2007 All Over Again? Mega-Merger Edition

By: John Rubino | Mon, Jun 1, 2015
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Intel is buying chip maker Altera. Charter is buying Time Warner Cable. All the big drug makers are buying all the mediums-sized ones.

Great news, right? If these huge companies with their top-of-the-line analytical tools and deep insight into their markets think paying way up to build empires is wise, then the stock market, far from being overvalued, must be cheap.

Right. Except that history says the opposite. One of the best signals that a bubble is about to burst is rich people with too much money doing stupid things. And as Mitt Romney likes to say, corporations are people too -- which means they're prone to exactly this kind of herd behavior.

For proof of this you need only recall the last bubble, when household name companies were buying out their peers with abandon (i.e., with hundreds of billions of dollars of other people's money). Giants like Amro Holding NV, Equity Office Properties, and Alcan Aluminum, among many, many others were all merged into global multinationals at prices that seemed to imply blindingly-bright futures for their industries. (A complete, shockingly-long list of the acquisitions attempted and/or completed in 2007 is available here.)

As it turned out, these were terrible deals for everyone except the CEOs of the takeover targets, who got to leave at the top. And 2007 was par for the course; the same thing happened at the peak of the tech stock and junk bond bubbles. Seen through this historical lens, today's orgy of takeovers at record-high prices implies at least two things:

So is this 2007 (or 1999 or 1988) all over again? That won't be clear until the cycle turns, but if this isn't 2007, it's damn close.

 


 

John Rubino

Author: John Rubino

John Rubino
DollarCollapse.com

John Rubino

John Rubino edits DollarCollapse.com and has authored or co-authored five books, including The Money Bubble: What To Do Before It Pops, Clean Money: Picking Winners in the Green Tech Boom, The Collapse of the Dollar and How to Profit From It, and How to Profit from the Coming Real Estate Bust. After earning a Finance MBA from New York University, he spent the 1980s on Wall Street, as a currency trader, equity analyst and junk bond analyst. During the 1990s he was a featured columnist with TheStreet.com and a frequent contributor to Individual Investor, Online Investor, and Consumers Digest, among many other publications. He now writes for CFA Magazine.

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