M&A Tuesday: A day late and lots of dollars short
Today's Financial News - Posted November 3, 2009
Wall Street is alive with mergers and acquisitions today, but is the action good news? When shareholders trade nothing for nothing, is anybody getting anything?
By Andrew Snyder, TodaysFinancialNews.com
Baltimore – (TFN): It looks like the end of daylight savings time set the markets off by more than an hour. From the looks of things this morning, Wall Street slept in by over a day.
Major merger and acquisition announcements are supposed to take place on Mondays, not Tuesdays. After all, what middle manager wants to clean out his desk with a full workday already under his belt?
Thanks to word from Stanley Works (NYSE:SWK) and Black & Decker (NYSE:BDK), as many as 4,000 workers could be out of their jobs as the two companies unite under one corporate roof.
While this merger may be good for the executives that created it, the move is filled with pessimistic signs for the overall economy.
Besides eliminating thousands of good jobs and pushing even more Americans onto future unemployment rosters, the fact that this is an all-stock deal (cash was never an option according to inside reports) shows that both sides feel share price is overdone.
Why shell out cold, hard cash that has a fixed value, when the accountants can exchange over-inflated chunks of equity.
Shareholders are merely getting one piece of paper for another.
Cash for coal cars?
Warren Buffet is making a similar move, but his is even more carefully crafted.
The oracle has never been a fan of stock splits but is biting his lip today as he announced his Berkshire Hathaway B shares (NYSE:BRK.B) would be split 50-1 so the firm can effectively use them to gobble up railroad giant Burlington Northern (NYSE:BNI).
Instead of trading for over $3,200 a piece, the B shares will go for less than $70 after the ax comes down, just the right price for smaller Burlington Northern shareholders to exchange their current equity for stock in Berkshire.
Unlike Black & Decker’s deal, Berkshire’s acquisition will include a combination of stock and cash, with every share of Burlington worth $100. Investors have a choice between cash or stock.
Smart investors will take the cash.
In all, the deal will cost Berkshire some $26 billion, its largest-ever acquisition, to get its hands on what it does not already own of the railroad. It is a monstrous all-in move that shows Buffett remains bullish on the American economy.
The key to this news, however, is not Buffett’s huge expenditure. It is the decision of individual shareholders. If the majority of investors want cash, it is a strong signal of their relative disapproval and their belief the market is overvalued.
If, however, most want Berkshire stock, it is an ultra-bullish signal that more buying is on the way.
Either way, the markets are making big moves today. This is the first major M&A activity we have seen in months.
It proves there is some life left on Wall Street.
Next Article: Two triple-digit gainers in 2 weeks — on this declining commodity?
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