2HRS2GO: Falling stock gets deals done
The easiest and cheesiest way to view today's renewal of M&A Monday is through the prism of Valentine's Day.
Feel the corporate love in the air. Smile and applaud at least six different engagements in the worlds of Internet, technology and communications. Only fitting that all are announced on the day of romance.
Yet they were probably helped along by a decidedly unromantic impetus.
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Friday's rout of technology stocks and the market in the general must have created an incentive to get these deals done by the weekend. When the Nasdaq Composite Index drops 90 points, the S&P 500 sees its sixth straight negative session and the Dow Jones Industrial Average finishes with its worst week of the year, some people might take that as a collective hint: if stock is currency (and it is for every tech, Internet and communications firm), you'd better spend it before the exchange rate slides further.
The actual value of these deals often isn't determined until closing time, so strictly speaking, last Friday's action doesn't necessarily reflect the true cost. But you can see the ironies caused by the psychology of a down market: when the market is going lower, you have less room to command a high premium.
Consider today's acquisitions of publicly-traded entities. At Friday's closing prices, Corning (NYSE: GLW) is paying a 9.7 percent premium for NetOptix (Nasdaq: OPTX); Healtheon/WebMD (Nasdaq: HLTH) is giving 40 percent for Medical Manager (Nasdaq: MMGR), but scarcely 5 percent for the rest of CareInSite (Nasdaq: CARI); Computer Associates (NYSE: CA) just 14 percent for Sterling Software (Nasdaq: SSW).
Of course, that can all change depending on how the stocks perform over the next few months. For now, Wall Street generally seems pleased with today's M&A. Among the acquirers, Corning, Healtheon, CA and CMGi (Nasdaq: CMGI) are either higher or just slightly down. Only Phone.com (Nasdaq: PHCM) and World Access (Nasdaq: WAXS) are definitely lower, and you can chalk up much of their declines to arbitrage action.
Probably most if not all these deals would have happened eventually regardless of the stock market's activity. They all make strategic sense, and in any case, negotiations for anything usually go on for months or at least weeks at time.
But it often takes something extra to finally push everyone into signing papers. The fact that so many deals coalesced this weekend tells you a lot of people felt that sudden urge at the same time.
Which just shows you the power of a depressing market. When things get cheaper, it becomes easier to buy them. And after seeing their stock prices muddle about in recent sessions, maybe executives just needed a little something to cheer themselves up.
Other issues:
When the deal was first announced a month ago, the companies' market caps were roughly $190 billion for AOL and $83 billion for Time Warner, give or take a few hundred million. For Time Warner, this wasn't about realizing a profit so much as getting a viable Internet strategy, but it still must be unsettling to realize that in just one month since the agreement was announced, the price for TWX has plunged about 34 percent, as AOL's cap has dropped to about $125 billion from $190 billion on Jan. 10.
For a few weeks it looked like AOL would bottom out around 60, but this month shares broke through that line and currently muck about in the mid-50s. Prospects for a recovery soon are dim, if today's action means anything: while broad indices drift in a basically neutral pattern, AOL remains solidly lower.
As chairman and CEO of a publicly-traded company, Steve Case bears a responsibility to heed messages from the market at some point. Wall Street's current signal is clear: rework the Time Warer deal or scrap it altogether.
I suspect Wall Street would be satisfied if AOL can unload the magazine and film businesses -- let's face it, did anyone buy AOL to get a publisher and a movie studio? -- along with a sizable portion of Time Warner's huge debt. The first part shouldn't be too hard, but getting a buyer to assume the second is a tough one. Good luck. 22GO>