A slow end of the week for the market last week was dominated by sounds of football, eating, and post-feasting snoring. The holiday couldn't keep the private equity guys out of action early in the week, though, and history was made once again with yet another record-breaking private equity deal.
Sing it with me, Fool!
"Love Is In the Air" by John Paul Young and the Private Equity Chorus
The Beatles said "you can't buy me love," but the sounds of John Paul Young were floating through the marketplace on Monday as we saw an unbelievable volume of buyout activity. Leading the charge was Blackstone Group's $36 billion offer to buy out Sam Zell's Equity Office Properties. Not only was this an unprecedented transaction in the realm of REITs, but it also took the crown of largest private equity deal from HCA, who was recently bought by Bain Capital, KKR, and Merrill Lynch
Oh, but there's more. Equity Office wasn't the only buyout offer announced on Monday. Not to be so easily outdone, Freeport-McMoRan Copper announced that it will buy Phelps Dodge for $25.9 billion in cash and stock. Though Freeport is much smaller than Phelps Dodge, the company is expected to get significant debt financing from JPMorgan Chase
$70 billion worth of action to start the week? If that's not love, then I don't know what is.
"High Enough" by Damn Yankees featuring "The" Google
After closing at $495 last Monday, Google
Much has been made of this break over the $500 level -- everything from people saying that $500 is just too much for an Internet stock to claiming that Google's run confirms that we are heading into the Internet bubble version 2.0. Of course, the actual dollar price of a stock tells you very little about how pricey a stock is. A good case in point is Inside Value selection Berkshire Hathaway
In Google's case, the stock currently trades at 49 times 2006 earnings, which is higher than I typically like for the stocks that I invest in, but it's still a far cry from the nosebleed levels that stocks traded at in 1999 and 2000. In fact, just the fact that Google is profitable (and very profitable at that) separates it from a great many of the most notorious stocks of the Internet bubble, which were not only unprofitable, but often getting more unprofitable by the day.
So is Google signaling that we have entered a new bubble? Probably not. But what Google's current price does say is that investors are subscribing to the Google story in a big way. This is fine if Google continues to produce gangbuster results, but if they stumble along the way it could mean a mad rush for momentum investors to take some short-term profits.
"He Stopped Loving Her Today" by George Jones and Kirk Kerkorian
On Wednesday, billionaire investor Kirk Kerkorian decided he didn't love General Motors as much as he thought he did. A regulatory filing from Kerkorian's holding company Tracinda Corp. showed the investor unloading 14 million shares of GM in a private transaction for $33 per share. Though this pared back his ownership, the ensuing drop of almost 5% for GM's stock still smarted for Kirk, who still owns over 7% of the outstanding stock after the sale.
As a 10% shareholder, Kerkorian was doing his best to shake things up at GM and get the great American car maker on a road to regain its former glory. These hopes were apparently dashed when talks of a three-way alliance between GM, Nissan, and Renault fell apart. Kerkorian, whose history in Las Vegas dates back to his 1947 purchase of TransInternational Airlines, may be going back to his roots. Also on Wednesday, Tracinda announced that they would be offering $55 per share for up to 15 million shares of MGM Mirage.
It's notable that Kirk is deciding to raise his stake now since MGM is already up over 50% since the beginning of September. At the current valuation, I'm going to check to the raiser until I do more diligence, but Kerkorian's move certainly makes things interesting.
"Shopping" by Pet Shop Boys featuring U.S. Rocking Retailers
Are you sick of having to wait until after Thanksgiving to pack into malls and major retailers? Well, this year you didn't have to -- many major retailers, including Wal-Mart
Whether the extra day was a game changer or not, Black Friday was a big success, with sales up 6% from 2005 to nearly $9 billion. Of course, as seems to be the norm lately, Wal-Mart missed out on the fun and expects to post a small decline in comp sales for November. While researchers were expecting a marginal increase for this year's busiest shopping day, the numbers were above expectations, showing once again the seemingly indestructible nature of the American consumer.
This can only lead me to the conclusion: Save the American consumer, save the world.
The Foolish sing-along continues:
Wal-Mart is a Motley Fool Inside Value pick. Charles Schwab and Amazon are Motley Fool Stock Advisor selections. JPMorgan and Bank of America are Motley Fool Income Investor picks. Take the newsletter of your choice for a30-day free trial.
Fool contributor Matt Koppenheffer took a pass on Black Friday shopping but is sure glad that plenty of other people made up for his laziness. He owns Bank of America stock. The Fool's disclosure policy is always a bargain.