12/28/98 THAT WAS JUST THE M&A WARM-UP

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THAT WAS JUST THE M&A WARM-UP
Takeovers in 1999 should equal, if not surpass, last year's total of $1 trillion in deals
Awesome. That was 1998, a year when a raft of megamergers and acquisitions helped push the stock market to uncharted new high ground.
So how does it look for 1999? The betting is that the value of takeovers will equal, if not surpass, the 1998 total of $1 trillion. ''Just six megamergers accounted for over 30% of 1998's total volume'' says The Mergers & Acquisitions Advisor in New York. ''Next year will see another boom in megamergers as well as in minimerger deals,'' predicts Edward M. Kerschner, chief investment strategist at PaineWebber Group. More and more companies ''have both the need and the ability to do deals,'' he argues. Corporations are often pressed to seek partners to generate fresh sales and find new ways to cut costs.
Top on Kerschner's list of takeover targets is Nextel Communications Inc., the leading provider of specialized wireless-communications services. If a foreign outfit such as Mannesman, Siemens, or Vodafone decides to enter the U.S. market, it will want to do so in a big way--to reap economies of scale, says Kerschner. So an overseas buyer, he adds, would be apt to pick a sizable player such as Nextel.
HIGH VISCOSITY. In Big Oil, still stunned by the proposed Exxon-Mobil merger announced in November, the talk is that any player is fair game. To veteran oil analyst Frederick P. Leuffer Jr. of Bear, Stearns Cos., Phillips Petroleum Co. seems ''the most undervalued domestic major that we cover.'' He thinks Phillips' operations might be a good fit for Elf Aquitaine, the French giant. Other good matches for Phillips, says Leuffer, could be Texaco Inc. and Chevron Corp. The latter, incidentally, is also rumored to be buyout bait.
In addition, Leuffer points out that ARCO is an attractive target. He says ARCO has the strongest position on the West Coast of any oil company, operates the two largest oil fields in the U.S., and owns the best exploration acreage in Alaska. ARCO also has some excellent exploration opportunities in the Gulf of Mexico.
Hilton Hotels Corp., which has just spun off its slumping casino operations into a separate company called Park Entertainment Corp., is one of the companies that market maven Mario Gabelli is betting on as a takeover target in 1999. Hilton's 260 hotels will be a valuable asset, he thinks, for a larger company in the business. At its current price of 19 3/16, the stock is one of the best bargains among prominent hotel franchises, says Gabelli.
To Charles LaLoggia, editor of LaLoggia's Special Situation Investor, a newsletter in Potomac, Md., the big money to be made in takeovers will be on deals that involve small-capitalization companies. That's because of a ''value gap'' between the large and small caps, which have lagged behind the blue chips. LaLoggia thinks the sectors to watch are: supermarkets, security equipment, drugstores, water utilities, and pharmaceuticals.
SHOPPING LIST. Here are LaLoggia's picks: Smart & Final, which operates 213 warehouse-style grocery stores; Response USA, already 14.8% owned by Protection One, which has been acquiring small alarm companies in the past two years; and Copley Pharmaceutical, 51% owned by Germany's Hoechst, which had paid $55 a share in 1993 for its Copley stake. Hoechst recently agreed to merge with France's Rhone Poulenc. LaLoggia thinks Hoechst will either buy all of Copley or sell its stake to another player.
Michael Ginsberg of JWGenesis Financial Corp. is casting his eye on the office-supply business, which he thinks is entering the final wave of consolidation. Corporate Express Inc. is a likely target, says Ginsberg. The company has recently been struggling to improve its dismal performance. While its sales growth has been strong--surpassing $3.5 billion--its stock has been weak because of disappointing earnings. ''The company could be worth more to another player in the business,'' says Ginsberg. Superstores such as Office Depot Inc. or Staples Inc. are very likely, says Ginsberg, to rise to that enticing challenge.
By Gene G. Marcial in New York

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