M&A activity in 2004 already ahead of expectations: CreditSights analysts

By Ronda Fears

Nashville, Feb. 4 - CreditSights staff pointed out in a report Wednesday that merger and acquisition volume already in 2004 leaves no doubt that it will dominate the corporate landscape this year.

"Barely one month into 2004 it is already obvious from the headlines that M&A activity is going to reshape the corporate landscape during the year," CreditSights staff said in the report.

"Company operating trends and financial market conditions are both supportive of an increased level of activity compared with the last three years."

In January, M&A volume was $92 billion, the CreditSights analysts said, compared to the average monthly volume of $55 billion in 2003 and just $48 billion in 2002.

"There are numerous indications that this upward trend is sustainable and that, across many sectors, management is leaving behind a three-year 'bunker' mentality of layoffs, restructuring, and cost cutting and is once again focused on growth opportunities," the analysts said.

Banking consolidation is expected to continue, after opening 2004 with headlines about the $55 billion merger of JPMorgan and Bank One. Among convertible names mentioned by the CreditSights analysts, they see Wells Fargo as an acquirer with perhaps Sovereign, Capital One and Providian among various targets and speculate that Citigroup may be eyeing Washington Mutual.

Life insurers ripe for M&A

Life insurance is another ripe sector. The analysts, however, don't see Lincoln National or Hartford Financial - two convertible names - as likely targets, but they do consider UnumProvident, AmerUs Group and Phoenix Life as targets because the stocks are trading at or below book value.

In the defense and aerospace sector, the analysts said, "There is little room left for large-scale M&A in the U.S. defense sector just from a political and regulatory standpoint." That said, however, the analysts said there could be some middle-tier deals, maybe involving convertible issuer L-3 Communications.

Metals have gained some attention, too, and the analysts see Inco Ltd. as a hot target since nickel has been a high-riser along with gold, where they see Newmont Mining staying busy.

Airline mergers difficult

Airlines are in bad need of rationalization by some means, the analysts assert. But they pointed out, as well, that mergers have been strained and difficult to accomplish in that group, leaving bankruptcy as the primary alternative. As a result, credit risk in the airline sector has increased tremendously and the analysts see Delta Air Lines Corp. as a "primary threat" to facing more coercive debt restructurings.

Media and entertainment deals are also expected to continue to grab headlines, with Time Warner Inc., Comcast and Liberty Media staying active as buyers. But the analysts expect that Viacom, Clear Channel, News Corp. and Disney will have a low profile as they wrap up deals or focus on improving what business they've got. The analysts also mentioned, too, a "pure speculation" that Disney may be a target for Comcast.

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