There is a wave of mergers & acquisitions hitting Europe and other places. The Leveraged Buyout (LBO) and Mergers and Acquisitions (M & A) frenzy seem to be back with a vengeance. According to Reuters in Dec 2006, equity firms held more than $300 billion, with the prospect of firms being bought out and even going private. This is a big force driving up parts of the stock market, while others continue to collapse. Stocks go up because there is a rumor of a company being the target of an M & A, also known as a Leveraged Buyout (LBO). Private equity firms (that includes I believe, hedge funds) have a lot to spend, and they are doing deals all over the place. The Japanese Yen carry-trade may be winding down, but there is plenty of hot money still out there at relatively low interest rates. The monitoring organization Dealogic is listing over $600 billion in private equity deals for M & A, and a total of $3.6 trillion in M & A. This is up almost 100 percent over last year. So, there is a tremendous amount of speculation going on, with much fear from the U.S. Treasury Department's Paulson, and the Federal Reserve of this frenzy or bubble coming to a bad end.
What is astounding is that there are buyout rumors around $80 billion equity firms like Time Warner and Home Depot. Where all this money is coming from, and where it is going, is a complicated question. There is a whole class of low risk mutual funds who make a business of looking for public announcements of a deal, and then buying stock in the buyout targeted company. If the merger deals goes through, which it does in 90 percent of the cases, then the buyout price is higher than the stock price was before and a pretty good and sure profit is made.
This is one of the reason the whole issue of insider information involving private equity funds and hedge funds has become a hot topic in the US Congress. Lobbyists of hedge funds are constantly on Capitol Hill trying to get legislation passed favorable to their companies or buyout targets, and then can use this as insider information before a buyout deal goes public, that this legislation will pass. In other cases, the hedge fund has agents on the board of the targeted company for buyout, and gets insider information before launching the takeover attempt. It's illegal, but it's happening.
What is astounding is that there are buyout rumors around $80 billion equity firms like Time Warner and Home Depot. Where all this money is coming from, and where it is going, is a complicated question. There is a whole class of low risk mutual funds who make a business of looking for public announcements of a deal, and then buying stock in the buyout targeted company. If the merger deals goes through, which it does in 90 percent of the cases, then the buyout price is higher than the stock price was before and a pretty good and sure profit is made.
This is one of the reason the whole issue of insider information involving private equity funds and hedge funds has become a hot topic in the US Congress. Lobbyists of hedge funds are constantly on Capitol Hill trying to get legislation passed favorable to their companies or buyout targets, and then can use this as insider information before a buyout deal goes public, that this legislation will pass. In other cases, the hedge fund has agents on the board of the targeted company for buyout, and gets insider information before launching the takeover attempt. It's illegal, but it's happening.
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