Merger pace slows but prices stay high.

MERGER PACE SLOWS BUT PRICES STAY HIGH

Despite a slowdown in mergers and acquisitions in the first half of 1989, buyers are still willing to pay premium prices for their takeovers, according to a study by American Appraisal Associates.

"Premiums are being bolstered by buyers who are looking for strategic acquisitions," says Lee P. Hackett, senior vice-president of American Appraisal. "Buyers are willing to pay, and even fight for, acquisitions that will extend their product lines or geographic reach and boost their ability to compete."

Bidding wars characterized some 36% of the cash tender offers through June in which acquisitions were contested by other potential buyers. In an additional 12% of the transactions, the same bidder increased the offer at least once.

Foreign buyers accounted for 29% of the purchases, most of which had annual sales of over $1 billion. Leveraged buyouts accounted for only 10% of the acquisitions.

Reducing corporate overhead. Takeovers, according to a study by the National Bureau of Economic Research (NBER), reduce corporate overhead. When companies changed owners, the ratio of central-office employees to plant employees declined about 11%.

But restructurings are not the sole domain of takeovers or bankruptcies, notes the NBER report. For example, General Electric slashed its headquarters staff from 1,700 to 1,000, and Monsanto eliminated much of its supervisory factory staff. But dramatic staff reductions more likely result from takeovers, the study suggests.

Clashing cultures. Meanwhile, the Conference Board reports that mergers fail primarily because company values to guide the organizations are not established early.

"Mergers and acquisitions present tremendous opportunities for organizational conflict and confusion, particularly when two very diverse corporate cultures are forced to adapt to each other," says Lawrence Schein, senior research associate at the Conference Board.

A well-developed corporate culture unifies the company, the report notes, by providing a common language, integrated beliefs and behavior to govern labor-management relations, hiree profiles, performance and promotion criteria and work climate and management style.