Best of the Week
Most Popular
1. The Trump Stock Market Trap May Be Triggered - Barry_M_Ferguson
2.Why are Central Banks Buying Gold and Dumping Dollars? - Richard_Mills
3.US China War - Thucydides Trap and gold - Richard_Mills
4.Gold Price Trend Forcast to End September 2019 - Nadeem_Walayat
5.Money Saving Kids Gardening Growing Giant Sunflowers Summer Fun - Anika_Walayat
6.US Dollar Breakdown Begins, Gold Price to Bolt Higher - Jim_Willie_CB
7.INTEL (INTC) Stock Investing to Profit From AI Machine Learning Boom - Nadeem_Walayat
8.Will Google AI Kill Us? Man vs Machine Intelligence - N_Walayat
9.US Prepares for Currency War with China - Richard_Mills
10.Gold Price Epochal Breakout Will Not Be Negated by a Correction - Clive Maund
Last 7 days
WAYS TO SECURE YOUR FINANCIAL FUTURE - 20th Aug 19
Holiday Nightmares - Your Caravan is Missing! - 20th Aug 19
UK House Building and House Prices Trend Forecast - 20th Aug 19
The Next Stock Market Breakdown And The Setup - 20th Aug 19
5 Ways to Save by Using a Mortgage Broker - 20th Aug 19
Is This Time Different? Predictive Power of the Yield Curve and Gold - 19th Aug 19
New Dawn for the iGaming Industry in the United States - 19th Aug 19
Gold Set to Correct but Internals Remain Bullish - 19th Aug 19
Stock Market Correction Continues - 19th Aug 19
The Number One Gold Stock Of 2019 - 19th Aug 19
The State of the Financial Union - 18th Aug 19
The Nuts and Bolts: Yield Inversion Says Recession is Coming But it May take 24 months - 18th Aug 19
Markets August 19 Turn Date is Tomorrow – Are You Ready? - 18th Aug 19
JOHNSON AND JOHNSON - JNJ for Life Extension Pharma Stocks Investing - 17th Aug 19
Negative Bond Market Yields Tell A Story Of Shifting Economic Stock Market Leadership - 17th Aug 19
Is Stock Market About to Crash? Three Charts That Suggest It’s Possible - 17th Aug 19
It’s Time For Colombia To Dump The Peso - 17th Aug 19
Gold & Silver Stand Strong amid Stock Volatility & Falling Rates - 16th Aug 19
Gold Mining Stocks Q2’19 Fundamentals - 16th Aug 19
Silver, Transports, and Dow Jones Index At Targets – What Direct Next? - 16th Aug 19
When the US Bond Market Bubble Blows Up! - 16th Aug 19
Dark days are closing in on Apple - 16th Aug 19
Precious Metals Gone Wild! Reaching Initial Targets – Now What’s Next - 16th Aug 19
US Government Is Beholden To The Fed; And Vice-Versa - 15th Aug 19
GBP vs USD Forex Pair Swings Into Focus Amid Brexit Chaos - 15th Aug 19
US Negative Interest Rates Go Mainstream - With Some Glaring Omissions - 15th Aug 19
GOLD BULL RUN TREND ANALYSIS - 15th Aug 19
US Stock Market Could Fall 12% to 25% - 15th Aug 19
A Level Exam Results School Live Reaction Shock 2019! - 15th Aug 19
It's Time to Get Serious about Silver - 15th Aug 19
The EagleFX Beginners Guide – Financial Markets - 15th Aug 19
Central Banks Move To Keep The Global Markets Party Rolling – Part III - 14th Aug 19
You Have to Buy Bonds Even When Interest Rates Are Low - 14th Aug 19
Gold Near Term Risk is Increasing - 14th Aug 19
Installment Loans vs Personal Bank Loans - 14th Aug 19
ROCHE - RHHBY Life Extension Pharma Stocks Investing - 14th Aug 19
Gold Bulls Must Love the Hong Kong Protests - 14th Aug 19
Gold, Markets and Invasive Species - 14th Aug 19
Cannabis Stocks With Millennial Appeal - 14th Aug 19
August 19 (Crazy Ivan) Stock Market Event Only A Few Days Away - 13th Aug 19
This is the real move in gold and silver… it’s going to be multiyear - 13th Aug 19
Global Central Banks Kick Can Down The Road Again - 13th Aug 19
US Dollar Finally the Achillles Heel - 13th Aug 19
Financial Success Formula Failure - 13th Aug 19
How to Test Your Car Alternator with a Multimeter - 13th Aug 19
London Under Attack! Victoria Embankment Gardens Statues and Monuments - 13th Aug 19
More Stock Market Weakness Ahead - 12th Aug 19
Global Central Banks Move To Keep The Party Rolling Onward - 12th Aug 19
All Eyes On Copper - 12th Aug 19
History of Yield Curve Inversions and Gold - 12th Aug 19
Precious Metals Soar on Falling Yields, Currency Turmoil - 12th Aug 19
Why GraphQL? The Benefits Explained - 12th Aug 19

Market Oracle FREE Newsletter

The No 1 Gold Stock for 2019

What the Burger King Deal Tells Us About Today's Stocks Bull Market

Stock-Markets / Stock Markets 2014 Aug 28, 2014 - 02:16 PM GMT

By: Money_Morning

Stock-Markets

Michael E. Lewitt writes: The S&P 500 recently hit a new high as it drove through the 2000 mark for the first time in history on the day that Burger King Worldwide Inc. (NYSE: BKW) announced that it would purchase iconic Canadian fast food chain Tim Hortons Inc. (NYSE: THI).

