All-stock deals to make a return?

Jim Kim — Tue, 24 Jun 2008 21:41:52 -0400

We speculated a while back that all-stock deals may make a return. The idea is that financed deals will be difficult in this environment. Still, some companies with strong stocks have put themselves in a good position for acquisitions. As if on cue, Bunge has agreed to buy Corn Products International in an all-stock deal worth $4.4 billion. But Breakingviews.com notes that the market reacted skeptically, as the deal looks "slightly value destructive for shareholders." The article also points out that the deal could create up to $840 million in "cost cuts and incremental profits" annually, less than the premium paid. Finally, the article talks about a paper composed by academics Baruch Lev and Feng Gu that concluded that "stock-for-stock acquisitions tend to destroy value." Mr. Market may be onto something, which just could limit these deals going forward.

For more:
- here's the Breakingviews.com article