Bargain-hunting foreigners are snapping up U.S. companies at a record pace as the weak dollar, a growing trade imbalance and spiking oil prices spark a raid on America’s corporate assets.
Through September, foreign firms have spent $276 billion to acquire U.S. businesses, according to Thomson Financial. At that rate, the 2007 total will easily surpass 2000’s record of $325 billion in foreign buy-outs.
With the dollar at a record low against most major foreign currencies, and with a robust economy abroad, “It’s a fire sale for companies in Europe, Canada, Australia and some emerging markets that want to buy in the U.S.,” says David Gilmore, a partner at consulting firm Foreign Exchange Analytics in Essex, Conn.
The biggest deals over the past two years include:
• French telecommunications equipment maker Alcatel’s $13.4 billion takeover of Lucent, of Bedminster, N.J.
• The U.K’s National Grid buyout of New York’s KeySpan for $11.8 billion
• Saudi Basic Industries’ $11.6 billion purchase of GE Plastics of Pittsfield Mass.
Earlier this month, Canada’s Toronto-Dominion Bank announced an $8.5 billion deal to acquire Commerce Bank of Cherry Hill, N.J.
The trend not only raises national security red flags but has also sparked concerns that U.S. assets--and associated investment returns--are increasingly falling into foreign hands, experts say.
“If they’re productive investments, foreigners will receive the dividends rather than Americans, but that’s the consequence of living beyond your means,” says Michael Klein, professor of economics at Tufts University.
Foreign governments have shown particular interest in financial services companies. In May, China spent $3 billion for a 10-percent equity stake in New York's Blackstone Group. Last month, Blackstone’s competitor, Washington-based Carlyle Group, agreed to sell a 7.5 percent stake to the government of Abu Dhabi for $1.35 billion. Also in September, state officials in Dubai agreed to purchase 20 percent of NASDAQ, owner of the eponymous stock exchange.
The financial sector is attractive to foreign investors because it represents an area of U.S. strength that has been beaten down by the sub-prime mortgage crisis. “Foreigners think that at today’s prices, these companies are a bargain,” Richard Cooper, professor of economics at Harvard University, tells Newsmax.
Middle Eastern firms in particular are flush with petrodollars as a result of record oil prices--peaking at $86 a barrel this week--and are looking to diversify by snatching up U.S. firms. “These countries need something after oil for their economies,” Gilmore says. “They need footprints in big markets. This will be ongoing.”
The foreign buying binge is also being fueled by the record U.S. current account deficit, according to experts. The deficit, a measure of the disparity between the amount of goods, services and investment flowing into and out of the U.S., recently topped $800 billion annually, or 7 percent of the nation's annual Gross Domestic Product.
“Our current account deficit is large by international and our own historical standards,” says Jeffrey Frankel, professor of economics at Harvard. “We are dependent on foreign capital to finance it. In the past, that happened overwhelmingly through foreign purchases of bonds. But there’s a limit to how long that can go on. It’s not surprising they are turning to tangible assets that are less likely to lose their value if the U.S. inflates away its debt.”
While many foreign acquisitions have been chalked up to benign global market cycles, some potential purchases have raised the hackles of politicians and competitors.
When DP World of the United Arab Emirates last year sought to purchase management contracts at six major U.S sea ports from Britain’s Peninsular and Oriental Steam Navigation, Congress rallied to block the deal citing national security concerns. Opponents referenced similar national security considerations when successfully lobbying against China National Offshore Oil’s attempt to purchase Unocal Oil two years ago.
Despite those high profile takeover attempts, some experts say national security fears are being exaggerated to thwart foreign investment in the U.S.
“Officials in Washington are extremely concerned about foreigners buying U.S. companies where national security is a concern,” says Michael Sheldon, chief investment strategist at Spencer Clarke securities firm in New York. “Deals in the defense and national intelligence sectors aren’t likely to be welcomed by the government.”
Still, Sheldon says the offshore acquisitions are cause for concern. “Week by week and month by month, foreigners are buying more of our assets. Eventually we give them all away. At some point, that becomes problematic.”
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