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Merger activity begins to hop

ArvinMeritor Inc., EMC Corp., and Yellow Corp. made takeover offers worth more than a combined $5-billion, indicating a revival in mergers as a rally in stocks and corporate bonds made it easier to finance acquisitions.

Truck-parts maker ArvinMeritor's hostile $2.2-billion bid for Dana Corp. followed an unsolicited $3.9-billion offer yesterday by Alcan Inc., the world's second-largest publicly traded aluminum company, for Pechiney SA, and Oracle Corp.'s $5.1-billion hostile bid for PeopleSoft Inc. last month.

"The return of investor and chief executives' confidence is illustrated in the increase in hostile deals," said Lawrence Schloss, who oversees almost $30-billion as head of private equity at Credit Suisse First Boston. "The leaders of an industry are coming out of the block shooting fast, taking advantage of some of the laggards or those that are recovering slower than the leaders."

The quickening pace of acquisitions made June the busiest month for mergers since December. Last month, the total was $100-billion, according to data compiled by Bloomberg. So far this month, companies have announced $31.2-billion of purchases, including Liberty Media Corp.'s $7.9-billion agreement to purchase Comcast Corp.'s stake in QVC Inc., a home-shopping network. The average U.S. deal size of $211-million this month is the highest since last July, according to Bloomberg data.

"Improving equity markets, an attractive financing environment and a stabilizing economy have led to increased confidence among chief executives to do strategic deals," Stefan Selig, vice chairman of mergers and acquisitions at Bank of America Corp.'s securities unit, said in an interview.

Companies' borrowing costs fell as U.S. investment-grade corporate bonds returned 7.38 percent in the first half, the most in a January-to-June period in eight years, according to a Merrill Lynch & Co. index. High-risk, high-yield junk bonds had their highest return since 1991.

Goldman Sachs Group Inc., which advised EMC on its $1.3-billion agreement to buy Legato Systems Inc., is the top-ranked global merger adviser this year, followed by Citigroup Inc. and Merrill Lynch, according to Bloomberg data.

Banks probably won't collect revenue from Tuesday's deals until 2004, when transactions are likely to close, said Brad Hintz, an analyst at Sanford C. Bernstein & Co.

"I wouldn't be popping the corks on the champagne bottle just yet," said U.S. Bancorp Piper Jaffray analyst Andrew Collins. "They could very well be isolated. Anything looks good off a zero. We aren't ready to call an end to the cyclical downturn in M&A activity just yet."

The value of announced acquisitions worldwide dropped 12 percent in the first half from a year earlier, to $495-billion, according to data compiled by Bloomberg. Merger advisory fees declined to about $3-billion, a quarter of the total at the peak of the market in the first half of 2000.

Executives may be seeking growth through acquisition as their own businesses stall, said Lawrence Weissman, who helps oversee $480-billion at Citigroup Asset Management.

"Companies are seeing revenue growth slowing and are looking for other ways to grow their earnings," said Weissman. "One of the ways they could do that is using their strong balance sheets to buy other companies."

In Tuesday's biggest deal, ArvinMeritor, based in Troy, Mich., and the world's largest maker of axles for commercial trucks, offered $2.2-billion in cash for Dana in a hostile bid for the global leader in axles for sport-utility vehicles, pickups and minivans. ArvinMeritor's $15-a-share offer was 25 percent more than yesterday's closing share price.

ArvinMeritor, whose market value of $1.4-billion is less than Dana's $2.5-billion market value, was advised by UBS Warburg. UBS probably will earn about $9-million for advising ArvinMeritor on the deal, based on industry averages. Gary Corrigan, a Dana spokesman, declined to comment on whether the company had hired an adviser.

Yellow, the second-biggest U.S. trucking company by sales, agreed to buy larger rival Roadway Corp. for $966-million in cash and shares. Yellow is offering $48 a share and assuming $140-million in debt. Deutsche Bank AG probably will earn about $5-million for advising Yellow while Credit Suisse First Boston will earn $6-million for advising Roadway.

EMC, the world's biggest maker of data-storage software, agreed to buy rival Legato Systems for $1.3-billion in stock. EMC, based outside Boston, is aiming to sell more programs that protect information and to rely less on sales of machines.

Paul Chamberlain was the lead banker advising Legato, Morgan Stanley spokesman Mark Lake said. Chamberlain didn't return a phone call for comment.

Goldman Sachs probably earned about $6-million for advising EMC, while Morgan Stanley, which has the early lead in second-half merger advice, and Up Data Capital split about $7-million for advising Legato.