There is one key thing that the U.S. Dollar weakness could bring about if the dollar stays where it is. If it continues its slide next year even though our interest rate futures are calling for more than a 100-basis point rise, our land and our companies may become targets for foreigners buying assets on the cheap. Some deals are already rumored and some would be easy to come into the fold as well.
The major U.S. companies failed to rise to a call for arms by buying up every bit it could after the Asian Contagion in 1998 as our last chance to buy those properties worldwide. Now that The US Dollar has become the US Peso, it seems that the U.S. could see a realm of US-based companies come under acquisition fire that could ultimately change the flags of large current brands. There are literally dozens more that could fit the bill here, but all of these companies are probably "CFIUS-free" as far as critical infrastructure or key to national security.
"Richie Rich & Retail"
Saks Inc. (NYSE: SKS) isn’t even at a $2 Billion market cap right now and may be one of the few high-end retail crown jewels that could still easily be acquired by a foreign buyer. Despite some defenses and despite the company having paid out cash in lumps in the past, this chain is perhaps the largest luxury sales channel in the U.S. that is a pure play and with all that oil money sloshing around, it could easily make a nice trophy buy that is a money maker to boot.
"Two Huge Food Scores"
Hershey Co. (NYSE: HSY) is worth close to $9 Billion now and any deal would only come if very friendly to founding family members because of controlling voting stakes and tiered stocks. After the Buffett-Wrigley-Mars transaction, anything is possible in the sector. Options have been active as well, although it is possible this may be just on an "efficient" partnership or venture as well.
What about Whole Foods Markets Inc. (NASDAQ: WFMI)? Whole Foods cannot be taken down in a hostile deal, or it would at least have trouble in that manner, but as Europeans have looked at some of our luxury brands and a market cap of almost $4 Billion it is fathomable. This might seem counterintuitive that the largest organic or health chain could be gobbled up by a foreign entity, but it isn’t out of the realm of possibilities considering its higher margins than traditional food grocers.
"Taking the biggest bite in financials"
E*TRADE Financial Corp. (NASDAQ: ETFC) could be the cheapest score for any overseas buyer that wants to suddenly stabilize a volatile financial that has been down and out with the simultaneous goal of HSBC is buying its Indian operations and it just upped its authorized number of shares… ever wonder the the TD meant in TD Ameritrade brand? Toronto Dominion. Are there any other cheap ways to buy 4.3 million online trading accounts without making any major dent in a large US Bank?
"Taking Our Beer & Booze Away"
Constellation Brands Inc. (NYSE: STZ) is a stock that has had its share of problems in the last 12 months, but with a market cap of under $5 Billion and the huge brans name portfolio of brand ownership or distribution in wine, beer, and spirits this could easily be put into an international portfolio. Some individual states might throw up the foreign control flags, but the U.S. as a whole wouldn’t be able to claim the national security card.
Anheuser-Busch Companies Inc. (NYSE: BUD) is one of the current "takeover rumor" stocks with InBev as the leading candidate. While this has a $40 Billion market cap and seems like it would be a stretch, that isn’t really Wall Street’s attitude. Major large brand and distribution channels could be partly financed by selling off part of its distribution unit and other units.
Sprint Nextel Corp. (NYSE: S) has already been a rumor target of Deutsche Telekom and others of late, and even with a $24 Billion market cap this would probably not get much government blocking because of the inherent trouble the company has let itself get into.
Leap Wireless International Inc. (NASDAQ: LEAP) has a mere market cap of just over $4 Billion and frankly would have no infrastructure issues from the Feds. It would be easy to imagine a Carlos Slim wanting to gobble this up or another bid from the south, particularly as many of its customers would make more and more calls south-bound. It was once a MetroPCS merger candidate in a failed deal, but the buyer here would have to be able to instantly scale those figures up into profitability. But Cricket and pre-paid cellular isn’t exactly CFIUS material.
US Steel Corp. (NYSE: X) has a market cap of almost $20 Billion and Alcoa, Inc. (NYSE: AA) has a market cap north of $32 Billion, so neither are exactly small fish. But here is the issue: the international metals and mining companies have no become so large that either company is actually considered small in the global scheme now. Both have also been rumor targets. Heaven help us if the metals and mining giants get to control aspects of supply, demand, and manufacturing.
"We Will Control All You See"
Lamar Advertising Co. (NASDAQ: LAMR) is a company that might make a nice trophy for China’s Focus Media or another larger ad and display company perhaps out of Europe. This company is still held by insiders and it wouldn’t go down without a fight if it wasn’t a friendly deal, but with under a $4 Billion market cap and with it not having any critical infrastructure there wouldn’t be any issue of a foreign owner here.
If you think that these are off base, consider these and consider howmuch the world has turned. Also consider how many brands you consumeor use daily, weekly, or monthly, or at least that millions ofAmericans use regularly. Here are some:
- Miller Beer… part of SAB Miller (South Africa), with Altria owning a small stake.
- Coors owned by Molson of Canada.
- Jaguar and Rover… former Brit brands, punted by Ford to Tata Motors in India.
- Activision Inc. is now essentially part of Vivendi’s Blizzard games.
- GE Plastics is now part of SABIC, in Saudi Arabia.
- Paine Webber became part of UBS, which is Swiss.
- IBM’s PC unit went to Lenovo, in China.
- Gateway is now owned by Acer.
- Lucent became part of Alcatel-Lucent, which was nothing less than a French-led buyout
- 7-Eleven is now Japanese owned.
- Dr. Pepper just came back to shareholders, sort of… had been part of Cadbury Schwepps until just recently.
This may just be the post-American cycle taking effect or maybe it isthe flattening out of the world. Whatever it ends up being, it isn’tgoing to be without controversy and without change. As a reminder, this is probably only a very short list of companies that could have been 40 long. Sovereign wealth funds and foreign entities could also team up with US private equity firms if any foreign ownership concerns became too large.
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Jon C. Ogg
May 28, 2008
Jon Ogg produces and edits the SPECIAL SITUATIONS newsletter; he does not own securities in the companies he covers.