Magazine

March Merger Madness


It's shaping up to be a year for the M&A history books. The big daddy this week is AT&T's (T) $67 billion call to BellSouth (BLS), announced on Mar. 6. But lots of other deals crossed the wires. Among them: Blackstone Group grabbed the CarrAmerica (CRE) REIT for $5.6 billion; Providence Equity and Goldman Sachs (GS) offered $3.4 billion for Education Management; (EDMC) and NBC Universal nabbed the iVillage (IVIL)Web site ($600 million).

So far, 2006 has witnessed 21 U.S. deals worth a total of $184.4 billion, according to Thomson Financial (TOC). That portends a banner year like 2005, the best for global M&A since 2000. The big reason? Corporate strategists and private equity honchos are putting their overflowing coffers to work. In the U.S., buyout firms are sitting on $150 billion in cash, which could fund as much as $600 billion in deals, says JPMorgan Chase's global buyout advisory unit.

See "Is Verizon Heading South?" and "NBC Universal Takes an iVillage"

GM (GM) is unloading stakes and slashing benefits to raise cash and curb losses. The carmaker further unwound its strategy of aligning with foreign companies by cutting its stake in Suzuki (SZKMF) from 20.5% to 3.7%, netting $575 million to $750 million. On Mar. 7 it also froze its defined pension plan for 42,000 salaried workers, which will save it $1.6 billion this year. While GM is trying to avoid bankruptcy, auto parts supplier Dana (DCN) couldn't manage it. The Toledo company filed for Chapter 11 on Mar. 3, joining Delphi (DPHIQ), Tower (TWRAQ), and Collins & Aikman (CKC).

See "GM: Cashing In on Suzuki"

In the key moment of the Enron trial thus far, ex-CFO Andrew Fastow said for the first time on Mar. 7 that former CEO Jeffrey Skilling, and to a lesser extent ex-Chairman Kenneth Lay, knew about and encouraged the off-books entities that allowed Enron to generate fake profits.

U.S. bond mavens concluded that they didn't like the look of things, so they drove the 10-year Treasury note yield up from 4.55% to 4.75% between Feb. 28 and Mar. 6. Comments by St. Louis Fed Bank President William Poole, who suggested speedy expansion would lead monetary policy makers to "step a little harder on the brake," spooked traders already anxious about inflation and the prospect that the Fed may not be near the end of its long cycle of tightening after all. The European Central Bank's Mar. 2 quarter-point hike, to 2.5%, didn't help either.

See "Tough Rate Calls at the Fed, ECB, and BOJ"

For better or worse, it's back to basics at Wendy's. (WEN) The No. 2 burger outfit by sales knuckled under to investor Nelson Peltz and said on Mar. 2 that it will sell off its 2,790-outlet Tim Hortons (WEN) donut-and-coffee chain. The Dublin (Ohio) company also gave Peltz's Trian Fund three seats on its board and may jettison its limp Baja Fresh eateries. Shareholders may not find Wendy's as appealing without fast-growing Tim: Same-store Wendy's sales skidded every quarter in 2005. As for Peltz, he's already demanding five board seats at his new target: H.J. Heinz. (HNZ)

Warning? What warning? Sure, Intel (INTC) cautioned Wall Street on Mar. 3 that first-quarter revenues would miss targets because of weaker-than-expected demand. But that didn't stop the world's largest chipmaker from spinning rosy scenarios four days later at its semiannual developers' forum. CEO Paul Otellini said archrival Advanced Micro Devices (AMD) should be looking over its shoulder as Intel shows off the best-performing server chips in years and builds an arsenal of next-generation fabs. That may offer cold comfort to investors, who worry the two could fire up a price war that will short-circuit margins.

See "AMD Chips Away at Intel"

Did Carly Fiorina walk away with too much cash? Two union pension funds sued Hewlett-Packard (HPQ) on Mar. 7, claiming that a $40 million-plus severance package for the fired CEO broke company rules. Following Michael Capellas' exit in 2002 with an estimated $17 million after just seven months on the job, HP agreed to let shareholders O.K. any package more than 2.99 times an exec's salary and bonus. The unions say Fiorina's deal surpassed that limit. HP says it ain't so.

Now maybe Research in Motion (RIMM) can focus on its real worry: staying ahead of the rivals baying at its heels. On Mar. 3, RIM, maker of the popular BlackBerry wireless e-mail and phone gizmos, agreed to shell out $612.5 million to settle its seemingly endless legal bout with patent holding company NTP. RIM stock clicked up 15% on Mar. 6, but analysts cautioned that the uncertainty has led customers to examine the wares of Microsoft (MSFT), Palm (PALM), and Nokia, (NOK) all of them working hard to cut RIM's 70%-plus market share.

See "BlackBerry Won't Get Squashed"

He's known for "Fedspeak," which doesn't exactly read like an Elmore Leonard novel. But former Fed boss Alan Greenspan still reaped an $8.5 million-plus book deal from Penguin (PSO), according to the New York Post, which broke the story on Mar. 7. Factoring in inflation, that's probably the fifth-biggest advance ever, following payouts to President Bill Clinton, Pope John Paul II, ex-GE (GE) CEO Jack Welch, and Senator Hillary Clinton. Will Penguin make money? Dismal scientists, place your bets.

During 25 years in the packaged foods biz, Daryl Brewster has helped spice up his share of troubled brands: Campbell Soup (CPB) in the late 1970s and, more recently, the Planters division of Kraft (KFT). Now he'll try to make Krispy Kreme (KKD) fat again. He was named CEO on Mar. 7. Krispy is reeling from an accounting scandal and ill-considered expansion, but Brewster sees sweeter days ahead. "What appealed to me was the strength of the brand," he says. "And when I look at per-capita sales, I see a lot of room for growth." Wall Street certainly got a sugar buzz: Krispy soared 21%, to $7.71, on the day of the appointment.

See "Can Krispy Kreme Rise Again?"

The Sage of Omaha sometimes sounds more like the Oracle of Delphi, which had a way of uttering inscrutable predictions that left a lot of room for interpretation. In his 2005 Berkshire Hathaway (BRK) shareholder report, released on Mar. 4, Warren Buffett says the board has picked a successor. But he doesn't reveal who his heir is, and muddies matters by saying the choice could change. Of course, even such vagueness sparks fierce speculation. Most often named: Joseph Brandon of General Re; Ajit Jain of National Indemnity; Tony Nicely of GEICO; Richard Santulli of NetJets; and David Sokol of MidAmerican Energy Holdings. Ambiguity aside, shareholders should be pleased. Despite disasters like Hurricane Katrina, net earnings were up 17%, to $8.5 billion. And Buffett minced no words in lambasting hedge fund managers and other pros for charging high fees and essentially fleecing investors.

See "Buffett's Imposing Legacy"


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