A Straw Blowing in the Wind

I would like to point your eyes to this article: Cash No Longer King as Stock, Asset Swaps Drive Takeovers.  This is another sign that equity valuations are getting high.  When equities are cheap, corporations part with cash to buy other corporations and assets.  When equities are rich, corporations use them as a currency to buy assets.  After all, it is a lower risk way to do things, because paying cash raises the leverage of the combined enterprise.

When acquirers are certain they pay cash.  When they are not so sure, they pay with shares.

As such, this is another indicator that equities are expensive relative to cash.  That’s all for now.

1 Comment

  • TheBigSpooky says:

    That’s also $900billion spent with probably a net-negative to employment, capex etc. Time will tell if these are good deals or not but the risk of malinvestment (in the truest sense of the word) seems very high, for the acquirers and the bondholders financing the deals.