|To: richardred who wrote (2691)||10/17/2011 1:25:16 PM|
|Archived news: Credo small fly interest , but imo notable due to todays Brigham Exploration Co takeover . |
Credo Petroleum announces highest initial test rate in company history.
Credo Petroleum Corp., an oil and gas exploration and production company with significant operations in the Williston Basin, Central Kansas and Oklahoma, today provided an update on its North Dakota Bakken horizontal drilling program.
Weisz 11-14#1-H ("Weisz") well successfully completed
Credo's second Bakken well has been successfully completed and production tested at high rates. During testing, the Weisz 11-14#1-H ("Weisz") flowed over 2,000 barrels of oil equivalent from 37 fracture-stimulated stages of Middle Bakken perforations during an early 24-hour period. Brigham Exploration is the operator and Credo owns a 6% working interest. In coming weeks, Brigham will announce the well's exact initial flow rate, but Credo has confirmed through internal calculations that the official initial rate will in fact exceed 2,000 barrels of oil equivalent, marking the highest initial test rate of any well in which Credo has participated in the company's 32 year history.
The Weisz well is located on a 1,280 acre spacing unit about one mile east of Brigham's Olson 10-15-H well which has produced 126,000 barrels of oil equivalent in 18 months. Based on Brigham's exploration plan for the area, up to three Bakken wells are expected to be drilled on the spacing unit and potentially three additional wells to develop the deeper Sanish/Three Forks formation.
Marlis E. Smith, Jr., Chief Executive Officer, said, "I am extremely pleased with the test results of the Weisz, and the initial flow rate record it has set for Credo. Since joining the Board in April of 2009, I have been a staunch advocate of the Bakken, and targeted acquisition of this specific Bakken acreage with our technical team soon after becoming CEO earlier this year. This particular spacing unit could one day see up to six horizontal wells, two additional Bakken wells, and three Sanish/Three Forks wells. Along with the Bakken, the Sanish/Three Forks is highly prospective in the area.
Smith continued, "We look forward to releasing future Bakken well results, including our previously reported Petro-Hunt 1-H well, which is currently in the final stages of completion, and a well in which Credo owns an 18.75% working interest."
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|To: richardred who wrote (2931)||10/18/2011 3:45:22 AM|
|My list of corporate iconic brand names that have yet to be acquired. On the list because they are of scale they still can be acquired. I'm sure I missed some.|
Briggs & Stratton Corp
Colgate-Palmolive Co (Very Big, but never say never)
Church & Dwight Co- Ok Ill give leverage because of the Arm & Hammer brand
Chiquita Brands International Carl Linder Jr just passed away at 92.
Corning -Corelle, CorningWare, Pyrex sold along with Steuben®, but most everybody knows Corning Glass
Energizer Holdings Inc
H J Heinz Co
Harley Davidson Inc
H and R Block Inc
Hormel Foods Corp - They get leverage also SPAM
J C Penney
Kodak Who wants it now, but the brand name has intrinsic value.
Kimberly Clark Corp Gets a pass -Kleenex
McCormick & Co Inc
Norfolk Southern Corp
Ryder System Inc Ryder rents trucks
Ralcorp Holdings Inc- Came close- Ralston Purina
Revlon Inc Ok some leverage Ron Perlman damaged it then brought it back
Reynolds American Inc Reynolds wrap
Smith & Wesson Holding
Tiffany and Co
Tyson Foods Inc
US Steel- X marks the spot
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|To: richardred who wrote (2929)||10/18/2011 10:57:54 AM|
|Williams Proves Cheap Target for Pipeline After El Paso Takeover: Real M&A|
Williams Cheap Target for Pipeline After El Paso Deal
Steven E. Frischling/Bloomberg
With 15,000 miles of pipelines delivering about 14 percent of natural gas consumed in the U.S., Williams may lure buyers after American factories, power plants and homeowners burned a record amount of gas last year.
With 15,000 miles of pipelines delivering about 14 percent of natural gas consumed in the U.S., Williams may lure buyers after American factories, power plants and homeowners burned a record amount of gas last year. Photographer: Steven E. Frischling/Bloomberg
Kinder Morgan Inc.’s takeover of El Paso Corp. (EP) at the highest premium for a U.S. pipeline operator in 15 years is turning Williams Cos. into the industry’s cheapest takeover target.
