The Oncoming Corporate Merger Mania

With the market declining over the last two months and all the cash on the sidelines (approx. $2.35 Trillion), it only make sense that corporate mergers, to some degree, will begin. In the late 80's after the 1987 crash, values dropped and money from Japan and Europe made their way into our markets with many acquisitions taking place from foreign companies. Today, we see a similar pattern taking place although the credit crises has made it more difficult for the LBO style takeover. Also, many companies seem "frozen like a deer in the headlight" as to how they should reallocate their resources, while they assess the availability of credit. Those companies who posses a liquid balance sheet may look to enhance their portfolio of business' by using their cash for investment rather than returning it to shareholders in the form of dividends and buybacks. This in turn could help our stock market as the buyouts will be much higher than the stock prices in our current market. Most likely, this will begin in the new year but it could start sooner. I speak of this only in terms of companies who take a long-term view of value and see that many great franchises are selling for pennies on the dollar. If this does take place, it might be the catalyst to move our stock market much higher. This has nothing to do with the recession taking place today, but more to do with CEO's looking to strengthen their position for the future. For a CEO to buy a business growing at 8-10% and most stocks selling at single digit multiples, it sure makes the present value very compelling. I hope the bankers are advising companies during the tumultuous time as first, a business should not be over leveraged, and second, it should posses the right liquidity to take advantage of the fear gripping Wall St. The argument of Decoupling has been answered and put to bed for now so we must look to see what the future holds for our corporations. This brings me to our current recession. Layoffs and resizing a business tends to happen within two quarters or so. Over time, this quick transition leads to V shaped recoveries in Corporate America, although our consumer is still in a very bad spot. I hope our new administration acknowledges the need further stimulus, just not in the form of direct payments to our citizens, but by using the funds to enhance our infrastructure. This would in turn reduce unemployment and bring life back to certain industries that have been crushed. It was a good idea to make sure our system is recapitalized by sending money to our financial companies (although they are still not lending) but we now need to focus our attention on the people. Using Federal Funds to help our country rebuild it's infrastructure will enhance jobs (of all kinds like construction to engineering) but is necessary for our own safety. Change is here and I think the chance to really make the US a great place can happen and will but it takes our corporations and government working together. Placing a greater safety net is not the answer by bailing out everyone. We need to let the weaker players use the bankruptcy courts to workout their situations and concentrate on how to help the larger percentage of our population.