November 21, 2006
Monday, before the opening bell on the NYSE, firms announced multiple acquisitions, totally over $52 billion. Monday three weeks ago, firms announced $10 billion in acquisition. Two Mondays in one month -- $62 billion in proposed acquisitions. One of the deals announced yesterday is the largest private-equity buyout in history -- Blackstone's bid for Equity Office Partners for $36 billion. Stock is not cheap; market p/e means are up and in excess of historic p/e means. Moreover, the acquisitions are in multiple industries; no industry specific shock seems to explain the wave of deals. What is cheap is debt. Interest rates on corporate debt are low and bidders are using cheap debt to buy stock. It makes one wonder whether the Fed is keeping interest rates too low. A wave of acquisitions based solely on cheap debt seems an odd reason to gamble on the restructuring of the management and operations of so many firms. One would prefer that operational reasoning, increased efficiencies in the use of capital, played a larger part in the deals.
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