Williams, the Tulsa, Oklahoma-based pipeline owner pursuing a separation of its oil and natural-gas exploration unit, yesterday was valued at 7.5 times earnings before interest, taxes, depreciation and amortization, the lowest multiple of any U.S. pipeline company, according to data compiled by Bloomberg. That’s almost half the 14 times Ebitda Kinder Morgan said this week it’s paying for El Paso in a $38 billion purchase that will create the biggest U.S. pipeline operator. The 47 percent premium is the industry’s richest since 1996, the data show.
With 15,000 miles of pipelines delivering about 14 percent of natural gas consumed in the U.S., Williams may lure buyers after American factories, power plants and homeowners burned a record amount of gas last year and the company lost out on a bid for Southern Union Co. (SUG) Enterprise Products Partners LP (EPD), with a market value of $36 billion, may be big enough to take on $16 billion Williams, said T. Rowe Price Group Inc. TransCanada Corp. (TRP) or Enbridge Inc. (ENB) may also feel pressure to add scale after the takeover of El Paso, said Frost Investment Advisors LLC.
“You’re likely to see some additional domino transactions,” Ted Harper, who helps manage $6.8 billion including Williams shares for Frost Investment Advisors in Houston, said in a phone interview. “You could easily see those guys make some moves.”
Today’s Trading Jeff Pounds, a spokesman for Williams, didn’t respond to a phone call or e-mail seeking comment.
Shares of Williams climbed as much as 1.9 percent and were up 0.9 percent at $27.80 at 10:15 a.m. in New York. The gain was the biggest among all 42 energy companies in the Standard & Poor’s 500 Index.
Williams runs three natural-gas pipelines that serve more than 30 million homes in markets such as Seattle, New York, Atlanta and Florida. Most of the interstate pipelines are assets of Williams Partners LP (WPZ), a master limited partnership that is 75 percent owned by Williams.
Kinder Morgan said Oct. 16 that it agreed to buy Houston- based El Paso for cash, a portion of Kinder Morgan stock and a warrant to later buy Kinder Morgan shares. Valued at a combined $26.87 a share, the deal is 47 percent higher than El Paso’s average in the prior 20 trading days. That’s the steepest premium of any U.S. pipeline operator takeover greater than $1 billion after the 48 percent premium Houston Industries Inc. offered for NorAm Energy Corp. in 1996, data compiled by Bloomberg show.
Biggest Pipeline Operator Kinder Morgan said its purchase of El Paso will create a company with 80,000 miles of pipelines, surpassing Enterprise Products’ 50,000 miles to become the biggest U.S. pipeline operator.
“This sets the stage for consolidation and gaining competitive advantage through scale,” said Andrew Steinhubl, a Houston-based partner at consulting firm Bain & Co. and co-lead of its North America oil and gas practice.
El Paso had said in May that it would spin off its exploration and production unit, which Houston-based Kinder Morgan now plans to sell to help fund the acquisition.
IPO Plans Three months earlier, Williams had also announced it would sell 20 percent of its exploration and production division in an initial public offering and then spin off the rest next year. In August, Williams Chief Financial Officer Donald Chappel said the company may cancel the IPO if the stock market continues to decline and instead spin off the entire unit. Similarly, Atlas Energy LP announced yesterday that it will separate its exploration and production business into a master limited partnership.
“Splitting up makes it more digestible,” Timothy Parker, a portfolio manager who oversees about $4.3 billion in natural- resource stocks at T. Rowe, said in a phone interview. “Is Williams in play more than it used to be? Yeah, maybe. But you will need a big company.”
T. Rowe owned 5.2 million shares of Williams as of June.
Williams yesterday had an enterprise value, or the sum of its equity and debt minus cash, of about $25.7 billion, or 7.5 times its Ebitda of $3.4 billion in the last 12 months. No U.S. pipeline company was cheaper, data compiled by Bloomberg show.
