Hugh Mullin is betting that three of this year's biggest takeovers will help his Putnam Fund for Growth and Income outperform the Standard...

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Hugh Mullin is betting that three of this year’s biggest takeovers will help his Putnam Fund for Growth and Income outperform the Standard & Poor’s 500 Index for a sixth straight year.

Procter & Gamble, Bank of America and Johnson & Johnson account for 7.6 percent of the $17 billion fund, Putnam’s largest.

Mullin has added this year to his holdings of the three companies, which are buying Gillette, MBNA and Guidant, respectively.

“The pickup in mergers and acquisitions indicates a little more confidence on the part of chief executives and that’s good for the market,” Mullin said in an interview from his office in Boston.

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Putnam’s Growth and Income Fund has gained 2.3 percent this year, as of Aug. 31, exceeding the 1.9 percent advance of the S&P 500, including reinvested dividends. Mullin’s fund rose at an annual rate of 2.9 percent from 1999 to 2004, compared with the 2.3 percent drop of the S&P 500.

During the past five years, the fund ranks seventh of 50 competing funds that invest in a combination of U.S. companies with above-average dividends and above-average earnings growth, according to data tracked by Bloomberg. The Scudder Large Cap Value Fund, managed by Thomas Sassi, is the top performer, rising at an average rate of 7.5 percent.

Mullin, who holds stocks for about 3 ½ years on average, doesn’t deliberately seek companies that are making acquisitions. He tends to invest in companies whose shares fetch a low price relative to sales or projected earnings.

P&G’s purchase of Boston-based Gillette, valued at $57.1 billion, tops this year’s list of corporate takeovers. U.S. companies have announced deals worth $687 billion, making it the busiest year for takeovers since 2000, Bloomberg data show.

“These two companies really create a powerhouse on a global basis and they compliment each other pretty well,” said Mullin, whose fund owned 5.46 million shares of P&G as of June 30.

To Robert Bruner, author of “Deals From Hell: M&A Lessons That Rise Above the Ashes,” two aspects of the transaction raise concern. The payment in stock and the fact that the deal comes at a time of a pickup in takeovers increase the odds that P&G overpaid for Gillette, said Bruner, dean of the University of Virginia’s Darden Graduate School of Business Administration.

“The mass of research suggests mergers and acquisitions pay off, but it’s no money pump,” Bruner said. “It isn’t a guaranteed way to create value.”

NationsBank’s $42 billion purchase of BankAmerica in 1998, forming what is now Bank of America, was a money-losing deal for investors.

Profit fell in three of the first four quarters after the deal was completed as the company wrote off bad loans. The stock fell 25 percent for the three years through 2000; the S&P 500 gained 36 percent.

Mullin said he doesn’t expect a repeat from the Charlotte, N.C.-based bank’s $33.1 billion takeover of MBNA, the biggest U.S. independent credit-card company.

The transaction will lower funding costs for MBNA, based in Wilmington, Del., and allow Bank of America to cross-sell its services to owners of MBNA accounts, which number more than 20 million, he said.

Mullin said he was drawn to Johnson & Johnson, the world’s No. 1 maker of medical devices, partly because of its consistent profit growth. The New Jersey-based company reported annual profit increases of at least 10 percent for the past 20 years, excluding charges.

The $24.2 billion purchase of Guidant, the No. 2 maker of implantable defibrillators, will help extend that streak by offsetting sales declines for some of its prescription drugs, Mullin said.

“They have been very successful in integrating prior acquisitions and in the case of Guidant, we anticipate more of the same,” he said.

Johnson & Johnson is waiting for U.S. antitrust clearance to acquire Indianapolis-based Guidant, the biggest takeover in its 119-year history. A decision from regulators may come next month, the company said.