Merger Mania Took Place In 2006 And 2007 And Look What Happened
In 2006 and 2007 the stock market saw a lot of merger and acquisition activity
. In fact, that was the catalyst for the stock market advance throughout 2006 and it helped support and recover the markets three times in 2007 despite the brewing mortgage crisis. Here we go again in 2010 as the merger and acquisition activity heats up. Hewlett Packard Co (NYSE:HPQ) just won a bidding war for 3 PAR Inc (NYSE:PAR) over Dell Inc (NASDAQ:DELL) today. It is important to realize that Dell Inc started the bidding at $16.00 when the 3 PAR Inc stock was trading under $10.00 a share. Hewlett Packard Inc is now paying $33.00 a share for the stock. That is move of more than two hundred percent in 3PAR stock since August 16th, 2010.
What happens once the takeover mania slows down or even stops? Buyouts were common before the 2007 top and the market still declined. This current situation of merger mania is not any different. Simply put when the stock market struggles at a time when the Federal Reserve Bank has the Fed funds rate at zero percent since December 2008 there are bigger problems on the horizon. We all know about the problems on the surface with the economy such as high unemployment, continued foreclosures, and massive government debt just to name a few. What happens when we face the next big surprise?
It is important to not get caught up in the merger and acquisition mania as many traders and investors did back in 2006 and 2007. Really nothing has changed for the better since that time and until it does this is just short term noise and nothing more. When you think about it mergers and acquisitions are actually negative in the long run as companies will consolidate and decrease the work force which will just add to the employment problem in the United States.
Nicholas Santiago
Chief Market Strategist
www.InTheMoneyStocks.com
Merger Mania Took Place In 2006 And 2007 And Look What Happened