Relative Value Even if Williams commands a takeover premium comparable to El Paso, the company would have a total value of about $33 billion, or 9.7 times Ebitda, still cheaper than 71 percent of industry deals greater than $1 billion, the data show.
“Williams is the most likely takeout target” in the pipeline industry because it has a low valuation and no state utilities, Rebecca Followill, managing director and head of equity research at U.S. Capital Advisors LLC in Houston, said in a phone interview. “The question is, does Williams accept an offer or does Williams approach someone else and say, I want to buy you?”
The company was in a bidding war for natural-gas pipeline owner Southern Union, which agreed to be bought by Energy Transfer Equity LP (ETE) in July for $9.3 billion including net debt. Williams CEO Alan Armstrong told investors a month ago that the company is “well positioned” if it wants to make another bid for Southern Union after its previous offers were rejected.
Texas to Pennsylvania
New drilling techniques have allowed energy companies to unlock previously inaccessible oil and natural gas all over North America, depressing prices of both commodities while driving demand for more pipelines, Bain’s Steinhubl said. Pipeline operators have profited even as a glut of supply from new wells in Texas, Arkansas and Pennsylvania slashed prices 16 percent. A record 24.1 trillion cubic feet of gas was burned in the U.S. last year, according to the Energy Information Administration.
With Kinder Morgan already buying El Paso, that may leave Houston-based Enterprise Products as the only viable acquirer for Williams, said T. Rowe’s Parker. Enterprise Products, now the second-biggest U.S. pipeline operator after Kinder Morgan-El Paso, has a market value that’s more than double the size of Williams. Enterprise Products has spent about $24.6 billion on acquisitions since the start of 2000, according to data compiled by Bloomberg.
“You do have a limited set of suitors,” Parker said. “Enterprise is sufficiently big to do something like that.”
‘Build Value’ Rick Rainey, a spokesman for Enterprise Products, declined to comment on whether the company is considering a bid.
“Our strategy that we’ve demonstrated is built around organic growth, and we continue to pursue that strategy and build value for our shareholders in that way,” Rainey said. “I’m not saying that acquisitions aren’t part of our overall strategic options, but we see the multiples as not being attractive at the moment.”
TransCanada and Enbridge, both based in Calgary, also have enough scale to attempt a takeover of Williams, said Harper of Frost Investment Advisors. TransCanada, which is awaiting U.S. approval for its $7 billion Keystone XL pipeline that will transport Canadian oil from Alberta to Texas refineries, has a market capitalization of C$30.1 billion ($29.4 billion). The company is also working on projects in power transmission and renewable energy.
TransCanada, Enbridge “Looking forward, the company is focused on completing the remaining $10 billion of projects that are part of its capital program,” Terry Cunha, a spokesman for TransCanada, said in an e-mail response to a question regarding the company’s interests in potential acquisitions.
Enbridge, the largest transporter of Canadian crude to the U.S., has a market capitalization of about $26 billion and said last month it will build a pipeline with Enterprise Products to move crude from a bottleneck at Cushing, Oklahoma, to refineries on the U.S. Gulf Coast.
“We evaluate all options to grow our businesses; however, we currently have an unprecedented slate of organic growth opportunities ahead of us which will generally have better economics underpinning them than acquisitions,” Jennifer Varey, a spokeswoman for Enbridge, said in an e-mail. “We’re always on the lookout for opportunities, but there are none that I could speak to at this point in time.”
It’s “certainly always possible” Williams will be the next acquisition, Timothy Ghriskey, who oversees $2 billion as chief investment officer of Solaris Group LLC in Bedford Hills, New York, said in a phone interview.
“There is great demand for the build out of energy infrastructure,” Ghriskey said. “We found all this natural gas suddenly and it has to get transported.”
To contact the reporters on this story: Bradley Olson in Houston at email@example.com; Tara Lachapelle in New York at firstname.lastname@example.org.
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|To: richardred who wrote (2918)||10/18/2011 12:09:56 PM|
|GlaxoSmithKline to Make a Bid for Human Genome Sciences?|
* Human Genome Sciences : The shares recently traded at $12.97, up $1.72, or 15.56%, on the day. The shares have traded in a 52-week range of $10.40 to $30.15 and its market capitalization is $2.47 billion. About the company: Human Genome Sciences, Inc. researches and develops proprietary pharmaceutical and diagnostic products. The Company’s products predict, prevent, detect, treat, and cure disease based on the discovery of human and microbial genes.
