Market watch

It is always a time for optimism when a new year starts, and no more so than in the world of event-driven arbitrage, where most of the players spent most of the last year comatose with boredom compared with the preceding years.

One question that keeps popping up is: why if stock markets and interest rates are so low (and therefore the cost of borrowing) was corporate activity so weak last year? More importantly, what, if anything, is going to trigger a change?

To answer this you need to look first at what was going on in the real world a few years ago and what is likely for this year. A short while ago the TMT boom was in full cry (interest rates were lowish) and the 'Goldilocks cycle' of American capitalism was on everyone's lips.

Last year, although notable for a few corporate events, was much more one of consolidation and digestion of the deals a few years before, and cost cutting and layoffs needed to be addressed and handled (it's difficult corporately to launch a big takeover bid at the same time as laying off thousands).

The corporate world, which seems at most times to resemble schoolboy football (i.e. all attack or all defence), certainly moved onto the defensive and some spectacular excesses of the bull run, or politics, or just straightforward greed came to the fore ' most notably Railtrack, Enron, NTL, K Mart and Marconi came forward to trap the unwary. These factors made financiers skittish and business managers just plain nervous. This year, however, it seems corporate Europe enters a different phase.

When will the chickens become pigs? No one seems to want to make the first moves, but there is a tremendous fear of missing out and being last.

Psychology may provide the key as much as anything else. Germany could provide initial answers as the tax rules changed from 1 January to allow the cross holdings that rebuilt Germany after the Marshall plan to be unwound without tax penalty. Also the takeover rules have changed and although really untested should provide opportunities and make it easier to 'squeeze out' minorities (in a similar way to the UK or US rules allow).

At present these minorities present potentially thorny issues when further corporate activity is pressed by the parent (such as with Hoescht minority holders after the Aventis takeover and Dresdner after its takeover last year by Allianz, although there are plenty of others.)

As for last month's action, it got to a three men in a boat with Carnival trying to muscle its way in on the P&O Princess dual-listed structure arrangement with Royal Caribbean cruises. This filled many of the column inches as the rhetoric got increasingly nasty and it all looks set for a Saint Valentine's day climax as that is when P&O shareholders need to give 75% support to the DLC venture for that to proceed to the next stage. Suffice to say, the lawyers are getting rich even before it hits the real regulatory waters.

Bumpertrage seemed to be back in vogue as Lottomatica received a low bid in the end and some felt their interests would be better served by staying part of new co, rather than tendering or selling.

La Fondiaria got very messy as a three-way deal was attempted by certain Italian protagonists as a way of clearing up a legal quagmire Italian-style. Glaverbell in Belgium and RTL both received mop-up bids for the minorities that could certainly not be described as generous, and some pressure is being applied to the parents of both to cough up some more.

Enterprise Oil received the stalking call of the ENI people and it looks like they will wait until after the business review promised by the Enterprise management in early February before making a formal move, although it seems other parties may well be interested. No actual bid is on the table yet, although it did feel like it.

There were a few other small deals announced: notably La Rochettes' two-way tussle, the conclusion of the Rodamco North America mish-mash, the steady progress of the Powergen/ EON and National Grid/Niagra Mohawk deals ' despite the collapse of Energis which still had National Grid as its largest shareholder. All in all, a good start to the year for most players and it does seem like activity is starting to pick up again, at last.¦Roll on the blockbuster deals.