Most Popular
1. It’s a New Macro, the Gold Market Knows It, But Dead Men Walking Do Not (yet)- Gary_Tanashian
2.Stock Market Presidential Election Cycle Seasonal Trend Analysis - Nadeem_Walayat
3. Bitcoin S&P Pattern - Nadeem_Walayat
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
4.U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - Raymond_Matison
5. How to Profit from the Global Warming ClImate Change Mega Death Trend - Part1 - Nadeem_Walayat
7.Bitcoin Gravy Train Trend Forecast 2024 - - Nadeem_Walayat
8.The Bond Trade and Interest Rates - Nadeem_Walayat
9.It’s Easy to Scream Stocks Bubble! - Stephen_McBride
10.Fed’s Next Intertest Rate Move might not align with popular consensus - Richard_Mills
Last 7 days
US Presidential Election Year Stock Market Seasonal Trend - 29th Nov 24
Who controls the past controls the future: who controls the present controls the past - 29th Nov 24
Gold After Trump Wins - 29th Nov 24
The AI Stocks, Housing, Inflation and Bitcoin Crypto Mega-trends - 27th Nov 24
Gold Price Ahead of the Thanksgiving Weekend - 27th Nov 24
Bitcoin Gravy Train Trend Forecast to June 2025 - 24th Nov 24
Stocks, Bitcoin and Crypto Markets Breaking Bad on Donald Trump Pump - 21st Nov 24
Gold Price To Re-Test $2,700 - 21st Nov 24
Stock Market Sentiment Speaks: This Is My Strong Warning To You - 21st Nov 24
Financial Crisis 2025 - This is Going to Shock People! - 21st Nov 24
Dubai Deluge - AI Tech Stocks Earnings Correction Opportunities - 18th Nov 24
Why President Trump Has NO Real Power - Deep State Military Industrial Complex - 8th Nov 24
Social Grant Increases and Serge Belamant Amid South Africa's New Political Landscape - 8th Nov 24
Is Forex Worth It? - 8th Nov 24
Nvidia Numero Uno in Count Down to President Donald Pump Election Victory - 5th Nov 24
Trump or Harris - Who Wins US Presidential Election 2024 Forecast Prediction - 5th Nov 24
Stock Market Brief in Count Down to US Election Result 2024 - 3rd Nov 24
Gold Stocks’ Winter Rally 2024 - 3rd Nov 24
Why Countdown to U.S. Recession is Underway - 3rd Nov 24
Stock Market Trend Forecast to Jan 2025 - 2nd Nov 24
President Donald PUMP Forecast to Win US Presidential Election 2024 - 1st Nov 24
At These Levels, Buying Silver Is Like Getting It At $5 In 2003 - 28th Oct 24
Nvidia Numero Uno Selling Shovels in the AI Gold Rush - 28th Oct 24
The Future of Online Casinos - 28th Oct 24
Panic in the Air As Stock Market Correction Delivers Deep Opps in AI Tech Stocks - 27th Oct 24
Stocks, Bitcoin, Crypto's Counting Down to President Donald Pump! - 27th Oct 24
UK Budget 2024 - What to do Before 30th Oct - Pensions and ISA's - 27th Oct 24
7 Days of Crypto Opportunities Starts NOW - 27th Oct 24
The Power Law in Venture Capital: How Visionary Investors Like Yuri Milner Have Shaped the Future - 27th Oct 24
This Points To Significantly Higher Silver Prices - 27th Oct 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Business Mergers Soar in 2015

Companies / Mergers & Acquisitions Dec 30, 2015 - 03:13 PM GMT

By: BATR

Companies

What does a CEO do when the economy is in a persistent down turn and your business cannot expand or grow? Jump at the time tested strategy of acquisition to gain market share seems to be the response in 2015. Yet a merger is no sure thing. Anyone remember AOL’s deal to buy Time Warner. How did that turn out? Just how much additional efficiency can be squeezed out of any company? In the era of part time contract workers and low wages, all the fat has been long gone. As for research and development in new technology or products, how will such innovation be marketed in an economy infatuated with the promise of Amazon Prime drone deliveries?


These simple questions cannot escape the pattern that surviving corporations are getting bigger. The easy way to pad sales and boost cash flow is to combine current operations. However, as any experienced manager knows, melting different corporate cultures into a smoothly greased machine can be a difficult task.

