Monday, January 08, 2007

Stock Markets Contract as Global Mergers Overtake Equity Sales

wow! what set of numbers!! if there was any doubt left that cheap credit rules the world here is another example of how this topic is the "most importend" one.

wahnsinn. was für daten. billige/günstige kreditbedingungen sind "der" entscheidende faktor!

Jan. 8 (Bloomberg) -- Stock markets are shrinking as mergers and acquisitions take shares out of public hands faster than companies add them through equity sales.

The value of U.S. shares dropped last year by the most since 1984 and the European market narrowed for the first time, according to Citigroup Inc. Last year's $3.68 trillion in takeovers, led by AT&T Inc.'s $86 billion purchase of BellSouth Corp., outweighed the biggest year for initial public offerings since at least 1999.

The contraction may continue in 2007 as dealmaking accelerates. M&A will rise by at least 10 percent this year, analysts at Deutsche Bank AG, JPMorgan Chase & Co. and Bank of America Corp. forecast. Private-equity investors alone have $1.6 trillion to spend, (including massive leverage. wait until the spreads widen..../inklusive kredithebel. sobald sich die rissikoaufschläge ausweiten schmilzt dieser betrag schnell zusammen...)
"Corporations and the private-equity crowd both appear to still be on a buying spree,'' ..... ``Less supply implies higher prices. That's bullish.''

The reductions helped lift the Standard & Poor's 500 Index and the Dow Jones Stoxx 600 Index in Europe to the highest in six years. Stock buybacks also climbed to an all-time high. ..

Top Priority
``Given the sheer amount of money that's been raised, it seems to me that there's a chance that this could be taken to an extreme,'' he said. ``Fads tend to take on a life of their own.''
Chief financial officers at Fortune 1000 companies consider takeovers their top priority, a survey in September of 100 executives by Morgan Stanley showed. A year earlier, M&A ranked seventh and increasing cash on hand topped the list.

The value of publicly traded shares in the U.S. fell 2.2 percent during 2006 on a net basis, according to Citigroup, whose figures are based on constant stock prices and reflect only equity added to and removed from the market.

The drop accelerated from 0.2 percent in 2005. Before then, the last time the market contracted was 1988, during Wall Street's first leveraged-buyout binge.

In Europe, the value of shares fell 1.2 percent. The U.K. market shrank 4.1 percent, the third straight decrease and the biggest since at least 1983, when New York-based Citigroup began collecting data.

IPOs, Repurchases
The contractions last year occurred even as companies raised $242 billion in IPOs globally, the most since Bloomberg started compiling data in 1999. Industrial & Commercial Bank of China Ltd.'s $22 billion sale was the biggest ever. Companies already publicly traded raised $312 billion selling additional shares.

Repurchases contributed to the declines. U.S. buyback announcements last year totaled $654.9 billion, 39 percent more than a record set in 2005, .....

Stock markets are likely to shrink again because deals are inexpensive to finance and shares are undervalued, (really?)
In the U.S., yields on non-investment grade bonds are close to 10-year lows. Ten-year Treasury note yields, at 4.65 percent, are lower than the 6.65 percent average in the 1990s.

`Cheap Debt Financing'
Corporate bond yields in Europe have been lower in the past three years, on average, than any other time when compared with so-called earnings yields, or earnings per share divided by stock prices, according to the firm's data. That suggests companies are worth buying with borrowed money, the strategists said.

``Rarely has it been as attractive as it is now for companies or private equity to use cheap debt financing,'' .....

Potential stock gains are big enough that buyout firms may borrow more and buy larger companies. Nine of the 10 largest U.S. leveraged buyouts ever were announced last year,

`Unbelievable Firepower'
``We haven't seen any mega deals in Asia yet,'' ....``there's a lot of money sloshing around.''

David Rubenstein, co-founder of Carlyle Group, last month predicted a $100 billion LBO would occur in the next two years. .....

``Right now, these guys have unbelievable firepower, and they are using it,''( but are they using it it in a clever way? nur ob das immer alles clever ist....) .....

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Anonymous Aaron Krowne said...

Every time I see this I think "there are going to be a lot of broke private equity companies soon". Cash flow stemming from a good chunk of these acquisitions won't cover financing costs.

Of course, we won't be insulated, what with the public entities (such as state pension funds) and the banks themselves investing in private equity/buyout firms.

Come to think of it, inasmuch as buyout firms are getting a good deal, the counterparties (banks) will be screwed, creating banking system solvency problems...

12:37 AM  

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