Sunday, November 13, 2005


Privately held Koch announced that it is buying Georgia Pacific (GP), offering $13 billion in cash. That is one of the largest cash offers ever.

I do not own GP shares. So why I am blogging about it ? Just to tell you, the readers, that if you were waiting for a clear signal for a M&A boom, this should be it.

Most people fret about missing the early stages of a bubble or not getting out in time.

The tech bubble of the 90's was triggered by a revival following a minor recession, and then some real innovation and finally, by the Fed's aggressive moves to facilitate liquidity to aid Y2K outlays and also as a way to recover from LTCM and other credit dangers.

The current housing boom has its beginnings in the 1997 law that eliminated capital gain on a sizable portion of a profit from selling a house. The legitimate boom was turned into a bubble by the unnaturally low interest rates that the Fed retained for a long time to prevent the tech bust turning into a deep recession. Adding to this was an increasingly emotional need to own a house following 9/11 and feelings of insecurity. That party is just about over.

We are onto the early stages of the next bubble. And this will surpass the M&A boom seen in the early 1900s. This boom is being funded by excess liquidity, extremely low corporate tax rates, one-time amnesty on foreign earnings' repatriation as well as significant increase in profit margins due to cost cuts / technology utilization and enhanced productivity. This boom will turn into a bubble 5 years down the road. But for now, pick undervalued companies and wait. The best thing about this bubble is that you get cash, mostly, in exchange for patience. If you can see far enough, you should realize that this bust, will ultimately lead to a corporate debt crisis, but that is for the Fed to worry about a decade from here!

For now, if I can get a minute percentage of the trillions of dollars that are waiting to be deployed, I will be happy. I expect 10-15% of all current public companies in the US to disappear in 5-7 years.


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