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updated 2/13/2004 3:31:43 PM ET 2004-02-13T20:31:43

Comcast's hostile $54 billion bid to acquire entertainment giant Walt Disney this week has investors wondering if a long-awaited resurgence in corporate mergers and takeovers is taking root and asking which sectors may be ripe for consolidation.

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After a bleak few years when companies were more concerned with cleaning up their past excesses or avoiding bankruptcy, mergers and acquisitions have moved back up the corporate agenda. In addition to Comcast’s Disney bid, J.P. Morgan Chase announced its planned $58 billion acquisition of Bank One, and Bank of America plans to acquire FleetBoston Financial in a $43 billion deal. Analysts also expect a suitor to step forward soon with an offer for cell-phone giant AT&T Wireless.

There are many reasons for the deal-making spree.

A number of deals have been moving through the investment banking pipeline for some time, analysts say, and the stock market’s rally over the lpst 11 months has given companies the “currency” to complete deals. The low-interest-rate environment is another incentive — it makes financing for companies very affordable, analysts said.

“Companies have been focused on their balance sheets and earnings for the last few years, but now that earnings are growing again and their internal problems are fixed, they are looking to grow and the best way to grow and the best way to do that quickly is through M&A,” said Richard Morgner, head of mergers and acquisitions at investment banking boutique Chanin Capital Partners.

M&A professionals like Morgner are reporting a renewed sense of optimism on Wall Street about the current deal-making environment, and they expect to see a flurry of merger announcements across a range of industry groups, including financial services, manufacturing and telecommunications.

Comcast's Disney offer could give corporate America more impetus to seek takeover targets, but further big-name consolidation in the media sector is unlikely, said mergers and acquisitions expert Tom Taulli, a business professor at the University of Southern California in Los Angeles.

“The media dance floor is becoming a lonely place,” Taulli said. “Everyone has a dance partner because there has been a lot of consolidation lately, so I don’t expect to see another big deal, but we may see more medium-sized deals.”

Another area where Taulli expects to see a rise in M&A activity is the manufacturing sector.

“We’re seeing a huge trend in outsourcing, and inflation is nowhere to be seen," he said. "And now in our Wal-Mart world there’s a lot of squeezing going on in the manufacturing sector." Manufacturers will merge to cut costs and remain competitive, he said.

Another area of likely consolidation that investors may not have thought of is the mutual fund industry, Taulli said.

After the recent spate of mutual fund scandals, which centered on charges of improper trading practices, fund companies are busy hiring attorneys and consultants to manage regulatory settlements and rectify any outstanding problems, Taulli said. “A trend we may see is firms merging to increase size and handle costs," he said.

Recent speculation over a potential suitor for AT&T Wireless is an indication of greater merger activity in the telecom sector, according to Chanin Capital’s Morgner.

“There are still too many telecom service providers, and I think consolidation is inevitable as a lot of names in this space have spent time restructuring,” Morgner said. He sees more consolidation in financial services, given the industry’s drive to build financial “supermarkets” and offer a wider array of consumer banking products.

After a decent year in 2003, M&A volume is expected to rise this year, according to research firm FactSet Mergerstat LLC. Disclosed transactions for U.S. firms already total $154 billion for 2004, compared with $518 billion in all of 2003. But analysts warn that a significant rise in interest rates may cool the M&A market.

Investors hoping to make money from the increase in mergers and acquisitions should remember stockholders of the target company typically do best, at least in the short term. Investors also would do well to follow an old stock-investing adage — stick to quality.

“There’s an old saying that says you should buy companies not because they are acquisition targets but because they are good companies, but in a sense they are one and the same thing,” Taulli said. “With M&A starting to bubble up again, if you stick with the good companies you’ll probably get some nice surprises.”

But Taulli also cautions that not all mergers and acquisitions are completed.

“For bigger companies, like Disney, this isn’t a problem, but we sometimes see problems when public companies try to buy private ones,” said Taulli. “But deals are a lot cleaner now, and that risk is diminished to a degree. But these days, deals could take longer to complete because companies are doing more due diligence.”

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