Hedge Funds and M & A’s Author: Adamheist
The merger mania is continuing, with many firms in the United States and Europe being bought up by hedge funds. An enormous amount of capital has flocked to hedge funds in order to exploit the low or non-existent tax rates in offshore financial centers such as the Cayman Islands and the Bahamas. The US and other major stock markets are not going up at a level to satisfy the financial lust of the ultra-rich, so the idea is to move into hedge funds since they are what are called “market neutral”. It is a manifestation of the hyperinflation tendencies that all this money is around to run M & As. Lear Corporation announced on Dec 1st its deal to sell its interiors business to Wilbur L. Ross's International Automotive Group North America. The Bank of New York is buying the Mellon Financial for $16.5 billion, to create the world's largest security servicing firm
The value of the dollar has dropped by 11-percent so far this year, and of that 3.6-percent in November. It plunged to a 14-year low against the pound sterling pushing the dollar/British pound rate close to the $2 level, where it hasn't been since 1992.
The hedge funds are demanding less regulation. There are some proposals to get rid of the Sarbanes-Oxley regulations, which are supposed to safeguard against any mega-collapse like Enron occurring. The prime funders of the Committee are none other than financial hedge fund players Wilbur L. Ross, the Starr Foundation, and Kenneth Griffin of the Citadel Investment Group. This proposal has the backing of U.S. Treasury Secretary Henry Paulson, but is seen as ridiculous by state prosecutors in general, including former N.Y.Attorney General and now N.Y. Governor-elect Elliot Spitzer.
Many hedge funds strategies attempt to hedge against losses in the markets they trade by selling other stocks in a similar category short. The more prevalent moneymaking strategy lately is to buy up manufacturing companies such as in the auto industry, when they are bankrupt. Then hedge fund management adopts strategies for quickly cashing in on the companies, or moving them overseas, along with their machine tools to Third World, low wage countries. Another strategy is to buy up various sorts of companies, whether or not they are bankrupt, and issue dividends to stockholders, while piling companies with large amounts of debt. Since the dollar is going lower, the tendency is to grab companies through mergers and acquisitions, as something tangible to either hang on to or play with.