* GlaxoSmithKline : The shares recently traded at $42.98, down $0.25, or 0.58%, on the day. The shares have traded in a 52-week range of $36.28 to $45.34 and its market capitalization is $109.82 billion. About the company: GlaxoSmithKline plc is a research-based pharmaceutical group that develops, manufactures and markets vaccines, prescription and over-the-counter medicines, as well as health-related consumer products. The Group, which also provides laboratory testing and disease management services, specializes in treatments for respiratory, central nervous system, gastro-intestinal and genetic disorders.
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|To: richardred who wrote (2858)||10/19/2011 2:45:34 AM|
|Nestle eyes investments in Russia and M&A |
Nestle cereal boxes are pictured through a logo in the company supermarket at the Nestle headquarters in Vevey, February 17, 2011.
Credit: Reuters/Valentin Flauraud
By Maria Kiselyova
TIMASHEVSK, Russia | Tue Oct 18, 2011 3:01pm EDT
TIMASHEVSK, Russia (Reuters) - Nestle ( NESN.VX), the world's biggest food group, is looking globally for bolt-on acquisitions and is stepping up investment in Russia in its hunt for growth, its chief executive said on Tuesday.
Nestle is aiming for Russia to become its biggest European market by sales, the company said, without giving a time frame.
Russia is already a significant market for Nestle, where it sells Nescafe coffee, grocery products and pet food.
"We are interested in acquisitions that make strategic, business, commercial and cultural sense," Paul Bulcke told Reuters in an interview at the opening of the second stage of a coffee producing plant in the Krasnodar region in south Russia.
However Bulcke also said he expected global raw coffee prices to stay "quite high."
"Raw material prices went up quite dramatically last year. I do believe that raw material prices are going to stay quite high, higher than they were two or four years ago," he said.
Bulcke said he sees growth opportunities across many markets.
"We are focusing on all categories where we are present, we are not going for one that is easier or where there is less competition, so we really want to grow our presence through different categories," he said in an interview.
Nestle has been linked to a potential acquisition of Russian baby-food and juice producer Progress as well as to a bid for Pfizer's ( PFE.N) Wyeth baby formula business if it comes up for sale and the larger Mead Johnson Nutrition ( MJN.N).
Bulcke declined to comment on specific targets.
Global consumer companies are showing increasing interest in the Russian market, as demonstrated by Unilever's recent purchase of Kalina, Russia's biggest cosmetics group.
"We feel very welcome in so many markets, emerging markets that are opening themselves up for foreign investment and creating the environment. But we are also growing in Western Europe," he said.
Nestle has been an active player in recent emerging markets M&A activity, taking stakes in two Chinese food companies.
The company has dry powder for acquisitions after selling its remaining stake in eyecare group Alcon to Novartis ( NOVN.VX), and has refrained from announcing a new share buyback program.
"There are so many opportunities everywhere -- food is something that is part of everybody's life, and that is our job," he added.
Nestle has invested more than 7 billion roubles ($226.4 million) in the coffee plant in Timashevsk, which it opened in 2005.
The plant now produces nearly all of Nestle's coffee in Russia and has become its biggest soluble coffee factory in Europe, the company has said.
It also supplies coffee to neighboring countries. Investment in the plant has brought Nestle's overall Russian investments to over $1 billion over the past decade.
"We have 12 factories here and the nature of the country -- with 140 million plus population -- allows us to aim for making Russia one of the biggest markets in Europe (for Nestle), so that means that we are going to have to invest more here," Bulcke said.
"It is clear that this has to be stepped up."
He said he was keen to look for stable investment opportunities given the current economic volatility.
