Last Friday, we asked a couple important questions:
When will the torrid pace of M&A, buybacks, and private equity buyouts begin to slow? What will trigger the slowdown? With credit readily and cheaply available and corporate balance sheets flush with cash, we don't pretend to know.
When will the dealmaking slow? The answer is clearly not just yet as we get news that Alcan is inviting a bidding war, potentially pitting BHP Billiton against Alcoa after Alcan rejected Alcoa's unsolicited offer on Tuesday.
As we've noted before (here and here), the market's heading higher not only on the abstract force of enthusiasm, but on the concrete effects of a shrinking equity supply. So we think this is just about right:
"Interest rates are still low compared to the earnings yield of the stock market, so that indicates an attractive valuation of the market and also implies we'll continue to have more M&A activity going forward," said Bucky Hellwig, senior vice president at Morgan Asset Management, in Birmingham, Alabama. "As companies go private or merge, there are fewer shares for the investment community to buy. It's a classic supply-and-demand situation."
Source
Jennifer Coogan, "Stocks rise in takeover-driven rally," Reuters, May 23, 2007
