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Corporate M&A war chest: cash & treasury shares

Posted by: Howard Silverblatt on September 21, 2009

S&P Industrials (old) Cash
Increases in short-term investments drove the Cash & Equivalent accounts (cash, short term investments, and securities -> all in the current asset account) to a record high in Q2. Now that the Qs are in, it appears that the final values are even higher than the initial reports. A good deal of the money is due to situations, such as PFE’s $14.6B increase from an offering pending the WYE meager, or the WLP $14.8B ‘Investments available-for-sale, at fair value’. However, the values have climbed considerably over the quarter, with cost cutting adding to the nest egg. While the initial cash build-up was the result of a gun-shy management which needed to be able to ride the recession out, the levels now represent a large war chest for potential M&A activity.

PFE added $14.6B Short-term investments (ST)
WLP added $13.0B ST
MRK added $6.4B Cash & Equivalent (CE), with $2.1B coming from ST
T added $3.5B CE
Energy reduced CE $10.1B, while Health Care increased CE $10.4B and ST $35.2B

S&P 500 Treasury Stock
And then there are all those treasury shares, which few companies are adding to, with most not wishing to discuss their cost. At the current price level and the June share reporting, there is $1.39 Trillion of shares sitting in the S&P 500 equity accounts of companies to do with as they decide - a $304 billion increase since March. The market is up 33.9% since the end of March, with the value of Treasury shares up 28.1% from the March close.
Financials have been the big winner (just don’t compare it to their cost), increasing 65.2%, with Telecommunications only ahead 7.4% and Energy ahead 7.8%.

Using treasury shares, as well as some of that cash, could answer the question of when and how companies are going to increase sales, as well as justify all those buybacks.

Also -
EPS guidance up slightly, but slow period
Dividends also slow, with fewer cuts - a wait and see period; expect Q4 to be the test
Health Care bill is on the table, but far from a vote; lots of action in DC on this as the President visits NY again (three times in as many weeks - think he likes us?); massive shifts in expenditures & fees will effect the entire economy
NYY lead down to 5 - holding out for Torre back in NY (I still like him, but I’m also still upset at the 4 straight in ‘63; no Koufax this time).

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Bloomberg Businessweek’s Ben Steverman focuses on the latest moves in financial markets and emerging trends in stocks, bonds, and funds, always with an eye toward giving readers a better understanding of the sometimes confusing and often chaotic world of money. Standard & Poor’s senior index analyst Howard Silverblatt will also provide his take on companies’ finances and the markets. Voted one of the “Top 100 Finance Blogs” in 2007.

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