AT& T and T-Mobile. The strategic merger activity of 2011 and 2012 continues.
As I have argued for a long time, the environment for a crucial restructuring of the economic world is right in front of us.
There is lots of cash around.
Interest rates are ridiculously low.
There are a lot of people, businesses, and governments “defensively” in debt.
There are a lot of companies that are “behind”, technologically and culturally, that have “good” products or good market niches.
And, there are a lot of nations in the world, like China for example, that have a lot of United States dollars that want to buy United States companies.
What about the anti-trust aspects of strategic mergers like AT&T and T-Mobile?
First, I don’t think the executives at AT&T and T-Mobile would try a combination like this if the probability of getting the deal approved were low.
Second, we are in a period of time when the “limits” of what can be done are going to be pushed. Thus, we will see more and more deals “push the edge.”
Third, if it ain’t AT&T and T-Mobile, it will be someone else and, I believe, the crucial issue is going to be how far the regulators are behind-the-times and out-of-date rather than the fact that they are enforcing some coherent program or policy.
Fourth, this is more “global” than it is “local” United States. Regulators, attempting to live up to some historical norms of anti-trust behavior, can stifle deals and leave the United States lagging in world competition. If the members of Congress and the regulators want to continue to fight “past” wars, as they tend to do, then so much the worst for us.
The thing is that Congress and the regulators have already “taken their eye off the ball.”
A report released just the other day indicated not only that banks are big and doing much of what they did before the financial crisis, the large banks are actually bigger and doing even more things than they did before the financial crisis.
The meltdown in the financial system came in the fall of 2008. I was posting blogs in late Spring of 2009 that the large commercial banks were not only getting bigger, but they were far ahead of the Congress and the regulators writing new rules and restrictions for them.
Now the large banks are even further ahead of the government than they were back in the spring of 2009.
But, this is the scenario for the future.
And, the people creating the environment for such a development are…
You guessed it…Ben Bernanke, Tim Geithner, Barack Obama, Barney Frank, and so on and so forth!
No wonder the income distribution in the United States gets skewed more and more toward the wealthy. The wealthy could not have written a better script for their advancement than that being written by the liberals and the progressives!
And, the more these people try and help their “constituencies” the more and more they hurt them. Paul Krugman, stand up and take a bow!
The best investments in the next year or so, I believe will be made in the companies that are best positioned to make “deals” that will help them expand markets, expand into slightly larger product spaces, and move to restructure industries and markets.
I wouldn’t always argue that this is a good strategy, but the world has changed and we are moving into that future. There are many companies that are well positioned, they are operating very effectively in their “core” products and markets, they don’t have much debt, and they have lots of cash.
Furthermore, prices are low since there are many more companies that are not well positioned, companies that are not operating very effectively, companies that are into too many products and markets, and companies that have way too much debt.
And, we are in that part of the cycle where sound economic deals can be struck. In a year or two, premiums will start to rise as people look back and see the transactions made in 2010 and 2011 and as these people move to try and skim some of the icing off the cake themselves.
This always happens as the euphoria in the market picks up due to the previous successful deals that were cut.
So, keep your eyes open and look for the action taking place. Look not only at the companies that are operating very well and have lots of cash and/or borrowing power but look at the nations that have United States dollars and are looking to play a bigger role in the world. Look for executives that do not buy companies too different from the ones they operate now.
Also, look for the leaders that are starting to make a name for themselves in terms of “prudent” yet aggressive deals. Who is going to take on the mantel of the next Jack Welch?