Thus far in 2014 there have been $2.3 trillion of announced mergers & acquisitions (M&A) transactions around the world - $1.16 trillion in the United States alone - and undoubtedly there are more on the horizon.


Indeed, M&A activity is a major catalyst for the booming stock market and is good for investors.

Unless it's really a sign of a dying bull... If that's the case, we're in some big trouble.

Here's what's got me concerned, and why we need to exercise caution right now...

Robust M&A Activity Is Misleading

Part of the rationale driving the Burger King deal and many others in 2014 was the potential opportunity for Burger King to move its corporate headquarters to Canada, which has a lower corporate tax rate than the United States, where Burger King is headquartered.

Burger King actually pays taxes in the mid-20% range and does not expect its overall tax rate to increase after the transaction, but the fact that it is moving its domicile to Canada suggests that taxes were a consideration in driving the transaction.

But regardless of the specific reason for this merger, M&A activity, in general, is booming.

There have been $200 billion of telecom deals and more than $100 billion pharmaceutical industry deals (the latter of which has been particularly prone to tax inversion plays).

In the technology sector, M&A deals are running at their hottest pace since 2000 with $174.4 billion of deals so far this year. Notable deals include Facebook Inc.'s (NYSE: FB) acquisitions of texting company WhatsApp for $19 billion and virtual reality company Oculus VR, and Amazon.com Inc's (Nasdaq: AMZN) $970 million acquisition of Twitch, the leading gaming platform.

Perhaps even more notable were the deals that were attempted but not brought to fruition like Twenty-First Century Fox Inc.'s (NYSE: FOX) failed attempt to buy Time-Warner Inc. (NYSE: TWX) which would have added considerably to the annual deal tally.

With the exception of those companies engaging in tax inversion deals, which still constitute a minority of transactions, today's mergers are being driven by strategic buyers rather than by private equity firms and other firms driven primarily by financial motives.

For the most part, the buyers are large, blue-chip companies.

There have been a limited number of leveraged buyouts in 2014, particularly very few large leveraged buyouts. This is primarily because the large buyouts of the mid-2000s have fared poorly and private equity firms have shifted their focus to asset management activities and to nursing their troubled deals from a decade ago back to health.

M&A activity has been supported by healthy equity and debt markets. Robust stock prices have enabled companies like Facebook to use their stocks as currencies, as it did in the acquisition of WhatsApp. Blue chip companies have had no trouble borrowing billions of dollars at very low interest rates to finance their deals as well. M&A deals help move stock prices higher and line the pockets of bankers and lawyers. They are also believed to be an expression of confidence in the future on the part of corporate executives.

The M&A Boom Has a Dark Side

There is a darker side to M&A however, and its consequences can spell the end of the bull run.

For many companies, M&A is something they do when they run out of ways to grow internally.

Furthermore, many M&A transactions fail to generate the promised synergies and growth. Instead, they generate massive layoffs and write-offs. Those transactions that involve the incurrence of large amounts of debt force companies to devote more capital to servicing that debt than to growing their businesses, creating new products, and hiring new workers.

Many companies today are looking at merging in order to respond to competitive threats and other challenges or deficiencies in their own businesses that they can't solve on their own.

In trying to answer whether M&A is a positive thing for a company, these factors have to be entered into the equation. M&A generally doesn't lead the market or lag the market; it occurs when the market is strong and slows down when market conditions become difficult.

Today's M&A boom is very likely coming at the tail end of an epic bull market.

Source : http://moneymorning.com/2014/08/28/what-the-burger-king-deal-tells-us-about-todays-bull-market/

Money Morning/The Money Map Report

©2014 Monument Street Publishing. All Rights Reserved. Protected by copyright laws of the United States and international treaties. Any reproduction, copying, or redistribution (electronic or otherwise, including on the world wide web), of content from this website, in whole or in part, is strictly prohibited without the express written permission of Monument Street Publishing. 105 West Monument Street, Baltimore MD 21201, Email: customerservice@moneymorning.com

Disclaimer: Nothing published by Money Morning should be considered personalized investment advice. Although our employees may answer your general customer service questions, they are not licensed under securities laws to address your particular investment situation. No communication by our employees to you should be deemed as personalized investent advice. We expressly forbid our writers from having a financial interest in any security recommended to our readers. All of our employees and agents must wait 24 hours after on-line publication, or after the mailing of printed-only publication prior to following an initial recommendation. Any investments recommended by Money Morning should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company.

Money Morning Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules