Busiest Monday for mergers in 5 months
By Matt Krantz
USA Today
| |||
 |
|
||
Industrial giant Ingersoll-Rand's $10.1 billion buyout of Trane yesterday creates one of the biggest makers of air conditioners, but it also reminds investors that the merger mania that propelled stocks earlier this year has largely vanished.
By all respects, yesterday was a busy one for mergers, posting the largest dollar volume of deals on a single Monday in five months, Thomson Financial says.
Still, while such harried merger activity would normally put investors in a good mood, stocks continued their downward slide. The Dow sank 173 points, or 1.3 percent, to 13,167, and the Nasdaq crumbled 61 points, or 2.3 percent, to 2574.
Investors figure yesterday's mini-merger boom was an anomaly, and that the slowdown in buyout activity that started after the summer will drag on, taking away a big demand for stocks. Well-known buyout attorney Martin Lipton, of Wachtell Lipton Rosen & Katz, predicted a 25 percent decline in buyouts in 2008 in a memo released to clients yesterday. Meanwhile, other worries about the economy continue to heat up.
"The safety net for stocks (mergers) is rapidly disappearing," says Jack Ablin of Harris Private Bank.
The drying up of merger activity this year has been stunning in that the:
Much of the slowdown is because of the credit crunch, since leveraged buyout firms are struggling to raise money to buy companies, says Ken Henderson of law firm Bryan Cave.
Some hope M&A will outpace expectations next year, Henderson says, especially if cash-rich companies step up. Steven Bernard, of investment bank Robert W. Baird, says foreign companies will also look to buy U.S. companies. The number of global deals is up 9 percent in the second half from the first, Dealogic says.
The market needs to sort out investor concerns about the economy. If that happens, stocks can recover without mergers, says Robert Dow of Lord Abbett. Merger announcements "pushed things to extremes (in early 2007), but that doesn't mean the market can't do well without them," he says.
Make a difference. Donate to The Advertiser Christmas Fund.
