Best of the Week
Most Popular
1. Stock Markets and the History Chart of the End of the World (With Presidential Cycles) - 28th Aug 20
2.Google, Apple, Amazon, Facebook... AI Tech Stocks Buying Levels and Valuations Q3 2020 - 31st Aug 20
3.The Inflation Mega-trend is Going Hyper! - 11th Sep 20
4.Is this the End of Capitalism? - 13th Sep 20
5.What's Driving Gold, Silver and What's Next? - 3rd Sep 20
6.QE4EVER! - 9th Sep 20
7.Gold Price Trend Forecast Analysis - Part1 - 7th Sep 20
8.The Fed May “Cause” The Next Stock Market Crash - 3rd Sep 20
9.Bitcoin Price Crash - You Will be Suprised What Happens Next - 7th Sep 20
10.NVIDIA Stock Price Soars on RTX 3000 Cornering the GPU Market for next 2 years! - 3rd Sep 20
Last 7 days
General Artificial Intelligence Was BORN in 2020! GPT-3, Deep Mind - 20th Jan 21
Bitcoin Price Crash: FCA Warning Was a Slap in the Face. But Not the Cause - 20th Jan 21
US Coronavirus Pandemic 2021 - We’re Going to Need More Than a Vaccine - 20th Jan 21
The Biggest Biotech Story Of 2021? - 20th Jan 21
Biden Bailout, Democrat Takeover to Drive Americans into Gold - 20th Jan 21
Pandemic 2020 Is Gone! Will 2021 Be Better for Gold? - 20th Jan 21
Trump and Coronavirus Pandemic Final US Catastrophe 2021 - 19th Jan 21
How To Find Market Momentum Trades for Explosive Gains - 19th Jan 21
Cryptos: 5 Simple Strategies to Catch the Next Opportunity - 19th Jan 21
Who Will NEXT Be Removed from the Internet? - 19th Jan 21
This Small Company Could Revolutionize The Trillion-Dollar Drug Sector - 19th Jan 21
Gold/SPX Ratio and the Gold Stock Case - 18th Jan 21
More Stock Market Speculative Signs, Energy Rebound, Commodities Breakout - 18th Jan 21
Higher Yields Hit Gold Price, But for How Long? - 18th Jan 21
Some Basic Facts About Forex Trading - 18th Jan 21
Custom Build PC 2021 - Ryzen 5950x, RTX 3080, 64gb DDR4 Specs - Scan Computers 3SX Order Day 11 - 17th Jan 21
UK Car MOT Covid-19 Lockdown Extension 2021 - 17th Jan 21
Why Nvidia Is My “Slam Dunk” Stock Investment for the Decade - 16th Jan 21
Three Financial Markets Price Drivers in a Globalized World - 16th Jan 21
Sheffield Turns Coronavirus Tide, Covid-19 Infections Half Rest of England, implies Fast Pandemic Recovery - 16th Jan 21
Covid and Democrat Blue Wave Beats Gold - 15th Jan 21
On Regime Change, Reputations, the Markets, and Gold and Silver - 15th Jan 21
US Coronavirus Pandemic Final Catastrophe 2021 - 15th Jan 21
The World’s Next Great Onshore Oil Discovery Could Be Here - 15th Jan 21
UK Coronavirus Final Pandemic Catastrophe 2021 - 14th Jan 21
Here's Why Blind Contrarianism Investing Failed in 2020 - 14th Jan 21
US Yield Curve Relentlessly Steepens, Whilst Gold Price Builds a Handle - 14th Jan 21
NEW UK MOT Extensions or has my Car Plate Been Cloned? - 14th Jan 21
How to Save Money While Decorating Your First House - 14th Jan 21
Car Number Plate Cloned Detective Work - PY16 JXV - 14th Jan 21
Big Oil Missed This, Now It Could Be Worth Billions - 14th Jan 21
Are you a Forex trader who needs a bank account? We have the solution! - 14th Jan 21
Finetero Review – Accurate and Efficient Stock Trading Services? - 14th Jan 21
Gold Price Big Picture Trend Forecast 2021 - 13th Jan 21
Are Covid Lockdowns Bullish or Bearish for Stocks? FTSE 100 in Focus - 13th Jan 21
CONgress "Insurrection" Is Just the Latest False Flag Event from the Globalists - 13th Jan 21
Reflation Trade Heating Up - 13th Jan 21
The Most Important Oil Find Of The Next Decade Could Be Here - 13th Jan 21
Work From Home £10,000 Office Tour – Workspace + Desk Setup 2021 Top Tips - 12th Jan 21
Collect a Bitcoin Dividend Without Owning the King of Cryptos - 12th Jan 21
The BAN Hotlist trade setups show incredible success at the start of 2021, learn how you can too! - 12th Jan 21
Stocks, Bitcoin, Gold – How Much Are They Worth? - 12th Jan 21
SPX Short-term Top Imminent - 12th Jan 21
Is This The Most Exciting Oil Play Of 2021? - 12th Jan 21
Why 2021 Will Be the Year Self-Driving Cars Go Mainstream - 11th Jan 21
Gold Began 2021 With a Bang, Only to Plunge - 11th Jan 21
How to Test Your GPU Temperatures - Running Too Hot - GTX 1650 - Overclockers UK - 11th Jan 21
Life Lesson - The Early Bird Catches the Worm - 11th Jan 21
Precious Metals rally early in 2021 - 11th Jan 21
The Most Exciting Oil Stock For 2021 - 11th Jan 21

Market Oracle FREE Newsletter

FIRST ACCESS to Nadeem Walayat’s Analysis and Trend Forecasts

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