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|From: richardred||10/19/2011 9:55:56 AM|
|Chevron considering acquisitions, analyst says |
NEW YORK (MarketWatch) -- Chevron Corp. /quotes/zigman/289939/quotes/nls/cvx CVX -0.45% may consider acquisitions of comparable size to its $4.3 billion purchase of Atlas earlier this year as it mulls options for its cash holdings, analyst Pavel Molchanov of Raymond James said in a note to clients on Wednesday. Meeting with investors and other Wall Streeters at a lunch on Tuesday, Chevron CEO John Watson and other company officials said the company favors "small, more bolt-on deals" up to and including the size of the Atlas acquisition, Molchanov said. "Management looks for resource accumulation acquisitions like Atlas that will add long-term value, noting that paying for current production is often expensive," he said. Chevron is also considering dividend increases and stock buybacks in order to deploy its $13 billion in cash, but signaled it's not planning a large, short-term buyback.
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|To: richardred who wrote (2920)||10/19/2011 10:02:06 AM|
|AVN-positive development IMO. You just put somebody in charge of your most profitable unit. |
Fernando J. Acosta Joins Avon as President, Latin America Tuesday October 18, 2011, 5:02 pm EDT
NEW YORK, Oct. 18, 2011 /PRNewswire-FirstCall/ -- Avon Products, Inc. (NYSE: AVP - News) today announced that it has named Fernando J. Acosta as President, Latin America, effective December 1. Mr. Acosta will report to Charles Herington, Executive Vice President, Developing Market Group and serve on Avon's Executive Committee.
Mr. Acosta joins Avon after 19 years at Unilever, where he advanced through a series of senior operating positions with increasing responsibility in Latin America, Europe, Asia and the United States.
His career portfolio includes an impressive track record of building and managing consumer-focused businesses in developed, developing and emerging markets. He also has had operating responsibility for some of Unilever's most prominent brand names, including Dove, Axe, Ponds, Rexona and others.
Most recently, Mr. Acosta has served as Senior Vice President for Unilever in the Middle Americas based in Colombia, with responsibility for the company's personal care, home care, food and beverage businesses spanning nine countries in Latin America.
From 2008-2010, Mr. Acosta was Senior Vice President for Unilever's Skin Care and Cleansing businesses in Asia, Africa, Middle East and Turkey based in Singapore. From 2004-2008, he was based in Connecticut working for the Dove brand and was part of the launch of Dove's iconic "Campaign for Real Beauty." In his role as Senior Vice President for Dove Personal Care worldwide, he led the "Dove Self-Esteem Fund" as well as innovative new product lines such as Pro Age.
Prior to 2004, Mr. Acosta was based in Argentina and the U.K. working for Unilever's Deodorants and Hair Care businesses in Latin America and Europe.
"We are delighted to welcome Fernando to Avon as leader of our largest Commercial Business Unit (CBU)," said Andrea Jung, Avon's Chairman and Chief Executive Officer. "He has an impressive 20-year track record of managing successful consumer businesses with a focus on market share gains and operational excellence. His extensive experience in developed, developing and emerging markets demonstrates his effectiveness as a commercial leader, and his global operating experience across diverse geographies and categories will be a critical asset for building on Avon's strong foundation and advancing our longer-term growth potential in Latin America."
Avon, the company for women, is a leading global beauty company, with over $10 billion in annual revenue. As the world's largest direct seller, Avon markets to women in more than 100 countries through approximately 6.5 million active independent Avon Sales Representatives. Avon's product line includes beauty products, as well as fashion and home products, and features such well-recognized brand names as Avon Color, ANEW, Skin-So-Soft, Advance Techniques, Avon Naturals, and mark. Learn more about Avon and its products at www.avoncompany.com.
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|To: Glenn Petersen who wrote (2761)||10/19/2011 10:14:26 AM|
| Abbott Labs plans to split into 2 companiesAbbott Laboratories splits in 2; branded drug business to become separate company |
On Wednesday October 19, 2011, 8:59 am EDT
NORTH CHICAGO, Ill. (AP) -- Abbott Laboratories plans to spin off its branded drug business and become two separate companies, the drug and medical device maker said Wednesday.
The split-up marks a dramatic change in strategy for the 123-year old company, which has long been noted for its diversified mix of medical products. As many pure pharmaceutical companies weathered losses as the patents on their blockbuster drugs expired, Abbott has continued to post double-digit earnings growth quarter after quarter, performance that many analysts credited to the company's structure.
