Sunday, October 31, 2004

Cash is king - always!

I have mentioned before that cash is always preferable in a takeover. This is mostly because, even taking into account a large premium, the buyer is unlikely to do well in the longer run due to integration problems etc. Moreover it does show some desperation on the part of the buyer.

When Kroll got acquired by Marsh & McLennan (MMC) a while ago, I was happy to see that it was an all-cash transaction, but in this case I would not have been bothered by a stock-swap since I believed that MMC was undervalued following the Putnam scandal. How wrong I was!

As Spitzer started his latest look into corporate sleaze (contingent commissions), MMC took a big hit and is now trading more than 40% below its price when it acquired Kroll!

I have learnt my lesson - I can live with an all-cash takeover!


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