At a time when the stock market is plunging and a once-venerable Wall Street investment house is going bankrupt, it may seem like all is lost. Not true. In fact, amid the carnage, some examples have emerged that stir — shall we say — a cautious optimism about getting free of this mess.
Specifically, I’m referring to three major deals that were just announced: Bank of America is acquiring Merrill Lynch in an all-stock transaction worth $50 billion; Walgreen’s is offering $3 billion to buy Longs Drug Store chain; and Best Buy is spending about $120 million to acquire Napster.
These are not fire sales (yes, even the Merrill buyout), borne of desperation like some recent deals. Nor are they federally-funded bailouts a la Freddie Mac and Fannie Mae. Instead, they’re private sector deals designed to help buyers (or potential buyer in Walgreen’s case because it’s going up against CVS for Longs) expand and grow within their industries.
Each requires funding and financing, which helps make the credit markets hum. More important, they display faith in the U.S. economy’s prospects. After all, who would plop down millions of dollars if they thought the downward spiral was never going to end?
That may be especially true of the BofA-Merrill transaction. Considering the bankruptcy of investment house Lehman Brothers, along with the prevailing dankness on Wall Street, BofA is paying a significant premium to acquire Merrill Lynch.
Why? Because once this current crisis subsides, BofA sees prospects of a global financial services market and wants to be a top-tier player in that competition. Merrill can help it get there.
True, these buyouts won’t soon diminish the nightmare brought on by the subprime mortgage meltdown and subsequent troubles. We’re confronting a very real problem and it’s going to take a Herculean effort–on the part of government, finance and consumers–to pull us out of the tar pit. That said, there’s reason to be hopeful during these dark days. So lighten up, there’s still life in the old economy yet.
Source:
In a Gloomy Economy, Signs of Light | Financial Services Industry Blog | BNET
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