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A QUICKENING TAKEOVER TEMPO

From telecom to entertainment, mergers and acquisitions may be even hotter in '97

For the past three years, the conventional wisdom has been that the takeover game would soon fizzle. Instead the tempo of buyout activity has quickened. The just announced megamerger between Boeing Co. and McDonnell Douglas Corp. is a vivid example of what has been going on.

And 1997 won't be any different. In 1996, banking, insurance, and health care provided the largest cache of market winners. Market strategists are betting that in '97, takeovers will center on these very same fields--plus technology, telecommunications, biotech, entertainment, and gaming.

''We expect the upbeat pace of mergers to accelerate,'' asserts Michael E. Metz, investment strategist at Oppenheimer & Co., who has been on the money in calling takeover activity over the past three years. The reason: By merging, companies can cut duplication without cutting into revenue growth.

BIOTECH BIDS. In health care, Metz's top pick is Rhone-Poulenc Rorer, which is 68% owned by Rhone-Poulenc, the giant French chemical and pharmaceutical company. Rorer produces prescription drugs, plasma proteins, and nonprescription medicines. Metz thinks that parent Rhone-Poulenc will restructure, leading to the sale of its Rorer unit. Metz believes Rorer's management may acquire the company through a leveraged buyout. It's also rumored, he says, that another major U.S. pharmaceutical player is interested in acquiring Rorer.

In the highly competitive HMO business, Metz singles out Healthsource Group Inc. as an ''attractive moving target.'' He notes that like many other HMOs, Healthsource has been plagued by disappointing earnings and hurt by rising medical costs and price competition. He thinks big insurer Aetna Life & Casualty and Oxford Health Plans Inc. are interested in Healthsource.

Biotech will be a source of some intriguing takeover plays, says Mike Murphy, editor of the California Technology Stock Letter. His picks: Genetics Institute Inc., which is 60% owned by American Home Products Corp.--Murphy thinks AHP will go for the rest very soon; Biogen Inc., which has products for multiple sclerosis and for inflammatory and respiratory diseases; and Centocor Inc., whose two drugs have been approved for reducing complications during heart surgery.

In the insurance industry, USLIFE Corp. is the favored pick of a New York money manager who thinks a larger insurer is wooing it. Among entertainment stocks, analyst Dennis McAlpine of Josephthal Lyon Ross Inc. is betting on Gaylord Entertainment Co., a major player in cable networks, entertainment, and broadcasting. He believes Westinghouse Electric Corp., which owns CBS, and Seagram Co., which owns key entertainment company MCA, are interested in Gaylord.

''ESPECIALLY HUNGRY.'' In technology, three names pop up as fresh takeover candidates: Broderbund Software Inc., which develops games and other software mainly for the home, school, and small-business computer markets; Stratus Computer Inc., a manufacturer of computer systems designed for continuous operations even when there is a failure in hardware or software components; and FORE Systems Inc., which makes networking products.

Analyst Michael Wallace of UBS Securities Corp. says Broderbund is looking to grow through acquisitions. But he believes Broderbund could also be ''taken out by another company that's especially hungry.'' Possible acquirers, he says: Electronic Arts and Microsoft Corp. One money manager on the West Coast is convinced that IBM will make a move on Broderbund.

Metz, who is bearish on the overall market, is bullish on takeovers. ''It will remain the intriguing game in the market,'' he says.

By Gene Marcial in New York



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