Mergers and acquisitions: Reserve your share of $280 billion...
By J. Christoph Amberger
Taipan Group's Dynamic Market Alert
Mergers and acquisitions: Reserve your share of $280 billion that private investors will be making this year on corporate buyouts
by J. Christoph Amberger
After almost a half-decade of rising earnings and low stock prices, American corporations are flush with cash. And to expand the base for making and keeping more cash, companies have begun to buy their way to even more money.
Companies are buying back their publicly traded shares at unprecedented speed. It's natural: If you need capital, you're willing to part with chunks of your business to raise it. If you have more capital than you can possibly spend, you might as well buy back those shares and get rid of a few thousand pesky shareholders who might expect to be paid dividends out of your own pot o' gold.
So far, S&P 500 companies have spent $110 billion in the first three months of 2007 on share buybacks, for the sixth consecutive quarter in which buybacks have topped $100 billion.
The effect of the close to the $1 trillion spent on buybacks in the last two years is quite predictable: The total supply of equity available for investment in the market is shrinking. And if you take stock out of circulation, you also increase your company's earnings per share. The company's value increases. What shares remain in the market soar.
The other way to increase your company's value is by buying up the competition. Accordingly, the total value of U.S.-based mergers and acquisitions will likely top $1 trillion in 2007 again, for the third consecutive year of more than $1 trillion spent on M&A deals. Thirty-five percent of all deals (worth $280 billion in all) this year have been buyouts, which siphoned the stock of the bought-out company straight off the market.
This $280 billion has, of course, found its way straight into the pockets of investors, who either have held the stock of the acquired company for a while, or speculators, who had located prospective buyout candidates with the express intent to profit from the inevitable boost.
So can you blame our Diligent Investor editor Ann Sosnowski if she researched a set of most likely candidates for some spectacular takeovers that will likely take place by the end of this year? Not satisfied with just locating the buyers and buyees, she's also identified one of the under-the-radar investment banks that will make a mint off these deals, no matter what the stock price of the companies involved will be doing.
Ann is making her top pick available in a free TFN Special Research Report that we're making available this Sunday at TaipanFinancialNews.com. Take a minute to read it over. Just follow this link.
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