Seems everybody’s a buyout target

Steve Tripoli Dec 18, 2006

KAI RYSSDAL: Here’s an increasingly familiar business-news recipe to start your week. Take a truckload of cash. Add a thick layer of wasteful corporate fat. Mix them together and you’ve got the recipe for what Wall Street’s been dining on frequently lately. A new wave of merger and acquisition announcements. Biotech firms. Energy companies. Auto parts makers. Casino operators. Everybody’s a buyout target. It’s been going on for months now. And Marketplace’s Steve Tripoli reports the shopping spree might go right past Christmas.

STEVE TRIPOLI: Borrowing is cheap and investors from Chicago to Shanghai are flush with cash. Put ’em together and there’s enough global liquidity to turbo-charge this buying binge. Market strategist Bill Strazzullo at BellCurve Trading says big American companies are the targets of choice.

BILL STRAZZULLO: They tend to accumulate layers of fat that you don’t see in smaller companies. And in those layers of fat and inefficiencies there is hidden value that can be unlocked for current shareholders and also future shareholders.

Strazzullo says eager buyers have several good reasons to target American firms.

STRAZZULLO: They tend to be the most global, so they benefit from growth all over the world. They’re the most global, the most diversified and they benefit from a weaker dollar.

Some folks question whether shareholders lose out when private buyout artists cart away these companies. Are the price tags too low? But market strategist Ken Tower at CyberTrader says buyouts can be a bullish sign for investors in public companies.

KEN TOWER: Because it’s actually reducing the amount of shares outstanding for others to buy.

Tower says the last few months have been the biggest merger-and-acquisition wave in almost 20 years. He warns that when the buyout game stretches out it often ends in a hangover.

TOWER: And, the last deals people will be left a year or two later scratching their heads saying, “How could anybody have done that?”

The big unknown of course is just when the trend has gone too far. Bill Strazzullo says the global picture tells him there’s no sign it’s abating.

I’m Steve Tripoli for Marketplace.

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