Hang On Tight: ‘Merger Monday,’ Which Died in 2008, Is BAAACK

Wolf Richter's picture

Wolf Richter   www.testosteronepit.com   www.amazon.com/author/wolfrichter

“Merger Monday” was an exciting weekly feature of life during the 2007 bubble. It was the day when mega deals were announced, when all the craziness of leveraged buyouts invaded CNBC’s morning shows with great hoopla, and stocks would surge, and surging stocks would beget more buyouts and more hoopla, and fees and profits were extracted out of thin air, and everyone was in heaven.

After it all collapsed, I thought we’d never see “Merger Monday” again, the phrase, the concept. But now, the unthinkable happened, the impossible, the zombie phrase has walked back into the scene, when it reappeared on the front page of MarketWatch. It was like in the olden days of 2007: the big numbers were there, the exuberance was there, the craziness, the media hoopla, the head-shaking.

There was the acquisition by Japan’s booze conglomerate Suntory of US booze conglomerate Beam for $83.50 per share, a 25% premium from Friday’s closing price. Their combined booze sales would amount to $4.3 billion. The $16 billion deal, including debt, would be funded mostly with debt.

Among the brands Suntory will pick up is Maker’s Mark, which got into a huge tussle a year ago when it told its customers that it would water down its bourbon. “Fact is, demand for our bourbon is exceeding our ability to make it, which means we’re running very low on supply,” explained COO Rob Samuels at the time. They’d add water to the remaining batch, and lower alcohol content from 45% to 42%, so that there’d be enough for everybody. The uproar was immediate, including by yours truly.... Self-Medicating With Watered-Down Bourbon: An Insidious Inflation

Next was Charter Communications, backed by media mogul John Malone. It offered to buy Time Warner Cable, the second-largest cable company behind Comcast, for $132.50 per share, $83 in cash and $49.50 in Charter stock. Rumors had been flying for months. It’s tough out there for cable companies. TWC lost 825,000 cable TV subscribers in 2013, after having already lost 530,000 in 2012. And 2014 doesn’t look exactly bright. So banding together might help, the theory goes. The $61 billion deal would have been the largest unsolicited takeover since the final days of the bubble in 2008. But it was just a “low-ball offer,” as TWC CEO Rob Marcus called it. An even bigger deal may now be in the cards.

And Google announced that it would acquire thermostat and smoke-alarm maker Nest for $3.2 billion, a routine amount these days for a startup that was founded a couple of years ago, has about 300 employees, and is not even making a dent in an industry dominated by giants Honeywell and Johnson Controls.

But Google would get a foothold in the latest hot thing, connected devices, the “Internet of things.” It already knows everything you do on line and stores that information forever. It knows everything you do in your various Google accounts. It reads your emails, data mines them, and stores the results for later use. It knows where you’re going if you use an Android device, and it knows where you’re thinking of going if you use Google maps. Soon it will drive you there in a self-driving vehicle of your choice (or drive you to an advertiser's store instead).

It knows what the outside of your place looks like, but the one thing it hasn’t seen yet is the inside of your place. Hence Nest. Google is entering your home with a sensor system that will soon be a lot more than just a thermostat – why not motion detectors, cameras, microphones, and the like – to perfect the efficiency and security of your home. Any data the system picks up will be forwarded to, or pilfered by, the NSA and others, and will be used by advertisers who want to get to know you better, because serving ads is what Google is all about.

But don’t worry. They have a privacy policy which “clearly limits the use of customer information to providing and improving Nest’s products and services,” Nest explained in perfect corporate speak. Google simply wants to be in every part of your life, connect all your devices, understand your thinking, your preferences, your emotions, your snacking habits. And this acquisition was one more step in that direction [here is my personal experience.... How Much Is My Private Data Worth? (Google Just Offered Me $$)]

But Monday didn’t end on this uplifting note. There was more excitement fermenting beneath the surface. It was all about “leveraged loans.” They’d hit an all-time high in 2013 of $1.14 trillion, and market participants are exuberant about 2014, according to Thomson Reuters’s Quarterly Lender Survey. Alas, in its minutes of the December meeting, the Fed had named leveraged loans and their deteriorating underwriting standards as one of the four threats to “financial stability.”  They’re issued to highly leveraged companies with dubious prospects and junk credit ratings. And many of them are going to blow up once the mania fizzles out.

But not yet. Everyone is counting on rock-bottom interest rates to persist, and on desperate investors who’re chasing yield when there is none in reasonable places, and so they take on risks, any risks, and they hold their noses and swallow covenant-lite junk debt that gives them few rights once there is a problem. In 2013, $311 billion in covenant-lite loans were issued, more than triple the prior all-time high. And everyone is hoping that this year will set another record. After us the deluge.

