2003 BUSINESS: BIG MERGERS HELP '03 GO OUT WITH BANG MORE ACQUISITIONS EXPECTED IN 2004.

Byline: Evan Pondel Staff Writer

Mergers and acquisitions languished at the beginning of 2003, but a flurry of activity in the third quarter is likely to generate a greater frequency of deals in 2004, according to industry experts.

Nerves were frayed in the first two quarters as a wobbly economy kept many businesses from making aggressive moves. With consumer confidence waning and war in Iraq adding to companies' woes, monitoring the economy was more of a priority than pursuing a merger or acquisition.

``There were a lot of storm clouds. And now we're trying to play catch-up,'' said Kurt Kunert, publisher of Santa Monica-based Mergerstat Review. `'Some say things are finally starting to gel for the bankers. They seem more optimistic.''

Publicly traded companies are showing the most strength, with deal values on the rise. For the year ended October 2003 there were 81 deals that valued more than $1 billion, compared with 71 deals for the same period in 2002. Meanwhile, there were a total of 12 billion-dollar-plus transactions valued at an aggregate sum of $89 billion in October 2003 alone, according to Mergerstat.

So far, Bank of America's $47.85 billion deal to acquire FleetBoston Financial was the largest transaction in 2003. The all-stock move also marked a shift in attitudes toward acquisitions. Kunert said it was almost as if companies were more inclined to pursue growth after witnessing such a mega move in the third quarter.

The newly formed bank will be the largest retail-banking network in the nation. Fleet's operations in the Northeast and Mid-Atlantic regions coupled with Bank of America's network in the South, West and Midwest, will result in the new company having 9.8 percent of all U.S. banking deposits.

``The Bank of America deal jump-started the third quarter. And while we saw fits and starts, things are starting to stabilize,'' said Tom Taulli, adjunct professor at the University of Southern California Marshall School of Business. ``We've certainly seen improvement in the health care sector.''

Anthem Inc.'s proposed $16.4 billion acquisition of WellPoint Health Networks was announced a day after the Bank of America deal. The new company, covering nearly 26 million people and operating in 13 states, will be called WellPoint Inc.

At a time when health care companies are swelling with profits, consolidation has become a key tactic to help reduce costs and competition. The combination of two mammoth companies like Anthem and WellPoint highlights an overall trend for the industry as partnerships are preferred over fierce corporate takeovers. Classified as a merger by WellPoint and Anthem, their move probably foreshadows a string of similar transactions over the next two years, analysts say.

``But the problem with integration is the potential that the quality of service will decline,'' Taulli said. ``Another problem arises when companies simply pay too much for other companies.''

There were a slew of other high-priced deals in October, including General Electric's $9.8 billion bid for Amersham, Teva Pharmaceutical's $3.3 billion move for SICOR Inc. and RJ Reynolds Tobacco Holdings' $3.2 billion push for Brown & Willamson Tobacco.

``Obviously, financing seems to be getting a little easier for people. Let's just hope that translates to 2004,'' Kunert said. ``The recovery is likely going to happen first in manufacturing.''

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One of the biggest mergers involved General Electric and Vivendi joining forces to create a $43 billion empire.

Jon Gerung/Staff Artist