In today's merger-manic market, even the hint of a deal is enough to trigger a full-blown buying frenzy.
Shares of Bankers Trust New York Corp. rocketed $14, to $133.62, a gain of 12%, after a report Thursday morning that the company might be in takeover talks with Travelers Group Inc., the insurance company and parent of Smith Barney.
Bankers Trust, breaking from its policy of not commenting on market rumors, flatly denied it was in talks with anyone.
The immediate source of the price surge appeared to be a report on CNBC, the cable television channel. A news reader said that UBS Securities bank analyst Thomas H. Hanley is "indicating that his sources said that-that perhaps Travelers was interested in acquiring Bankers at between 162 and 167" dollars per share.
"But you know," the announcer quickly added, "a certain degree of skepticism (is) being expressed by certain people as to whether there is anything going on here."
Neither Mr. Hanley nor a UBS Securities spokesman returned calls Thursday, but market sources maintained that he was indeed expecting a deal.
However, most evidence suggested nothing was afoot.
Investors might have considered chances remote that Bankers Trust would sell now, just after merging Sept. 1 with brokerage Alex. Brown & Sons Inc. They might have realized top Bankers Trust executives were abroad. They might also have known of existing regulatory barriers that prevent mergers between commercial banks and insurance companies.
But that didn't stop market players from stampeding into Bankers Trust's stock.
At 12:10 p.m., the New York Stock Exchange halted trading of Bankers Trust stock and asked the company for an explanation of the unusual trading activity.
At 1:08 p.m., Bankers Trust issued a press release stating the company "is not engaged in discussions or negotiations about a business combination with any firm."
Experts in bank mergers said the rumor should have died right there.
"That statement means the rumor isn't true," said Ronald H. Janis, a banking law specialist and partner in Pitney Hardin Kipp & Szuch, Morristown, N.J. "If they were engaging in any kind of talks, they would be creating liability problems by saying what they did."
Bankers Trust shares ended up $5.68, at $124.
The sudden frenzy surrounding Bankers Trust was just the latest example of an unfounded takeover rumor causing a huge run-up in stock price. This summer shares of American Express Co. repeatedly rose on rumors it would sell to Citicorp. And Fleet Financial Group's stock got a boost in March on rumors that it would sell to Chase Manhattan Corp.
The merger mania has become particularly acute since Aug. 29, when NationsBank Corp. agreed to buy Barnett Banks Inc. for a whopping 37% premium over market price.
That has investors everywhere guessing which company will reap them similar riches. Since the NationsBank/Barnett deal, shares of banks with leading market shares have soared. Mercantile Bancorp., Missouri's biggest bank, has risen 14.7% on rumors it would sell to another bank. And Amsouth Bancorp., Birmingham, Ala., has risen 14.1%.
"Buyers can afford to pay more, and sellers can receive prices they never dreamed of," observed Credit Suisse First Boston bank analyst Michael L. Mayo.
At the same time, people who advise banks on mergers observe that speculators have been right about imminent deals often enough that they will continue to bet on deals.
To Brown Brothers, Harriman & Co. analyst Raphael Soifer, the tremendous trading activity sparked recently by unsubstantiated, occasionally farfetched reports is a sign that "rumors are beginning to become unglued."
Bankers Trust has been reported to be shopping its 401(k) business, he noted, and suggested the rumors that it would sell entirely may have sprung from some kind of misunderstanding.
The only way Travelers Group could buy a controlling interest in Bankers Trust under current law would be if it agreed to sell of all its insurance subsidiaries. Alternatively, Bankers Trust could get rid of its banking charter, said John L. Walker, a partner in the New York law firm of Simpson Thacher & Bartlett. Otherwise, Mr. Walker said, the most Travelers could acquire would be a 24.9% stake in the bank.
While some market observers speculated that Travelers may be signaling its interest in Bankers Trust as a way to spur Congress to revise the laws separating the businesses, Mr. Walker considered that approach misguided.
"Considering something as controversial as a Travelers/Bankers Trust merger would be is not a good way to sway Congress in the direction you want," he observed.