ANALYST SEES BREAKUP OF CONGLOMERATES

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ATLANTA — Although 1996 saw $16 billion to $18 billion exchanged in about 150 packaging mergers and acquisitions, Tim Burns, managing director of research for McDonald & Co. Securities Inc., thinks that by the turn of the century, the urge to merge will be quelled.

In fact, Burns thinks that between 2000 and 2010, industry will see a return to small business, much like the companies of the 1960s.

``The 1990s has seen conglomerations formed centered on core competencies for the most part,'' he said. ``A few more years of consolidation remain.''

By merging or acquiring, companies see short-term benefits as well as a move toward globalization, the latest business trend. In the packaging industry, consolidation not only helps to better serve increasingly large national and international customers, it is systematically ousting excess or high-cost capacity. These deals epitomize how company officials envision their companies and the industry's future, Burns said.

``Mechanically slamming two entities together and carving out costs is a short-term benefit, not an annuity,'' added Burns. ``This is a painful, but necessary process and it's the required transformation of the industry business model.''

Burns spoke at the Packaging Strategies '97 conference, held April 2-4 in Atlanta. McDonald & Co. is based in Cleveland.

The conglomerates of the 1990s will break apart into more-focused units through spinoffs, leveraged buyouts and public offerings. These units will serve a particular customer, country or region, Burns forecasted.

Reversing the merger and acquisition trend may just be part of the business cycle. Burns sketched out business practices of the last four decades. The 1960s and 1970s saw the advent of conglomerates.

Burns called the 1980s a time for the raiders of the lost conglomerates. Mergers and acquisitions were fueled by junk bonds and other high-yield securities; takeovers were often hostile; and upstarts took on traditional American industrial powers.

However, the 1990s have seen a maturing in mergers and acquisitions. Conglomeration is centered mainly on core competencies with a focus on industry consolidation, geographic expansion and peripheral expansions.

The early part of the new millennium will be the age of microbusiness, Burns said.

``With the consolidation efforts now complete, there will be a re-empowerment of business units.''