America For Sale

Foreign companies emboldened by a weak dollar are on the prowl for undervalued US assets

FOREIGN BUYERSare circling, taking advantage of a weak US dollar and a depressed stock market to snap up US companies at discounted prices. Recent big deals include the July 13 acquisition of Anheuser-Busch, the owner of Budweiser and other iconic American beer brands, by Belgian brewer In-Bev for $52 billion. On July 21, Swiss biotech company Roche Holdings said it will swallow the rest of San Francisco-based Genentech that it doesn't already own for $43.7 billion. And on July 23, Japanese insurer Tokio Marine Holdings announced plans to buy US insurance company Philadelphia Consolidated Holding for $4.39 billion. FEEDING FRENZY:In the past five years, 2,331 US firms worth $772.3 billion were purchased by foreign buyers. In '07, 614 US firms, valued at $294.4 billion, were acquired by foreign entities, up from 226 firms worth $49.6 billion in '03. Foreign buying in '08 has slowed slightly, reflecting the global slowdown in merger-and-acquisition (M&A) activity in recent months. At mid-July, 266 deals valued at $121 billion had been announced, compared to 541 deals, totalling $155.1 billion, in all of '06.
    There are many reasons why foreign buying of US firms is expected to continue and even accelerate. One factor is a weak US dollar. The euro is near record highs against the dollar, up 13.6% in the past year. The dollar index is down 9% from a year ago.
    There's disagreement about how much a weak dollar actually entices buyers. A foreign company may pay less in its native currency, but it also gets less, because a US firm's cash flow and profits are also denominated in American currency, says H Hiter Harris III, co-founder of boutique investment banking firm Harris Williams. However, that logic doesn't apply if you're buying a hard asset, he says. Just as foreign tourists take advantage of the weak dollar to buy clothes, jewellery and other items at steep discounts, foreign firms can buy assets such as land, buildings and especially brands. AN OPPORTUNE MOMENT: While the weak dollar may not be a decisive factor, it can speed up deals. Another factor may be the availability of credit. While the financial crisis is a global phenomenon, foreign buyers "seem to have a little better access to financing than we do in the US," says John LaRocca, a partner at Dechert. However, even if the price is right and credit is available to buyers, bankers say a potential acquisition must make strategic sense. For example, by combining with US companies, foreign consumer companies are often seeking to make global distribution systems more efficient. BUYER PROFILES:Companies in Canada and Europe's developed countries have been the most aggressive buyers of US companies and initiated 69% of deals last year, according to Capital IQ. Asian firms have stepped up their buying, particularly those from emerging economies such as India and China. Emerging Asian firms launched 23 buyouts so far in '08 and 62 in '07, nearly double '06's total and more than four times '05's. But emerging Asian firms, which tend to focus more on growing within their own borders, make up a small portion of the buyers. One thing that's not clear is how much politics will affect the pace of US buyouts. US shareholders usually lift a glass to acquisition proposals because they boost stock prices. Overseas buyers often have a longer-term view, which makes them more likely to invest in building the business. The Presidential election and a new administration can change the climate. Until then, foreign buyouts will be another reminder that US economic growth is falling behind much of the rest of the world.
    businessweek