Mergers and Acquisitions Return to Favor

ByABC News
August 17, 2000, 1:45 PM

Aug. 21 -- Fresh from a string of disappointing financial results and burdened bysagging growth rates, consumer products makers may turn to a time-honored solution mergers and acquisitions.

Many companies, such as Procter & Gamble, Unilever and Sara Lee have said they plan to focus on their core businesses and get rid of poorly performing assets.

Dial, struggling with weak financial results, says itll consider all options, leading many analysts to believe the company might consider a partial or a full sale.

Meanwhile, Gillette, itself an object of takeover speculation, recently entered into an agreement to sell its stationary business, while also abandoning a plan to find a buyer for its Braun appliance unit.

A Hard Year for Consumer StocksDespite some takeover speculation, most consumer products stockscontinue to suffer thanks to all the problems the companies have confronted this year. Higher raw material prices, a sagging Euro, decreasing inventories at retail stores and a highly intense, competitive environment among consumer goods manufacturers have made it a difficult year for household products makers.

Most analysts agree that scale is an advantage for consumer productsmanufacturers, as large retailers like Wal-Mart expand globally and look for suppliers that sell a wide variety of products and have well-developed marketing, advertising and distribution channels. But when and how the industrys consolidation will occur is a subject for debate.

William Steele, an analyst with Banc of America Securities, says heexpects significant M&A activity in the next few years, with largercompanies getting rid of noncore brands, overseas companies merging with North American companies and middle-tier companies rethinking their core categories.

This is not necessarily a piece thats indicative of earnings acceleration; this is a survival strategy, says Steele, whose firm hasdone underwriting for Dial. Middle-tier companies are faced with twochoices: lose market share or increase spending to maintain market share. The middle-tier suppliers have almost got to start joining up.