So let’s look at what a Wall Street Journal report says about Year in Review: Mergers Set a Record as Firms Bulk Up.

“Companies around the world struck $4.6 trillion worth of takeovers in 2015, edging out 2007 to be the biggest year ever for such combinations, according to Dealogic. U.S. corporations led the charge, inking $2.3 trillion in deals—also a record.

There is another number that perhaps best captures the moment: 58. That is how many mergers topped $10 billion, well ahead of the prior high of 43 in 2006.”

Access to cash is no impediment to M & A under the Fed’s easy money discount window.  The bean counters and corporate lawyers keep burning the midnight candles to close all these deals. Once upon a time Wall Street was about raising capital to fund new business ventures. Could this surge in Corporate mergers and acquisitions are on a record pace this year, be a return to funding real business financing? James F. Peltz offers this assessment.

A company's desire to buy another is one thing; ability is another. This year companies have been able to strike such a massive number of deals for several reasons.

With interest rates still low, businesses can borrow relatively cheaply to finance takeovers. The stock market, despite severe bumps late this summer and last week, remains at near record-high levels, and that gives buyers a strong currency to help pay for deals.

Also, "companies got lean during the recession and during that time they accumulated cash" they can now use for acquisitions, Lloyd Greif chief executive of Greif & Co., said.

At the end of the year, the important forecast for 2016 needs to look at the direction of the economy based upon this rush to remove competitors from the market place. The dominate motivation behind mergers and acquisitions are not tax advantages, inversion benefits or business growth. No the definitive motivation is to create a more comprehensive monopoly.

An illustration of this conclusion came on December 11, 2015. DUPONT AND DOW TO COMBINE IN MERGER OF EQUALS announcement is significant.

DuPont (NYSE:DD) and The Dow Chemical Company (NYSE:DOW) today announced that their boards of directors unanimously approved a definitive agreement under which the companies will combine in an all-stock merger of equals. The combined company will be named DowDuPont. The parties intend to subsequently pursue a separation of DowDuPont into three independent, publicly traded companies through tax-free spin-offs. This would occur as soon as feasible, which is expected to be 18-24 months following the closing of the merger, subject to regulatory and board approval.

Both companies are real companies. They produce tangible products and have been blue chip companies started in the 19th century and are classic examples of the functional economy. Note from press release: “Upon closing of the transaction, the combined company would be named DowDuPont and have a combined market capitalization of approximately $130 billion at announcement.”

Compare this value with Facebook Market Cap as of the same December 11, 2015 date, of 288.79 Billion. DuPont has approximately ‎64,000 and Dow 53,000 employees. Facebook says its workforce is around 11,996.  At the end of this year, reflect upon the absurdity of these stock valuations.

So a trivial online and a psycho additive medium of games and chats is worth over twice an amount of two of the most substantial companies with a track record of well over a century of invention and substance. Add to this the insult that they employ ten times the people that work for the Zuckerberg social service.

Is this the kind of business model that will buy out the life blood of capital funding in the future? Before one breaks their piggy bank to invest in tech nirvana; a note of caution. Yahoo used to be bigger than Apple, Google, and Amazon. Now it might sell itself for scrap, is a sobering tale of how fleeting valuation success in the business world can be.

What most people miss or ignore is that many of the high flyer companies are really fads being mismanaged by egomaniacs using an iPhone.

Markets that transact in products that keep the nuts and bolts economy running serve a legitimate and useful purpose. Consumer trends that become all the rage seldom have the ability to match the longevity of companies like Dow or DuPont.

When basic economic needs become isolated and are replaced with mindless and trifle induced diversion, the financial community risks dealing in fantasy instead of basic requirements. Do not look for a merger of DraftKings and FanDuel anytime soon. Understanding the difference in Wall Street hype from sound business investments is a distinction that any capitalist needs to understand.

Mergers and Acquisitions should continue into 2016 as long as the entire market does not crash and burn. In the end, necessary industrials will outlast the superficial. Life is not a virtual reality, nor is commerce a quote on a stock exchange.

James Hall

Source: http://www.batr.org/negotium/123015.html

Discuss or comment about this essay on the BATR Forum

http://www.batr.org

"Many seek to become a Syndicated Columnist, while the few strive to be a Vindicated Publisher"

© 2015 Copyright BATR - All Rights Reserved

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors

BATR Archive

© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in