Tuesday, July 04, 2006

World Is Getting Smaller 3
M&A Deals Shaping Our World

Gosh... Nissan-Renault-GM
The board of Nissan has agreed to explore ways to create a 3-way-auto-giant by linking up with Renault and General Motors. Renault's board is expected to come to the same conclusion this coming Monday. The proposal will help old foggie Kirk Kerkorian to make a lot of money thanks to his stake in GM, and yes, the proposal was mooted by Kerkorian with Ghosn.

Mittal Steel - Arcelor
Surprisingly, Arcelor shareholders voted not to proceed to a merger with Severstal of Russia. The proposed deal was supposed to thwart Mittal's appetite for Arcelor. This puts Mittal back in the driving seat. Arcelor should just sell itself to Mittal Steel instead of flubbing around. The termination of talks with Severstal meant that Severstal will receive a US$179 million termination fee from Arcelor. Why is control so important? The right price should be the final determinant, a company is not a playground for egos or toys for geezers.

Nestle - Jenny Craig
This deal is smallish but still significant. Nestle, a confectionery superpower and chocolatey-milky giant, already bought Lean Cuisine (prepackaged food for those on a diet), and the purchase of Jenny Craig slimming centers basically helps Nestle to cover all bases from A, B and C. First, you indulge on Nestle products (A), you get overweight, then proceed to Jenny Craig (B), who will inadvertently recommend Lean Cuisine (C). Successful completion of B+C will allow you to revert back to A. At any point should you be stuck at B or C or A is fine by Nestle. Nestle will kepp you in the loop and will make money off you for the rest of your life, unless you are bulimic.

2 comments:

zentrader said...

Dali,

It is true that if company have to engage in M&A for earning growth is a bad sign for economy? What is your view?

Z

Salvatore_Dali said...

Zen,

That may or may not be true, however, when a company can NO LONGER depend on organic growth to sustain share price or earnings, they inadvertently will rely to acquisitions to boost earnings growth as they can do things like "synergies", "cost cutting and cost savings", "save on duplication", etc... So if you look at it that way, the economy is toppish as the inherent demand is not growing sufficiently. However, we are not seeing that for the moment.. however, some industries are seeing "sunset stuff" and have to do M&A to compete e.g. steel, carmakers ... Certain industries require M&A to expand as it is cheaper, e.g. banks... to ask HSBC to grow and go from country to country for expansion would have taken too long.