Companies unloading cash on mergers

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Kai Ryssdal:I saw a tweet from our Friday regular Heidi Moore this morning that caught my eye. She was talking about a Thomson Reuters study she'd seen that showed there was $200 billion worth of corporate dealmaking done this month. $200 billion in mergers and acquisitions -- and it's August! As in, the month when there's usually nothing going on. In fact, this is the busiest August we've had in 11 years. Yesterday, as we told you, Intel said it was buying McAfee, the computer security company. This one doesn't count since it's not a done deal, but Tuesday BHP Billiton tried to take over a huge Canadian fertilizer company to the tune of $40 billion.

We asked Marketplace's Alisa Roth to find out why these companies are so darn hungry.


Alisa Roth: One reason companies want to do deals is interest rates are so low, financing them is cheap. But a lot of companies have saved so much money, they can pay cash. And it's cash they don't necessarily know what else to do with.

James Brock is a professor at Miami University in Ohio. He says buying other companies is an easy option.

James Brock: You know, what I think it offers, I think it offers is this kind of romantic illusion of fast growth.

Emphasis on illusion. He says historically most of these partnerships don't last -- think Daimler Chrysler, AOL and Time Warner. One question is why companies don't invest their savings in themselves -- hire more workers or build new plants.

Brad Hintz is an equity analyst at Sanford Bernstein. He says an acquisition -- if it's at the right price -- can be the better bargain.

Brad Hintz: When the stock market's valuation is low, it's actually cheaper to go out and buy whole companies and get their workers that way than it is to go out and hire workers and invest in new plant and equipment.

Maybe. But James Brock says there's also the potential for companies to get carried away.

Brock: They get all hot and excited, they've got lots of money. And they step up to the bar and unload their wallet and then the next morning is sort of regret.

And the more deals there are, the more potential there is for overpaying, since companies worry about losing out a deal to the competition.

In New York, I'm Alisa Roth for Marketplace.

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