Economy's mending may mean merger mania time
Economy's mending may mean merger mania time
By Andrew Leckey
Tribune Media Services columnist
Published February 29, 2004
The economy is looking up, companies have their financial houses in order, banks are willing to lend more money and interest rates remain low.
Such symptoms foreshadow the outbreak of merger mania, a malady in which the corporate desire to grow bigger becomes insatiable.
"Merger activity and potential buyers are returning to the market," said Ken Marlin, managing partner in the Marlin & Associates investment banking firm that specializes in mergers and acquisitions in the media and technology groups.
Thus the relatively undervalued share prices of many cable companies, satellite broadcasters, tech companies and banks have turned them into speculative buys as possible takeovers.
For the investor, owning shares in the company that's to be acquired is how you win.
The result for those holding shares of an acquiring company are less sure. The shares often decline initially because the firm is taking on greater financial risk, even though the deal may ultimately enhance the company and its stock price.
"You can do an acquisition for all the right reasons, but not execute properly and it doesn't work out," said John Caldwell, chief investment strategist with McDonald Financial Group in Cleveland. "You can do it for all the wrong reasons but it still ends up benefiting shareholders because it was too good of a deal to pass up."
Important questions to ask about any merger deal, Caldwell believes, are:
- Does it make sense from a product or geography standpoint?
- Is it an extension of the existing business?
- Are the businesses complementary or similar enough that integration will be smooth?
- Is the deal being done at the right price? Overpaying for an acquisition is a difficult mistake to correct.
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