Suddenly the merger whirlwind started blowing once again last week, into every corner of the economy. Chrysler's agreement to buy AMC was only the most stunning of a series of takeover bids and pacts that swept through the boardrooms of airline companies, book publishers, casino operators, shoemakers and retailers. Says Thom Brown, chief of investment policy at Butcher & Singer, a Philadelphia-based investment-banking firm: "There are so many deals in the works that it's hard to keep a cap on them."
The unexpected flurry seemed to defy a whole host of forces. Many Wall Streeters had thought tax reform would put at least a temporary damper on merger activity by taking away some of the deductions that help make the deals attractive. Another concern was that the insider-trading scandal would hurt the ability of investment firms to raise money for takeovers. A third impediment to mergers has been the continuing surge in stock prices, which has made takeovers increasingly expensive.
But none of these forces, as last week's action dramatically demonstrated, has repressed the urge to merge. Despite tax reform and rising stock prices, it is still cheaper to buy factories and offices than build them and easier to acquire new products than develop them. Modest interest rates, which are near ten-year lows, continue to make borrowing for takeovers relatively painless. Moreover, many dealmakers may be anxious to take advantage of the last two years of the Reagan Administration, which has been especially tolerant of huge mergers.
The rapid consolidation within the airline business may soon test the limits of the Administration's willingness to go along with the megamergers. Last week Piedmont Airlines announced that it had accepted a $1.6 billion bid from USAir, which already has a deal in the works to buy Pacific Southwest Airlines for $400 million. The combination of the three carriers would create the seventh largest U.S. airline, controlling about 7% of domestic traffic. But USAir is itself the target of a $1.6 billion bid by TWA. Carl Icahn, the corporate raider who became TWA chairman last year, may envision a TWA-USAir- Piedmont-PSA aggregation that would become the third largest airline, with 16% of the market. Icahn, who controls 15% of USAir's stock, suffered at least a temporary setback last week when a federal judge barred him from buying additional shares.
Reebok's $180 million acquisition of Avia Group International is another case of like marrying like: both companies make aerobics shoes. Reebok, which clads the feet of the fashion conscious, controls about 70% of the $330 million aerobics-shoe market. Privately held Avia, whose sales have risen from $3 million to more than $70 million during the past three years, enjoys about a 15% market share.
The Dart Group's offer to acquire Supermarkets General for $1.6 billion would join two retailers. Dart owns discount auto-parts stores and book outlets, while Supermarkets General specializes in food and drugs. Some analysts suspect that the Haft family, which controls the Dart Group, would be perfectly content to stop short of an actual merger and sell its current shares in Supermarkets General at a profit.