Wall Street Was Gored

The end of 2001 couldn't come fast enough for the investment bankers who get generous fees for cutting multibillion mergers and acquisitions deals.

In a year of plummeting dealmaking activity both globally and in the United States, Wall Street's top brokerages laid off thousands of workers and sent thousands more packing with buyouts.

Lavish bonuses and expense accounts for their lucrative investment banking businesses were slashed - and some brokerages even cut back on the Lucite trophies they dole out as prizes after deals are sealed.

Besides a lack of M&A volume due to the recession and the declining stock market, the year was also notable for huge deals that simply fell apart or faced huge obstacles.

"As the economy worsened, you saw the level of M&A activity steadily decrease," said David Brinton, a lawyer and partner in the mergers and acquisitions practice of Clifford Chance Rogers & Wells. "You saw a lot of deals that got started never got completed."

Many died for economic reasons - including a financing crunch brought on by lower stock prices for companies that make purchases by using their shares as currency. But some of the largest deal troubles were caused by other factors.

Trans-Atlantic tensions flared over the summer after Europe blocked the $41 billion merger, announced in 2000, of General Electric Co. and Honeywell International Inc. over antitrust concerns. It marked the first time the European Union has stopped a deal that had won clearance in Washington.

This year's biggest announced deal, EchoStar's $26 billion offer for General Motor's DirecTV, could be killed by regulators because it would give EchoStar more than 90 percent of the U.S. satellite TV market.

And as the year came to a close, the proposed $24 billion merger of Compaq Computer Corp. and Hewlett-Packard Co. was on thin ice because of opposition by the Hewlett and Packard families and a Packard foundation that control a combined 18 percent of HP shares.

Other mergers under consideration never made it to the announcement stage because chief executives, dealing with a tough business climate, were forced to shelve expansion plans as they wrung whatever profits and cost savings they could find from their companies.

"It was a year of distractions," said David Jacquin, an investment banker and managing director with U.S. Bancorp Piper Jaffray. "They were focused on their own businesses, getting headcount down and costs in line."

By mid-December, bankers had managed to stitch together almost 27,000 deals worth more than $1.5 trillion around the world - but that was a huge decline from the 38,000-plus mergers and acquisitions in 2000 totaling $3.42 trillion, according to figures from Thomson Financial Securities Data.

The 54 percent drop in the value of deals worldwide was surpassed by a 58 percent drop for those in the U.S., where 6,888 deals worth $725.4 billion had been completed by mid-December, compared to 10,988 in 2000 valued a $1.7 trillion.

Investment bankers expect a turnaround at some point in 2002.

Jacquin says chief executives are more confident that they have seen the economy reach bottom, and points to the recent stock +market+ rebound as a sign of better times to come.

Some of the costs cuts by companies, he adds, could make them more attractive as takeover candidates.

"As the economy improves and the market improves, M&A activity will improve with it," he said.

Companies that put off expansion plans while trimming costs will return to an acquisition mode, said Doug Braunstein, head of mergers and acquisitions for J.P. Morgan Chase & Co.

"It's going to give people a greater degree of confidence to reinvigorate their strategic efforts, because they've taken care of issues at home," he said.

But William Brandt Jr., who specializes in corporate turnarounds reorganizations, thinks the dealmaking will shift to bankruptcy courts as more and more financially troubled companies are forced to reorganize or sell themselves after seeking bankruptcy protection.

The biggest to be resolved is the future of Enron Corp., the huge energy trader that collapsed this month after admitting it kept half a billion dollars off its books and issued inflated profit statements for four years.

"Are we going to other household names who we have lived with for years in bankruptcy court? Yes," said Brandt, president and chief executive of Development Specialists Inc. "This is simply about the American economy recycling in a contraction after an expansion."

By Alan Clendenning © MMI The Associated Press. All Rights Reserved. This material may not be published, broadcast, rewritten, or redistributed