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Global Finance, Feb 1999 by Leander, Tom

What a year for M&A! Despite a whipsaw market and third quarter fears of a global meltdown, 1998's total announced deal volume worldwide was $2.5 trillion, up 54% from 1997. US targets accounted for 65%, with Europe making up almost all the rest.

The mergers seemed to come in waves. In financial services, Travelers and Citicorp's $72 billion merger was followed by NationsBank's acquisition of Bank of America ($61 billion) and Banc One's buyout of First Chicago ($28 billion), all within a week in April. Giant telecommunications mergers followed en famille: SBC Communications and Ameritech ($72 billion) in May; AT&T and TCI ($70 billion) in June, and Bell Atlantic and GTE ($71 billion) in July. British Petroleum's August buyout of Amoco-the largest cross-border merger ever at $55 billion-helped spark the biggest deal ever at yearend: Exxon's $86 billion purchase of Mobil.

The most noteworthy trend of 1998: the transatlantic megamerger. Besides BP-Amoco, check out Daimler-Benz's $40 billion buyout of Chrysler, which Global Finance considers "The Deal of the Year."

In 1999 more activity will probably emanate from Europe's single-currency market. Europe's biggest deal of 1998, which was not part of EMU, came at yearend: December's $35 billion drug merger of Britain's Zeneca with Sweden's Astra.

1 British Petroleum/Amoco

At $55 billion, the world's biggest cross-border acquisition and first major oil industry merger in years began with a bit of offshore exploration: John Browne, the 50-year-old CEO of British Petroleum, met Amoco's Larry Fuller in New York to negotiate several joint ventures early last year. They soon began hammering out details for a full-scale merger. Browne had mulled bids for Mobil and Arco before turning to Amoco but feared the management of those companies wouldn't meld well with BP's team. Over a period of months Browne and Fuller held private tete-atetes in British Airways first-class lounges and London restaurants. Despite the amicable nature of the negotiations, a "termination" rider in the agreement would drub Amoco to the tune of $950 million should Fuller find another suitor. When they finally called in investment bankers in July (Morgan Stanley for Amoco and J.P Morgan for BP), most of the deal was wrapped.

Despite the fact that BP Amoco will report and pay dividends in dollars, it needs approval under UK accotnting standards, which have more stringent requirements for pooling treatment that favors future earnings. In Britain mergers of equals must meet a "relative size" test in which the acquirer is not 50% larger than the target. "BP meets this requirement by a hair" says Robert Willens, accounting specialist at Lehman Brothers. To complete the deal, BP will issue new American depositary receipts in exchange for Amoco common stock, with BP shareholders owning 60% and Amoco shareholders 40% of the new company.

Inside the company there is no pretense of equality:The home office will be in London, and six of the eight senior officers will be from BP By buying Amoco, Brown reunited two strands of John D. Rockefeller's Standard Oil, broken up in a US antitrust action 80 years ago. BP already owns Standard Oil of Ohio, or Sohio.

2 Deustche Bank/Bankers Trust

Perhaps the worst-kept M&A secret of 1998, the merger of Deutsche and Bankers Trust was rumored for six months before its November announcement.The $ 10.1 billion buyout, the largest cross-border financial services deal ever, will make Deutsche Bank the world's biggest financial institution with $836 billion in assets.

The deal was a long time in the making. Deutsche Bank's chairman Rolf-Ernst Breuer badly wanted a US investment bank, despite woes at Morgan Grenfell, which Deutsche bought in 1989. BT CEO Frank Newman played hard to get, until a $850 million exposure to Long-Term Capital Management depressed BT's stock after the scandal broke in September, driving him back to the negotiating table.

The deal gives BT the benefit of Deutsche's balance sheet and European client base. Deutsche gets an instant US presence-particularly through Alex. Brown, BT's Baltimore investment bank, and its investment advisory unit, BT-Wolfensohn. (Wolfensohn advised Bankers Trust on the deal; Deutsche used its own bankers as well as Goldman Sachs.)

But hobbled by scandal in the early 1990s, BT is still considered second tier and does not provide entry into the US bulge bracket. Meanwhile, Newman, who will have a seat on Deutsche's board and stay at BT's helm, is taking German lessons, but Breuer has said publicly he doesn't believe in "autonomy" and will keep BT on a short leash. Deutsche was a silent partner in another big merger of 1998: It had a 22% holding in Daimler Benz, which became 12% following the September merger with Chrysler.

America Onllne/Netscape

It's a relatively small deal by recent standards, but AOL's complicated $4 billion purchase of Netscape lays the groundwork for the most serious challenge yet to Microsoft in the expanding cyberworld of E-commerce.AOL chief executive Stephen M. Case, once new-product manager for Pizza Hut and a marketing guru, had his sights on Netscape since its antitrust suit against Microsoft began last year. The pioneer in developing browser software for the Internet, Netscape today gives its browser away free, making its money by manufacturing and selling back-office software that provides the platform for E-commerce at companies. By buying Netscape, Case will be treading on Bill Gates's own turf as a developer of software, an area in which AOL has no experience. Netscape was advised by Morgan Stanley while AOL's lead adviser was Goldman Sachs.