Foreign Acquisitions of U.S. Companies Surge This Year
Foreign takeovers of American firms, which set a record last year, are on an even faster pace so far in 1999, new data show.
The acquisitions, undertaken largely by European firms, stem in part from foreign companies’ desire to get a bigger piece of the strong U.S. economy. The deals also are part of a worldwide merger mania driven by the need to bulk up and compete globally.
So far, at least, the surge has not triggered U.S. concerns about foreign ownership of American assets, as did foreign takeovers in the late 1980s.
“The Germans, the French, the Dutch, they are all coming this direction with their checkbooks,” said Sung Won Sohn, chief economist with Wells Fargo & Co. in Minneapolis. “They are looking for opportunities long-term, and clearly that’s here in the U.S.”
The dollar amount of announced deals involving foreign companies buying U.S. firms soared to $94.5 billion in the first nine weeks of this year, up nearly tenfold compared with the same period in 1998, according to Securities Data Co.
The number of such deals rose 32% to 211, compared with 161 in the 1998 period.
And while one deal, Britain-based Vodafone’s plan to buy AirTouch Communications for $65 billion, makes up more than half this year’s total, the numbers continue a trend that exploded in the late 1990s.
In all of 1998 foreign purchases totaled $234 billion, according to Securities Data, boosted by such deals as Germany’s Daimler-Benz merging with Chrysler Corp. That dwarfed the $65 billion in foreign purchases in 1997.
Unlike past investment waves by foreigners, such as the buying spree by the Japanese in the late 1980s, this one seems to have provoked little uneasiness among the American public. That’s largely because of the strength of the U.S. economy today, and because Americans have become more comfortable with a borderless world.
“When the Japanese were buying everything, there was concern that, hey, wait a minute, was the U.S. really losing its edge? Now everything is going very well in our world economically, and that makes people feel better about anything that happens,” said mergers lawyer Morton A. Pierce at Dewey Ballantine in New York.
But the nationalities of the acquirers--which in recent years have been mostly European--may also have something to do with it. “People were nervous about the Japanese, but the Europeans, [some people] think, hey, that’s one of us,” Sohn said.
Eight of the 10 biggest foreign takeover deals so far this year involve European purchasers. Each week seems to bring another blockbuster deal, as European firms move aggressively to buy American. This week, Belgian-Dutch firm Fortis agreed to acquire American Bankers Insurance Group for $2.6 billion.
In January, Aegon of the Netherlands announced a $9.7-billion deal for Transamerica Corp. Last month, Sweden’s Securitas agreed to buy Pinkerton’s Inc. of Westlake Village for $384 million, to create the world’s largest security firm.
While purchases of American companies by foreign companies are increasing, U.S. holdings abroad remain significant and American companies still make giant purchases overseas as well. Witness Ford Motor Co.’s $6-billion deal last year to acquire the automobile operations of Sweden’s Volvo.
All this activity is part of the whirl of mergers of recent years. As companies compete to be global players they are scrambling to grow and boost profit potential.
Despite the strong dollar, foreigners are willing to pay to get a piece of the American economy, analysts said. “It’s simple,” quipped Robert A. Brusca, economist with Nikko Securities in New York. “We’re growing, they’re not. We have a future, they don’t. We have an open regulatory system, they have Pandora’s box.”
Economists such as Brusca believe America is attracting many European companies that are skeptical about the long-term opportunities at home.
“Our market is the world’s largest market for goods and services, so if Europeans want to be a player in the world market, they need to go where the rest of the world is,” said Roy Smith, professor of international finance at New York University’s Stern School of Business.
Also fueling the trend is the growing willingness of U.S. companies to accept the stock of foreign companies in such transactions, rather than just cash. The Vodafone-AirTouch and Aegon-Transamerica deals, for example, include both stock and cash.
Analysts generally see these deals as a long-term benefit to the U.S., noting that it’s better to have an economy that attracts investment than one that investors shun.
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Buying Spree
The value of acquisitions of U.S. companies by foreign firms so far this year is on pace to easily exceed last year’s record total. The value of such deals, in billions of dollars:
Year-to-date 1999: $94.5 billion
Source: Securities Data Co.
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Buying American
Boosted by Vodafone’s plan to purchase AirTouch Communications for $65 billion, the dollar volume of announced mergers so far this year in which a foreign company is purchasing a U.S. company has increased dramatically, according to Securities Data Co. Below are the largest deals so far this year.
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Date announced Target Acquirer Headquarters 1/18 AirTouch Comm. Vodafone Group Britain 2/18 Transamerica Aegon Netherlands 1/4 Cigna unit* Ace Bermuda 3/8 Amer. Bankers Fortis Belgium 3/1 Reltec GE--Britain Britain 3/2 Xylan Alcatel France 2/16 NAC Re XL Capital Bermuda 2/26 VLSI Technology Philips Electronics Netherlands 2/15 Warburg Pincus Credit Suisse Switzerland 2/19 Pinkerton’s Securitas Sweden
Date Value of deal, announced in billions 1/18 $65.9 2/18 10.9 1/4 3.5 3/8 2.4 3/1 2.0 3/2 1.8 2/16 1.2 2/26 0.9 2/15 0.7 2/19 0.4
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* Property and casualty insurance division
Source: Securities Data Co.
