Worried Waiting on Wall Street

Stocks get off to a bad start in the new year

"People ask me whether the stock market is bullish, bearish or confused. I think it's confused." —James Moltz, chairman of the Cyrus J. Lawrence brokerage firm

Confusion was indeed Wall Street's theme as the bellwether first trading sessions of 1982 unfolded last week. Like an anxious mountain climber midway up a steep cliff, the stock market cautiously tried a slight advance last Monday. But then vertigo took over. On Tuesday, brokers' telephones lit up with customer sell orders that drove the Dow Jones industrial index down 17 points, the market's worst one-day slide in four months.

Yet while many traders seemed anxious to sell last week, there were still buyers aplenty for one category of stocks—companies whose shares hold speculative promise because they are prime takeover targets. Wall Street's merger mania accounted for some $80 billion in stock market trading during 1981. Some experts believe that takeover speculation by professional arbitragers, traders who try to buy merger stocks low and sell them high, and the takeover adventurists among the general public account for up to 25% of current trading.

Last week the value of shares of Cannon Mills jumped from $29 to $35 after Pacific Holding Corp., headed by Los Angeles Investor David Murdock, proposed to buy Cannon's stock for $40 a share. On last week's weak Wednesday, the most actively traded New York Exchange stock was MGIC, the largest U.S. private insurer of residential mortgages. Though it sold for only $43 five weeks ago, MGIC stock was up to $49 last week because the Baldwin-United Corp., maker of Baldwin pianos, has offered to pay $52 a share as part of a takeover move.

Investors are rushing to buy the stock of potential merger partners in hopes of making a quick market killing. People generally did very well who got into the battle early between U.S. Steel and Mobil for control of Marathon Oil. U.S. Steel last week seemed assured of victory in its takeover bid, estimated to cost $6.15 billion, the second largest corporate coupling in U.S. history. (The largest merger was the $7.5 billion merger of Conoco and Du Pont in 1981.) Workers began to prepare checks for the 17,000 selling Marathon shareholders just hours after Supreme Court Chief Justice Warren Burger gave a green light to U.S. Steel's offer of $125 a share for 51% of Marathon's stock. Two months ago, the oil company's stock was $81 a share.

For all the euphoria, this recent merger activity is really just a result of the decade-long lag in stock values, which has made it cheaper for firms to buy existing companies rather than build new factories. Says Robert Stovall, director of investment policy for Dean Witter: "Adjusted for inflation, the stock market has never been higher than it was in 1966."