Did a company have problems servicing its debt or did it threaten to default? A replacement leveraged loan would be offered with better terms. Extend and pretend.... Last year, about 70% of the leveraged loans were issued to reprice and refinance existing debt.

But for 2014, that may be hard to beat. So enthusiasm is building in another direction: mergers and acquisitions. “It’s nice to see that M&A is starting to pick up, and that should provide a new source of fresh capital needs from borrowers,” said Leland Hart, a Managing Director at BlackRock. And everyone is already dreaming of a series of glorious Merger Mondays.

So the mini-downdraft in the stock market so far this year, including Monday’s selloff, hasn’t dampened anyone’s enthusiasm. The Fed seems ready to taper QE out of existence and is sprinkling the market with verbiage to that effect, and eventually this will have an impact, but at this point, it is still just talk, and everyone is hoping that this bubble can be maintained for a while longer.

Prices for housing have jumped and rents have jumped too, yet the 38.7 million renters, 34% of all households, watched with dismay as their real wages declined. They’ve got a problem with the “wealth effect” that Bernanke held up as pretext for printing money. Read.... The Magic “Wealth Effect” On Our Hapless Renters

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
carlnpa's picture

In 1913 individuals paid 10% of US budget, corporations and import duties 90%,

Today individuals pay 90% of the US budget.

We need to turn back time and move the bulk of taxes off of earned income.

We can argue how it will be implemented.

q99x2's picture

Robots shall earn income and take loans and banks will pay their wages out of the money brought in from the resultant financialization made possible.

the0ther's picture

AWWW GW...Makers? Man I used to respect you but that stuff is just rotgut in a fancy package.

I understand the Google hatred, but their products are competitive with iCrap because of the data integration offered. That value increases the more data you feed it. But hey it might not be for everybody.

Save_America1st's picture

Here's a merger notice to chat about:

Anybody own any Osisko Mining???

Goldcorp Offers To Buy Osisko Mining: The Bottom Is In


From the article:

Goldcorp has offered Osisko shareholders $2.4 billion in stock and cash to buy the shares of Osisko Mining (OSK).  In terms of proven and potential gold in the ground, OSK is one of the best ways to play a big recovery in the price of gold and the precious metals mining industry.  Goldcorp has always been the most likely buyer of Osisko so it was just a matter of time before this deal happened.  For the record, Osisko is one of the bigger stock positions in the fund I manage.  I have been waiting since 2010 for GG to takeover OSK.  This is just the beginning.
Goldcorp knows where the price of gold is headed and this why they are buying Osisko now.  They also probably know that the window of opportunity to buy 30 million ounces of gold in the ground at this price is quickly closing.  In other words, this deal marks the turn in the massive gold and mining stock sell-off of the last two-plus yearsWhile I expect Goldcorp to sweeten its offer, don’t get caught up in the details of this transaction and miss the big picture:  the bottom is in and gold is back on track to resume the upward trajectory it was on in 2011.

MollyHacker's picture

I could expect to see comex with +300,000 contracts' around $600per/ounce in the last stages of the gold "smack-down" before turning up.

Haus-Targaryen's picture

When the banks need to get bailed out this time.  Will the Congress pretend to not want to do it, and do it anyhow, or will they pretend not to want to do it, and do it anyhow?  



q99x2's picture

Since the Congress screwed up last time the banks decide that issue from now on.

ebworthen's picture

Yet another signpost on the road to "Bubble - Part Two", in which banks, insurers, and corporations are bailed out and the individual citizen, their children, and their unborn grandchildren are sacrificed on the altar of crony capitalism.

disabledvet's picture

time Warner just sold its hq for well over one billion...now going into a huge expansion in the West Side "Docklands" project. That's the Hudson River heading to Albany, NY. the canal has already been widened north of there so if you want to start pre-fabbing homes for 10 grand "not a problem." also opens up food and water distribution from the interior to the City and the world. we'll see just how good these "solar cities" and even "solar cars" really are. Forget aluminum in trucks...an all aluminum Ranger can probably be powered by a bed sized solar battery cap and your I-phone 5-s battery "networked" so you don't even have to drive the car. probably still need a seat belt...but only the back seats as everything else is just space.

Colonel Klink's picture

1. Merge

2. Cut redundant staff

3. Profit!

Moar jobless!  Helps keep the unemployment rolls full while the dead wood falls off and unemployment numbers still drop.  Good luck with consumerism when there's less and less consumers!

Large corporations ---> #WINNING!