M&A rebound: Greed is back. But is it good?

By Paul R. La Monica, editor at large


NEW YORK (CNNMoney.com) -- The long-awaited sequel to "Wall Street" is finally due to hit theaters next month.

But Gordon Gekko may not be the only financial relic of the 1980s that's making a comeback. Takeover activity seems to be picking up at a fast and furious pace lately despite an uncertain economy.

paul_lamonica_morning_buzz2.jpg

There were a flurry of takeover bids and rumored deals making news Tuesday.

Most notably, Australian mining titan BHP Billiton (BHP) announced a $38.5 billion offer for Canadian fertilizer company Potash, a bid that Potash (POT) rejected as "grossly inadequate." (Oh, snap!)

Still, shares of Potash surged on the news and so did the stocks of many other fertilizer makers as investors bet on the possibility of a Potash bidding war and other agribusiness deals.

Also Tuesday, Hefty trash bag maker Pactiv (PTV) shot up 5.5% after it agreed to sell to Reynolds Group, a subsidiary of New Zealand investment company Rank Group.

And Buffalo regional bank M&T (MTB) gained 5% following a report in the Financial Times that suggested the on-again/off-again takeover talks between M&T and Spanish financial services firm Banco Santander (STD) were back on again.

All this comes during what seems to be a busier than usual August for mergers and acquisitions. Dell (DELL, Fortune 500) bought storage company 3PAR for nearly $1.2 billion. Private equity shop Blackstone (BX) acquired energy company Dynegy last week.

But does a return to the "greed is good" era of corporate wheeling and dealing do any good to the average person on Main Street? Or even investors for that matter?

History is littered with examples of companies who made acquisitions that turned out to be enormous mistakes. Sadly, my parent company Time Warner is probably the textbook example of a big deal gone horribly wrong.

Despite all that, some experts said it is an encouraging sign that companies are looking to invest in the future even though there is a lot of negativity about the global economy.

"The time is right for acquisitions. Strategic deals today make sense. It's not just about empire building," said Tim Harder, chief investment officer with Peak Capital Investment Services, a financial planning firm in Denver. "Valuations have been low and anything a company can do to get some value by using the record levels of cash they have can be a positive."

Harder said that the increase in merger activity is a sign that the worst may be over for the economy even though it clearly does not feel like that just yet. He said investors and consumers need to remember that there's a difference between a sluggish recovery and another recession.

Companies appear to be betting on the former, not the latter.

"People may be confusing economic bad news with it being a bad time to invest," he said. "There is a lot of negativity but the economy is headed in right direction. It's just heading there very slowly"

Stephen Roddenberry, a partner in the merger and acquisition practice with the law firm Akerman Senterfitt in Miami, also said that the recent M&A boom is a sign of corporate confidence.

He pointed out that the fact that many companies are not just willing but able to do deals is in stark contrast to two years ago during the peak of the credit crisis.

"Companies that wanted to do deals a year or two ago but put them on the shelf can now go forward and make acquisitions again," he said.

Along those lines, the Federal Reserve did report Monday that banks are finally relaxing credit standards for small businesses and other corporate loans. And as many have pointed out, big companies are flush with cash.

Still, not everyone thinks that a wave of mergers is a good sign.

Drew White, chief financial officer with Sageworks, a financial analysis firm in Raleigh, N.C., points out that companies would be better off using their cash to invest in capital and hire back people laid off during the recession. In fact, he said that mergers could lead to even more job cuts.

"It would be nice if companies with a lot of cash started investing in growth. If you buy another company, the benefit is for the bankers and lawyers and stockholders. You may even lay off more people in order to reduce overhead costs," White said.

But White conceded that mergers can be a good thing -- especially when they can give struggling companies a life preserver.

Hewlett-Packard's purchase of Palm may wind up being a great example of that. Before HP scooped up Palm, many tech experts doubted Palm could survive much longer given how far it had fallen in the brutally competitive smartphone business.

"It's better for some companies to be bought and absorbed by a larger one then for them to fail and go away for good. That could save jobs," White said.

- The opinions expressed in this commentary are solely those of Paul R. La Monica. Other than Time Warner, the parent of CNNMoney.com, La Monica does not own positions in any individual stocks.  To top of page

Frontline troops push for solar energy
The U.S. Marines are testing renewable energy technologies like solar to reduce costs and casualties associated with fossil fuels. Play
25 Best Places to find rich singles
Looking for Mr. or Ms. Moneybags? Hunt down the perfect mate in these wealthy cities, which are brimming with unattached professionals. More
Fun festivals: Twins to mustard to pirates!
You'll see double in Twinsburg, Ohio, and Ketchup lovers should beware in Middleton, WI. Here's some of the best and strangest town festivals. Play
Overnight Avg Rate Latest Change Last Week
30 yr fixed3.98%3.95%
15 yr fixed3.05%3.05%
5/1 ARM3.32%3.71%
30 yr refi4.05%4.03%
15 yr refi3.12%3.11%
Rate data provided
by Bankrate.com
View rates in your area
 
Find personalized rates:
Index Last Change % Change
Dow 16,805.41 127.51 0.76%
Nasdaq 4,483.72 30.92 0.69%
S&P 500 1,964.58 13.76 0.71%
Treasuries 2.27 -0.00 -0.09%
Data as of 9:27am ET
Company Price Change % Change
Ford Motor Co 13.78 -0.62 -4.31%
Microsoft Corp 46.13 1.11 2.47%
Apple Inc 105.22 0.39 0.37%
Bank of America Corp... 16.72 0.12 0.72%
Yahoo! Inc 43.50 0.90 2.11%
Data as of Oct 24

Sections

New York headlines took a straight forward and direct approach with NYC's Ebola news. More

The midterm elections are around the corner, and the economy remains a top concern. With unemployment down and inflation low, why do people still feel the economy stinks? More

Shares of Facebook recently topped $80. They've more than quadrupled from their post-IPO lows of two years ago. Can Mark Zuckerberg keep the momentum in mobile going? More

Host a furniture market. Here's how small town High Point, N.C. rakes in this much money -- twice a year. More

If you're looking to fly this holiday season, the clock's ticking to get the best prices. More

Most stock quote data provided by BATS. Market indices are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer.

Morningstar: © 2014 Morningstar, Inc. All Rights Reserved.

Factset: FactSet Research Systems Inc. 2014. All rights reserved.

Chicago Mercantile Association: Certain market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved.

Dow Jones: The Dow Jones branded indices are proprietary to and are calculated, distributed and marketed by DJI Opco, a subsidiary of S&P Dow Jones Indices LLC and have been licensed for use to S&P Opco, LLC and CNN. Standard & Poor's and S&P are registered trademarks of Standard & Poor’s Financial Services LLC and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC. All content of the Dow Jones branded indices © S&P Dow Jones Indices LLC 2014 and/or its affiliates.