Foreign companies gobble up U.S. food, drug and beverage makers
Sep 3rd 2009 12:20PM
Updated Dec 4th 2009 3:10PM
Buy low, sell high. That's an investment maxim that never gets old. But it's getting a fresh coat of paint thanks to the recent interest of foreign food, drug and beverage companies in buying their U.S. counterparts.
After all, with the Dow way below where it was in October 2007, the stock prices of U.S. companies are way below their peaks and in some cases, those U.S. companies are really hurting financially -- which makes it possible for cash-rich foreigners to pick them up at a bargain price.
Consider the case of Pilgrim's Pride (PGPDQ) -- the chicken company that lost $999 million last year. It turns out that Brazilian food company JBS SA may announce a $2.5 billion bid for Pilgrim's Pride next week. I am not sure if JBS can afford to assume those losses and make a profit from the bid -- but such a deal would give it access to the U.S. market.
Then there is Thursday's announcement that Japan's Dainippon Sumitomo Pharma of Japan will buy Marlborough, Massachusetts-based (local, to me) Sepracor (SEPR), the $1.3 billion maker of central nervous system and respiratory disorder treatments, for $2.71 billion to gain access to the U.S. market while expanding its product pipeline.
But by spending 60 percent of its market capitalization to buy Sepracor, Dainippon appears to be taking a huge risk that the deal will give it entree to the U.S. market for its schizophrenia drug -- Lurasidone.
Then there's last November's deal in which InBev bought U.S. beer icon, Anheuser-Busch, for $52 billion in cash. Interestingly, the Dutch acquirer concluded that its U.S. target had the more valuable brand -- so it changed the corporate name to Anheuser-Busch InBev (AHBIF).
Did InBev get its $52 billion worth? It's too soon to tell, but at least profits were up 28 percent in the second quarter -- unfortunately that was due to cost cuts which offset tumbling revenue -- down 10 percent.
These deals send mixed signals about America's position in the world economy. We have developed some good brands and many companies overseas perceive that now is a good time to buy them. This probably reflects the relatively low price that these investors can get, as well as a certain faith that the American consumer will eventually be able to start spending enough money to buy the products.
But it also means that employees of those U.S. companies will report to foreign managers who may not share the view that their jobs are worth keeping.