Weak U.S. dollar spurs foreign buyers
Corporate America is up for grabs these days, and foreign buyers are bringing their checkbooks.
From red-tag markdowns to white sales to blue-light specials, public companies across the U.S. are being gobbled up at an accelerating pace, driven by currency factors and foreigners' need to put money from their trade surpluses to work.
Last year, foreigners paid $294 billion for 615 American public companies, according to Standard & Poor's Capital IQ research service. That's up from 283 deals worth just under $59 billion in 2004.
From its colonial roots to the present, America always has been a magnet for foreign capital, just as Americans have been and remain heavy investors in foreign nations. In fact, U.S. firms still buy more of their foreign counterparts than the other way around.
But the latest surge of foreign buying is remarkable and growing at a faster pace than U.S. purchases of foreign companies, which rose from 634 deals worth $239 billion in 2004 to 734 deals worth $513 billion last year.
One key catalyst for foreign buying is the sharp drop in the value of the greenback against the currencies of major trading partners such as the euro, British pound and Canadian dollar.
The dollar's slide "increases the purchasing power of other countries," said Jeremy Payne, senior vice president for Standard & Poor's Capital IQ in New York.
Europeans and Canadians are the main buyers of U.S. corporations, accounting for 72.9 percent of the value of all deals tracked by S&P in 2007, although that's down from 89.8 percent in 2004.
Asian buyers took up some of the slack, accounting for 14.5 percent of the value of U.S. purchases last year, up from 6.4 percent in 2004.
Curiously, purchases from entities headquartered in the Caribbean also rose, to 5.1 percent from 1 percent. Since the Caribbean isn't known for incubating world-class corporations, this hints at the influence of entities with headquarters there but with the source of their wealth derived from developed nations.
The slice of the pie from Middle East buyers actually declined a bit, suggesting that many of those players aren't seeking high-profile, controlling interests in U.S. firms. That's no surprise given the uproar over the failed bid by Dubai Ports World to take over management of a half-dozen U.S. seaports two years ago.
Investment funds run by foreign governments often make substantial minority purchases that don't show up in S&P's numbers. The recent, widely publicized cash infusions for Citigroup and Merrill Lynch, for example, were partly supplied by a Saudi prince and investment funds in Abu Dhabi, Kuwait, Korea and Singapore.
S&P's figures reflect only those public-company deals where foreigners bought at least 50 percent of the shares.
Along with the weak dollar, the uptick in foreign purchases reflects the yawning trade gap, which forces foreigners to recycle their surpluses.
Foreign investments "are necessary if we're going to continue to consume more than we produce," said Payne. "We need to finance our deficit some way, somehow."
The Japanese and Chinese have tended to favor purchases in U.S. Treasury securities, but it's not unreasonable to expect them to diversify their portfolios by taking over businesses. That trend is progressing.
While the uptick in foreign purchases reveals certain weaknesses for America, the story isn't entirely negative or alarming. Foreigners also invest in U.S. firms because they expect to profit by doing so.
"Overall, U.S. businesses are healthy," said Payne. "Choosing to buy equities is a vote of confidence in the economy."
Still, not all acquisitions are welcome, and it remains to be seen what sort of political backlash might result from deals involving U.S. firms in sensitive industries or buyers from China, the Mideast or other places that could be viewed as threats.
With a spirited presidential campaign under way, don't be surprised to hear the rhetoric turned up on this issue in coming months.
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