But Wednesday's announcement indicates Abbott's management increasingly views the company as two separate businesses.
"It makes sense for stockholders because it's a company with two very different risk profiles and investment propositions: high-risk drug discovery and lower-risk generics and nutritional products," said Erik Gordon, a professor and analyst at the University of Michigan's business school. "Investors will be able to pick the one they like or, if they like the old Abbott, keep both."
Abbott, based in North Chicago, Ill., also reported a 66 percent decline in third-quarter net income as it set aside $1.5 billion for legal reserve related to an investigation into its marketing of the drug Depakote.
The new spinoff will sell Abbott's branded pharmaceuticals, including the blockbuster arthritis and immune-disorder drug Humira and the cholesterol drug Niapan. The business, which has not yet been named, will be led by Abbott's Richard Gonzalez who currently heads the company's pharmaceutical business.
The new drug company would have annual revenue of about $18 billion, Abbott said, based on 2011 estimates.
Abbott CEO Miles White will continue to lead the rest of the medical products company, which sells generics drugs, medical implants, diagnostic tests drugs and baby formula. This company will retain the Abbott name and would have annual revenue of about $22 billion.
The company said the split would allow investors to value the companies on their distinct characteristics. Shares of the new company will be distributed to Abbott shareholders in a tax-free transaction, Abbott said.
Abbott is the latest in a series of companies to announce such split-ups in the past year, including Kraft Foods Inc., the former Fortune Brands Inc. and Sara Lee Corp.
Also Wednesday, Abbott reported net income of $303 million, or 19 cents per share, down from $891 million, or 57 cents per share, in the same quarter last year.
Excluding a big charge to set aside a $1.5 billion pretax legal reserve related to the Depakote investigation, earnings were $1.18 per share, which beat analyst expectations by a penny.
Revenue rose 13.2 percent to $9.82 billion. Analysts expected $9.63 billion.
Shares of Abbott rose $5.07, or 9.7 percent, to $57.51 in premarket trading.
Abbott has been one of the pharmaceutical industry's rare success stories in recent years, largely thanks to double-digit growth of anti-inflammatory drug Humira, which posted sales of $6.5 billion last year. And while the injectable biotech drug continued to deliver double-digit growth last year, Abbott has been mostly unsuccessful in efforts to find new therapies to replace the drug.
Early this year the company withdrew the application for a next-generation psoriasis drug after the FDA indicated additional work would be needed to win approval. Humira, which treats rheumatoid arthritis and other inflammatory disease, is scheduled to lose patent protection in 2016.
In May, Abbott's best-selling cholesterol-lowering drugs were hit by back-to-back negative reviews by the federal government.
Federal scientists halted a study of Abbott's drug Niaspan, a prescription form of niacin, after preliminary results showed the pill failed to prevent heart attacks or strokes. Niacin is a form of vitamin B that boosts good cholesterol, which has been shown to fight artery buildup.
Also in May, a panel of health advisers said another Abbott drug, Trilipix, should be re-labeled to indicate that it failed to lower heart attacks in a study of diabetics. Trilipix is a fibrate, a drug that lowers blood fats called triglycerides while boosting "good cholesterol."
Sales of those drugs are expected to decline in coming quarters.
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|To: richardred who wrote (2938)||10/19/2011 11:09:08 AM|
|From: Glenn Petersen|
|The market likes the news. I have a couple of friends who work for Abbott on the sales side. Both feel that the company has been well managed. |
As Economy Goes, So Go Takeovers, Even as Bargains Abound
By STEVEN M. DAVIDOFF
New York Times
October 18, 2011, 7:28 pm
The merger market is like a pack of lemmings. If the economy is good , the takeover market will follow, but when times are bad, the market stalls.
For the moment, there are still mega-deals, like Kinder Morgan’s $21.1 billion acquisition of the El Paso Corporation, and takeover activity is up. The volume of global mergers and acquisitions was up 22 percent, to $2.748 trillion, for the last 12 months ending in August from the period a year ago, according to Thomson Reuters. The increase in deal volume was driven in part by a threefold increase in hostile offers and strong company balance sheets.
