POWERFUL BRANDS FEED MERGER FEVER;IT FREQUENTLY MAKES MORE SENSE TO BUY THAN BUILD FROM SCRATCH

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"Let's make a deal" is again becoming the corporate world's credo.

"This year is on track to be the biggest year in the history of mergers and acquisitions," said Scott Lindsay, managing director and co-head of mergers and acquisitions at CS First Boston, New York.

Just last week, Scott Paper Co. was absorbed by Kimberly-Clark Corp.; Zenith Electronics Corp. was zapped by Seoul's LG Electronics; Reed Elsevier announced it would sell many of its consumer publica-tions (see story on Page 6); and United Biscuit of London announced it was selling off Keebler Co. Three megadeals-including First Union Corp.'s acquisition of First Fidelity Corp. (the largest bank deal in U.S. history at $5.4 billion)-have hit the banking industry in as many weeks.

Then there's perennial takeover candidate CBS, last week said to be desired by Westinghouse Electric Corp. (see story on Page 8).

Earlier in 1995, Glaxo took over Burroughs Wellcome Co., Seagram Co. bought MCA; and IBM Corp. agreed to acquire Lotus Development Corp. in deals totaling nearly $25 billion.

Mr. Lindsay projected that by yearend, $600 billion in deals will be closed and $700 billion will be announced. That would top 1989's record $550 billion in deals announced.

Why the urge to merge and buy?

In part because any CEO looking to grow a more global firm knows that it is cheaper and more efficient to buy a brand than build one.

"It makes sense sometimes to buy a company just for its brands," said Paul Kelly, president of Silvermine Consulting in Westport, Conn.

Mr. Kelly said he estimates the cost of building a new brand is between $100 million and $300 million, with no guarantees of success. So far, Procter & Gamble Co. has spent $300 million in just two years on Aleve, which finished in fifth place, behind private labels at No. 2 in the analgesics category.

The result could be fewer brands, or more brands in fewer hands. "There will be less brands actively advertised and supported," Mr. Kelly predicted.

Many analysts and consultants agree that a premium will now be placed on marketing efforts.

"You can't just throw out an ad campaign now," said R. Fulton Macdonald, president of International Business Development, a New York consultancy. "Ad money will be spent differently. There will have to be more creative uses of spending."

Asked how consolidation could affect the agency side, Barry Linsky, senior VP of planning and business development at Interpublic Group of Cos., New York, said: "Less brands meaning less agencies is a consequence of all these mergers. But it doesn't bode ill for the agency business. Strong, better-resourced companies are going to need strong, better-resourced agencies supporting those brands. It could accelerate consolidation among agencies."

Everything from basic psychology to complex market forces have been offered as reasons for the recent buyout bonanza.

"There was a little more ego involved in the '80s, but it's just as psychological now," said Gregory Zuckerman, senior editor at Mergers & Acquisitions Report, New York. "Once the ball starts rolling in an industry, no one wants to be left behind."

After years of cutting costs, revenue streams are flooding as consumers start buying again. Now CEOs are itching to dig into their own deepening pockets.

"Cash flows are improving dramatically now with the recession behind us," said Stephen E. Keane, managing director at Robert W. Baird & Co. in Milwaukee.

"I think the new order is one of getting bigger through acquisitions. There are too many opportunities to buy up things now rather than trying to start from scratch yourself. There is also too much excess capacity which fosters consolidation," said Andrew Shore, a PaineWebber analyst in New York. Mr. Shore mentioned potential sellers in the personal-care industry are Church & Dwight Co. and Helene Curtis Industries "eventually." Of Playtex Family Products Corp., he said, "maybe, but I doubt it. The balance sheet isn't that great."

And while the mercurial stock market continues to trade overvalued stock, the getting is good. Last week, playing the stock market was like flying the Apollo 13 mission; after soaring for most of the year, stocks did a whip stall on Tuesday and took a 132-point nosedive on Wednesday, recouping 75 points by the close of the day. The roller-coaster ride shouldn't shake anyone's confidence, said Mr. Zuckerman.

"The drop could actually help," he said. "It makes acquisitions cheaper."

Contributing to this story: Kathy Catrambone, Pat Sloan, Ira Teinowitz and Jeanne Whalen.

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