoxx Index. As reported on the Dow Jones News Service, this is a new index which comprises 665 companies across Europe and represents Dow Jones’ broadest measure of European share prices.

Almost simultaneous with the Elan announcement, the Wall Street Journal reported Jefferson Smurfit’s bid for Stone Container, the U.S. paper products firm. This one transaction alone is valued at $2 billion. With the construction growth taking place in Ireland, CRH, the Irish construction company, is using its profitability to expand worldwide, including a $60 million acquisition last month of privately held M. A. Segale, Inc., based near Seattle, which was recently reported by the Dow Jones News Service.

Another key trend seems to be the worldwide consolidation within the financial services industry, which seems to be unstoppable. Reports in the business press including the New York Times and the Wall Street Journal have recently highlighted the mergers within the U.S. banking industry: BankAmerica and NationsBank, as well as BankOne and First Chicago have announced multi-billion-dollar mergers. The largest proposed merger to date is the $700 billion combination of Citibank and Travelers. These combinations are expected to produce improved shareholder value through cost saving (elimination duplicate back office departments and computer facilities, etc.) and a broader array of services available to clients under one roof. These new financial powerhouses will have a global reach.

The impact of the European Monetary Union (EMU) with its common currency for comparing financial services companies across different countries may open up the possibility of acquisitions within the Irish financial services industry. This point was made recently by Tom Mulcahy, chief executive of Allied Irish Banks, during a presentation he made at the Institute of Bankers in Ireland. Aside from the possibility of a European bank purchasing one of Ireland’s two largest banks – Allied Irish Bank and the Bank of Ireland – there seems to be another trend developing: recent reports in the Sunday Business Post indicate that the building societies are planning to go public. Irish Permanent, whose stock is already publicly traded, will be joined in the near future by First National Building Society, which has announced that it plans to go public.

The strong performance of the Irish stock market over the last several years provides many companies with the currency of higher stock prices to use in acquiring other companies. At the same time, the unification of most of Europe’s monetary systems may result in European companies looking for merger partners beyond their borders.

The information contained herein has been obtained from sources believed to be reliable, but we cannot guarantee its accuracy or completeness. Neither the information nor any opinion expressed constitutes a solicitation for the purchase or sale of any security.

International investing presents certain risks not associated with investing solely in the U.S., such as currency fluctuation, political and economic change, social unrest, changes in government regulations, differences in accounting and the lesser degree of accurate public information available.

(Kevin FitzGerald is first vice president-investments with PaineWebber. He focuses on the areas of professional money management, asset allocation and retirement planning. His office is at 1251 Avenue of the Americas (50th Street). He can be reached at (212) 626-8634.