International Business: CURRENCIES
SUDDENLY, IT'S TIME TO BUY AMERICAN
For German chemical giant Hoechst, it was pfennigs from heaven: When it first began talking to Dow Chemical Co. about buying its Marion Merrell Dow Inc. unit last August, the mark traded at 1.54 to the dollar. Then, the dollar started dropping. Now, Hoechst could save at least $250 million on its $7.2 billion bid for the U.S. company.
Get ready for more companies to follow Hoechst to the U.S. With the dollar weak and U.S. productivity strong, expansion-minded executives say now is the time to buy American. Some are looking to acquire U.S.-based assets or expand existing production facilities. Others want to use the U.S. as a platform to export elsewhere. And while companies invest for strategic reasons--not because a currency is weak--some are hastening plans to take advantage of the dollar windfall. "The U.S. is at the top of most shopping lists right now," says Piers Von Simson, investment banker at S.G. Warburg Group PLC in London.
For the U.S., the prospect of surging investment is the flip side of the weakened dollar. The new investment may lead to expanded output in industries ranging from autos to pharmaceuticals. Last year, the U.S. attracted more direct foreign investment than any other country. Altogether, foreign companies pumped $57 billion into 668 mergers, acquisitions, and joint ventures in the U.S. last year, says KPMG Peat Marwick, which tracks cross-border deals.
So far this year, European companies are leading the way. They are cash-rich these days, their profits having soared as their economies have recovered from recession. In early March, Italy's Luxottica Group, an eyeglass maker, made a $1.1 billion offer for U.S. Shoe Corp., which owns the LensCrafters chain.
Companies from Germany and Switzerland, whose currencies have gained the most against the dollar, are also hot on the investment trail. On Mar. 13, Bayer announced the purchase of Florasynth Inc. in Teterboro, N.J., a maker of fragrances and flavors. Although Bayer won't disclose details, one London analyst figures Bayer could save 10% of the price thanks to dollar weakness.
Meanwhile, Arno Burckhardt, managing director of M&A International, a German consulting firm, says he has received queries from midsize German companies contemplating a U.S. move. Currency issues loom large for midsize companies, because they often can't finance an acquisition by borrowing in dollars as larger companies can. Burckhardt thinks the real effect of the currency turmoil will show in about six months as more deals are concluded.
But it's not just Europeans who are attracted to America's shores. Even the Japanese are showing renewed interest, despite having been burned in the past by unsuccessful purchases of U.S. "trophies." The new investments are better targeted. In February, for example, Sumitomo and Nippon Sheet Glass announced the purchase of 20% of FMC Wyoming, the largest U.S. soda-ash producer, for $150 million. Chipmaker NEC Corp. may expand chip production on the West Coast. Among the auto makers, Honda Motor Co. plans to increase U.S. output 20% by 1997.
RISK FACTOR. For foreign investors in the U.S., there is a downside. They risk showing lower profits once dollar revenues are translated into stronger sterling, marks, or yen. Britain's Cadbury Schweppes PLC, for example, doubled its U.S. presence with the $1.7 billion purchase in February of Dr Pepper/Seven Up Cos. Now, it depends on its U.S. holdings for 42% of profits and could be hurt if the dollar remains weak.
But overall, analysts expect the investment surge to continue. Although the dollar stabilized after its plunge in early March, Swiss Bank Corp.'s head of foreign exchange trading, Andrew Siciliano, predicts that "another wave of dollar selling" will take the mark to new highs. At that point, "we'll see tremendous foreign direct investment in the U.S.," he says.
That may also lure a throng of camera-toting Japanese and European tourists to the U.S. this summer--a reminder that, as always in a currency crisis, one person's woe is another's windfall.By Paula Dwyer in London, with Karen Lowry Miller in Bonn and Robert Neff in Tokyo