Targets of Opportunity

Potential Takeover Targets in Europe

The introduction last year of a single currency lit the fuse of a mergers-and-acquisitions bomb that exploded Old World ways of doing business. European companies, pressed by the bigger-is-better mentality of the new technology-based global economy--not to mention a growing corporate concern for shareholder value--started rushing to the altar in droves, sometimes with a shotgun in view. According to analysts at Merrill Lynch, M&A activity in Europe skyrocketed 139% last year to $1.55 trillion--not far behind the U.S. level of $1.76 trillion.

Yet one big restraint remained. Most deals were between domestic companies, in part because they were easier to do between companies speaking the same language and living within the same regulatory environment. The few cross-border deals tended to be friendly ones. Britain's Vodafone AirTouch's hostile $190 billion takeover of German telecom Mannesmann two weeks ago shattered that last restraint. "It was a seminal event," exclaims Peter Oppenheimer, chief strategist at HSBC Securities. "It completely alters the game that's been in place for decades in Europe and it opens the floodgates to cross-border mergers. Anything can happen now."

Now that investors' appetites have been whetted for cross-border pairings, there's no shortage of targets either. Much of the activity is likely to center on high-tech companies--especially those involved in wireless technology, since Europe already has a world-leading edge there. But no sector is immune from the boundary-skipping consolidation trend, even "old economy" industries like automobiles and pharmaceuticals. And as this new wave of mergers sweeps through Euroland, few companies are fully protected. Indeed, companies typically viewed as predators, like Deutsche Telekom and DaimlerChrysler, could find themselves in a rival's crosshairs. Notes Garel Rhys, director of the Centre for Automotive Industry Research at Cardiff Business School: "Even DaimlerChrysler must give shareholders real value." A buyer, he says, could recoup some of its costs by selling off DaimlerChrysler's aerospace, train and truck units.

While no company is completely safe, some mentioned as possible targets are insulated by complex ownership structures--public and private, regulations, and high stock valuations. Media companies will find some protection behind language barriers and legal prohibitions against full foreign ownership of what governments regard as vital cultural institutions. But even in sectors where mergers are unlikely, a host of pan-European alliances can be expected to bloom instead. In any case, 2000 promises to be a very busy year for investment bankers.

SOME PREDATORS MAY BECOME PREY
Potential Takeover Targets

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