The Return of “Merger Mania” — and What It Means to You!

I know. You’re wondering why I’m saying that. After all, I usually send you my updates Friday morning, right?

Well, there’s a very good reason. I want to get more informative, more interactive, and more thorough when it comes to covering these topsy-turvy markets.

After all, I may be the interest rate and real estate specialist here at Money and Markets. But those aren’t the only markets I follow. Heck, it’s not just the markets at all that I follow.

I’m a voracious reader — of everything from politics to sports to lifestyle news. I have opinions on all of those topics, and I’m sure you do, too.

Plus, it’s not just interest rates and real estate that drive the global markets. That’s why I have the business news on TV pretty much continuously from the time I wake up to the time I punch the clock at the end of the day (and sometimes in the evenings too, if I can sneak it by my wife and kids).

So starting today, I’ll be sending you a special afternoon Money and Markets update. In those updates, I’ll digest the most important business and markets headlines for you, of course. But I’m also going to dig deeper — and focus on other important stories or topics that aren’t just important to you as an investor, but also as an American (or citizen of whatever country you call home in this globalized world).

Plus, I’d like to actively solicit your feedback — to ask for YOU to tell ME what you want to know about, and what you think when I comment on a particular topic. All you have to do is jump on over to the Money and Markets blog page. We have hundreds of thousands of smart readers and commentators, and their responses, points, and counterpoints can help make you a wiser, safer, and more successful investor!

Bottom line: I hope you enjoy this added benefit, and thank you for your continued interest in Money and Markets.

Now, let’s move on to the topic of the day — Merger Mania! Just in the past few days, we’ve seen either confirmed or reported deals that total tens of billions of dollars. They include …

• General Electric (GE) reportedly buying Alstom SA of France (it also trades here on the OTC market under the ticker ALSMY) for $13 billion. The move would make GE even more of a global industrial powerhouse by adding Alstom’s high speed trains and power plants to its product portfolio.

• Zimmer Holdings (ZMH) buying Biomet Inc. for $13.4 billion. Both companies make orthopedic and other medical devices, and Zimmer apparently decided to scoop its competitor up before the firm went public. It filed for an IPO in March.

• GlaxoSmithKline (GSK), Novartis (NVS), and Eli Lilly (LLY) combining and swapping various drug and consumer medical products in a series of deals totaling $28.5 billion. The transactions will allow each company to focus on what it does best, and instantly created billions in shareholder value for owners of the various companies.

But that’s not all. One report suggested drugmaker Pfizer (PFE) was considering acquiring AstraZeneca (AZN) for a whopping $100 billion not too long ago. Those talks appear to have gone nowhere. But can it be very long before someone else swoops in, given pressure from shareholders to get busy living and make them some money? Or before another mega-combination in the drug sector does pan out?

All these mergers are great news for shareholders and investors. They’re a sign of increased business and market confidence in boardrooms across the country. They’re also a great way to make money outside of the typical channel of increased earnings or economic activity. There’s nothing better than waking up one morning and finding out your shares are worth 10 percent, 20 percent, or more than they were the day before!

I would also point out that if you own a U.S. Treasury, you’re never going to wake up and find out that your coupon payment has just doubled. Nobody is going to acquire Uncle Sam’s obligations at a premium! LOL. So this is yet ANOTHER reason why I have to ask: Why the heck are so many people hiding in massively overvalued long-term bonds — with absolutely pathetic yields — when so much wealth is being created elsewhere?

Now at some point, the merger game is going to get out of control. Deals are going to get so large and so ridiculous that it’ll signal a “top” is in.

I warned of a massive top in commercial real estate and REIT share prices way back in 2007 — in part because the Blackstone Group (BX) bought and basically flipped a portfolio of $39 billion in office property in a span of just a few weeks. It’s right here on the Internet if you want to see. Major REIT shares subsequently lost three-quarters of their value as the real estate market collapsed!

Go even further back and you may recall how AOL and Time Warner announced plans to merge in January 2000. The mega-deal … an astounding $160 billion transaction … pretty much marked the top in the dot-bomb bust!

I don’t think we’re there yet. But we will need to stay alert to the possibility down the road.

Of course, shareholders aren’t the only ones impacted by mergers and acquisitions. Employees are too! Cultures can clash when you combine two companies with different approaches to business, different management styles, or different policies.

Then there’s the issue of layoffs. It’s no secret that to keep shareholders happy and to help deals make financial sense, companies often cut payrolls when they buy out their competitors.

So what do YOU think about Merger Mania? Do you think it’s going to help ignite the next leg up for the markets? Or is this a sign we’re topping out?

What about the impact on society as a whole? Is it a good or bad thing? And have you ever been downsized thanks to a big deal on Wall Street?

Use this link to sound off!

Market Roundup

Here’s a quick recap of the OTHER important news of the day …

• Stocks came out of the gate with a head of steam, thanks to the merger announcements I mentioned earlier and strong earnings from Facebook (FB). Revenue at the social media company surged 72 percent to $2.5 billion, while earnings per share excluding items came in at 34 cents. That beat the 24-cent estimate.

• Apple (AAPL) did its part to get the bulls fired up too! The technology bellwether reported better-than-expected sales of the iPhone. It also added $30 billion to its mammoth stock buyback program, and agreed to split its high-priced shares 7-for-1.

• Durable goods orders also topped expectations, rising 2.6 percent in March. Orders outside of the volatile transportation sector rose the most since January 2013. On the flip side, initial jobless claims rose 24,000 to 329,000 in the most recent week.

• Despite the good earnings and economic news, the overall tone to today’s session was mixed. The Dow Transports stalled out after making a modest new high earlier in the week, while the S&P 500 continued to mark time around the 1,870-1,890 level.

Reminder: If you have any thoughts to share on these market events, don’t hesitate to use this link to put them on our blog.

Until next time,

Mike Larson