August 21, 2014

Sprint Tmobile deal may suggest M&A drying up

The failed deals of Sprint and T-Mobile US and Twenty-First Century Fox and Time Warner --[shows] that the spirited M&A activity may be slowing. (No doubt slowing global growth will stall M&A.) Aggressive share repurchase activity, which has been a clear market prop (and is often a signpost of market tops), also might be in retreat as a result of weakening economies (over there) and evidence of a top in junk bond prices and a low in junk bond yields. So, too, might inversions induced takeovers, which have buoyed market speculation, be a thing of the past if the current administration has anything to do with it. 

For instance, last week Walgreen succumbed to the President's jawboning and dropped its inversion proposal.

Fiscal 2013's valuation surge (when profits rose by about 7% while the S&P 500 rose in value by over 30%) has, in my view, taken away from 2014-2015 investment returns. If the support of robust financial engineering diminishes in significance, valuations are exposed.