On arriving at his London office each weekday morning, J.P. Morgan & Co.'s Klaus Diedricks scans the stock prices of major European companies.
What he has seen there in the last three months is nothing short of a financial revolution, he said. Since Jan. 1, companies have been valued in euros. By eliminating national currencies, the financial press is able to list firms by industry-not by country.
No calculator for currency conversion is required.
"These simple things make a whole world of difference," said Mr. Diedricks, Morgan's co-head of global mergers and acquisition advisory. "Overnight the equity market has become unified and comparable."
For Morgan and other U.S. banks with a strong European presence, the change has translated into phenomenal growth in two business lines: advisory work and leveraged finance.
And bankers say that nowhere is that change more clearly illustrated than in Olivetti SpA's $60 billion bid for Telecom Italia SpA.
"Before, it would have been very difficult for Olivetti to raise that kind of cash, because of exchange," said one banker familiar with the deal. "With the euro, its easy to swap without moving markets."
At least a dozen U.S. financial services companies have had an official role in the Olivetti deal, which includes the biggest syndicated loan in history, at $22.5 billion. The deal is also noteworthy because Olivetti plans to pay for Telecom Italia with debt-a practice rarely found in Europe.
"What is shows is a significant change in the tide here," said Herb Aspbury, a regional executive for Europe, Africa, and the Middle East for Chase Manhattan Corp. based in London.
Even late Friday, as the Olivetti bid appeared to be losing momentum among Telecom Italia shareholders, Mr. Aspbury said the impact of the deal was far-reaching. By the March 26 deadline, more than a dozen banks worldwide had committed $1 billion each to the loan.
"We've discovered with this deal there is tremendous liquidity for well- structured and priced deals," Mr. Aspbury said.
Regardless of whether Olivetti's bid wins or fails, many bankers believe that the deal is just the first sign that pent-up merger energy in Europe is about to blow.
Bankers point to two main reasons for the boom: first, the introduction of the euro Jan. 1 makes it easier to value and pay for companies. Second, trade restrictions have eroded.
There's one more factor, said Mr. Diedricks, a native German. Until recently, he said, "deals were done behind closed doors. Management negotiated and then the deal came out. Shareholders did what they were told."
Now, European shareholders "have become more demanding," and the Continent's burgeoning capital markets have become more transparent. Corporate executives are held more liable not only for merger decisions but for company performance.
For instance, as Olivetti has pushed its plan for Telecom Italia, Telecom Italia's management has countered with plan of its own. Mr. Diedricks, whose company is advising the company, said Telecom Italia has heard the message "loud and clear."
With such new pressures on European corporations, there are already signs the dam that held back the M&A boom has burst.
Through the end of the first quarter 2,829 M&A deals worth $348 billion were announced in Europe, according to Securities Data Co.
The volume is more than half of the European record of $597 billion announced in 1998. If the pace holds, European merger announcements in 1999 would rival the U.S. record of $1 trillion, set in 1998.
Some observers have likened the merger boom to the merger mania in the U.S. and Europe in the 1980s. But a closer look shows that the current run on both continents far exceeds that wave.
The merger deals announced in 1989, the height of the last European merger wave, totaled only $163 billion-less than half the figure for first quarter 1999.
"I've never seen anything like it," Mr. Diedricks said.
Furthermore, three U.S. banks appear poised to capitalize on the trend: Citigroup Inc., Chase, and J.P. Morgan. In all, they have advised on more than 149 deals valued at $317 billion since January 1998.
"What we are bringing to the table is expertise," Mr. Diedricks said. "The Continental banks cannot compete in the same way. There's not enough knowledge."
Most bankers agree that having an established foothold in Europe gives an advantage to winning profitable M&A advisory and finance business. Morgan, Chase, and Citigroup-through its Salomon Smith Barney subsidiary- have been in Europe for decades.
But as the Olivetti deal shows, there is room for newcomers. Lehman Brothers and Donaldson, Lufkin & Jenrette co-led the deal with Chase and Italy's Mediobanca. Neither firm ranked in the top 10 of M&A advisory firms in Europe last year. This year through March, Lehman ranks fifth and DLJ ranks seventh.
The only laggards in Europe may be the local banks, said Chase's Mr. Aspbury, who cites cultural and social barriers.
"There's a good flow of cross-border deals in the corporate sector, but among the banks the game has yet to be played," he said.
"It reminds me of what we had in the States back in the 1970s, when we had problems with interstate banking," he said. "When we can eliminate those hurdles, I'll believe the single currency has fully arrived."
