It's merger Monday, but stocks are steady this morning. The Dow Jones Industrials Average (DJINDICES:^DJI) and the broader S&P 500 (SNPINDEX:^GSPC) were up 0.17% and down 0.05%, respectively, at 11 a.m. EDT. Meanwhile, the Nasdaq Composite Index (NASDAQINDEX:^IXIC) was up 0.07% on news that Intel (NASDAQ:INTC) has agreed to acquire Altera (UNKNOWN:ALTR.DL) in a transaction that values the programmable logic chipmaker at $16.7 billion.
Intel will pay roughly $54 a share for Altera, in a cash and stock deal -- a 56% premium to the "undisturbed" closing price on March 26, the day before The Wall Street Journal first broke the news that the two companies were discussing an acquisition. The deal has broad significance for the semiconductor industry, coming on the heels of Thursday's announcement that Avago Technologies (NASDAQ:AVGO)will acquire Broadcom (UNKNOWN:BRCM.DL) in a $37 billion deal the Journal labeled "the largest technology acquisition on record."
Semiconductors follow pharmaceuticals
Whether or not that is accurate, the combination of the two deals have already turned 2015 into a record year for mergers and acquisitions in the semiconductor industry. Corporate leaders will invariably trot out "strategic rationales" to justify each transaction -- some of which might even hold water -- but I can't help but think there is a broader phenomenon at work.
Indeed, what is now happening in semiconductors reminds me of the consolidation that reshaped the pharmaceuticals industry last year (and is ongoing): With a quarter of a trillion dollars' worth of deals agreed, 2014 was a record year for pharma M&A.
As Epoch Investment Partners' Bill Priest recently pointed out, there are only five uses for companies' cash: "Reinvesting internally, making acquisitions, buying back stock, paying dividends, and paying down debt." In the current low-rate/low-growth environment, companies are focused on the middle three (acquisitions, stock buybacks, and dividends) to the exclusion of capital expenditures or paying down debt.
"An anxiety-driven world"
On CNBC this morning, Nobel Prize-winning economist Robert Shiller said:
I call this this the "new normal' boom -- it's a funny boom in asset prices because it's driven not by the usual exuberance but by an anxiety. This is an anxiety driven world – the whole world is driven by anxiety. It is anxiety about the aftermath of the global financial crisis, it's anxiety about inequality and about computers replacing jobs.
I think he's right that anxiety might be a factor driving asset prices, but I'm picturing CEOs who are nervous about activist investors knocking at their door. Corporate managements prefer to pre-empt these gadflies through aggressive acquisitions and share buybacks. Individual investors might be concerned about inequality and robots taking their job (I very much doubt this factors into CEOs decision= making), but they're not driving the stock market right now -- corporate cash is.
Beyond our shores, "anxiety" could become the word of the week, as Greece faces a Friday due date for a $350 million payment to the International Monetary Fund. Furthermore, Greece could need to hammer out a deal with its creditors this week for the release of the remaining $7.2 billion in bailout aid if it is to avoid a default. To this external observer, Greece and its creditors aren't providing many signs of hope, but the stakes are sufficiently great to steel everyone's focus as time runs down. Either way, we could see a bit of volatility in the markets this week.