Yet many major economies in the world are growing sluggishly, if at all. The negative economic outlook is likely to counteract some otherwise strong drivers for deal-making.
The International Monetary Fund estimates growth for advanced economies at just 1.6 percent this year and only 1.9 percent in 2012, compared with a historical average of about 3 percent. In the United States, unemployment remains stubbornly high, and 2011 G.D.P. growth was recently estimated by a National Association for Business Economics poll of economists to be about 1.57 percent.
The European sovereign debt crisis has worsened the economic growth problem. And the uncertainty over how far the crisis will spread in Europe is bound to drive down takeover volume.
Then there is the stock market. In a presentation last week at the Penn State M&A Institute, Jane Wheeler, a senior managing director at Evercore Partners, noted that since 1985, takeover volume had grown in only two years when the Standard & Poor’s 500-stock index had declined.
So we have the lemmings problem again. Takeover volume follows the stock market, and the market is down. Its recovery is fragile given the negative trends.
Also weighing on the merger market are signs that the Obama administration is stepping up antitrust enforcement. Last year, the federal government made a second request for information, an indication of an in-depth investigation of a transaction, in 4.1 percent of deals, compared with 2.5 percent in the last year of the Bush administration, according to a joint report submitted to Congress by the Federal Trade Commission and Department of Justice.
Mergers are also being challenged more often, and antitrust enforcement appears to be becoming even more aggressive in recent months. Although Continental and United Airlines cleared antitrust review by the Obama administration in August 2010, the federal government is suing to stop AT&T’s acquisition of T-Mobile USA after effectively blocking Nasdaq’s bid to acquire NYSE Euronext and Avis’s effort to acquire Dollar Thrifty.
All this spells a decline in takeover volume. Deal makers do not want to take undue risks, and fear of uncertainty and a downturn is real even beyond the heightened regulatory scrutiny.
Yet there remain some forces that should be putting wind in deal makers’ sails.
The takeover market’s pattern of following equity prices is counterintuitive. When stocks are down, valuations are low and takeovers should make the most sense from a value perspective. Right now, price-earnings multiples are about 15 times earnings, compared, according to Standard & Poor’s, with a historical average approaching 20 times earnings. One would think companies would be rushing to scoop up low-priced assets.
This is particularly true since credit is easy, at least for some. The high-yield market is choppy at best, but good companies can borrow at incredibly low rates for long periods. The Norfolk Southern Corporation, for example, priced a $400 million 100-year bond with a yield of 6 percent.
Even beyond credit there is cash, and companies have plenty of it. Standard & Poor’s estimates that American companies have more than $2 trillion of cash on their balance sheets. Although much of it is held abroad as companies wait for the federal government to lower the dividend tax on the repatriation of cash, certainly hundreds of millions of dollars can be spent domestically.
Private equity firms are also sitting on big cash hoards. Globally, private equity still has almost $1 trillion in dry powder, according to a study by Bain. Leveraged buyouts currently average a mix of about 40 percent equity and 60 percent debt. Private equity therefore has enough firepower for more than $2 trillion in buyouts.
So where are they? The industry remains notably hesitant to make deals. Only 6.5 percent of global M.& A. transactions through the first nine months of 2011 were private equity acquisitions, according to Dealogic.
While it is hard to know what in particular is holding private equity back, they too are most likely following the economic cycle, afraid to invest in a volatile, potentially down market.
Must-do deals will still happen, like the El Paso acquisition, which Kinder Morgan’s chairman and chief executive, Richard D. Kinder, called a “once-in-a-lifetime transaction.”
Yet the overall trend is that of M.&A. rushing toward a cliff. Companies that might have pulled the trigger on an acquisition will instead spend their cash on dividends and stock buybacks.
Sure, some brave companies will take a plunge and try to acquire at a lower value. And the slowdown in initial public offerings may also spur takeover activity.
These are likely to be small blips. For the next few months, investment bankers are going to have a hard year as they try to point to the positive factors in the market to sell deals. But they are going to be running against those lemmings.
Steven M. Davidoff, writing as The Deal Professor, is a commentator for DealBook on the world of mergers and acquisitions.
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