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De-valued dollar makes U.S. companies buyout targets
May 2008
by Chris Anderson  |  Email the author
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Economists tell me I should be worried about the continued weakening of the dollar against most of the other major world currencies, as it sets in motion a chain of events that not only affects my pocketbook, but the U.S economy and even the world economy. For U.S.-based companies that do a sizable portion of their overall business overseas, a weak dollar can sometimes be a boon to business as their products are more affordable to foreign buyers and that often means those same foreign buyers will buy more.

But what happens when those foreign buyers aren't buying products, but entire companies? Well the same rules apply, so foreign companies that are looking to expand their base through acquisitions will look in areas where their currency will get an extra bounce from the exchange, and these days that's the good old USA. Quite simply, foreign buyers are looking to this country to get more bang for their Yen or Euro.

Take this month's cover story on the $8.8 billion, $25 per share buyout of Millennium Pharmaceuticals by Japanese pharma Takeda. Certainly, there were other factors involved that made Millennium an attractive target, but you have to believe that the exchange rate played at least a supporting role in helping to get the deal done.

Consider this: according to the folks at Millennium, Takeda's first offer to management to acquire the company was at $23 per share, to which the folks in Cambridge, Mass., said thanks, but no thanks. Shortly thereafter, Takeda raised the offer to $24 and got a raised eyebrow, perhaps, but still no deal. Finally, they bumped it once more to $25 and everyone shook hands.

This seems to be pretty typical deal making, until you consider this: In the past year, the value of the dollar in relation to the Yen has declined about 12 percent. Where last year it cost 120 Yen to buy a buck, today it only costs 105. So while the folks at Takeda were increasing their bid a total of roughly 8.5 percent to get the deal done, I've got to believe they were still feeling ahead of the game considering the value of their currency.

A similar case could be made for the $3.9 billion buyout of MGI Pharma by Japanese company Eisai late last year. At that time, the dollar had a slightly more favorable exchange rate against the Yen, but not by much. To take advantage of the exchange rate, both Eisai and Takeda made cash offers.

Please don't get me wrong. I'm not saying these deals happened solely because of a weak dollar. In both cases, the acquiring companies were looking to expand their oncology portfolios while at the same time widening their exposure to the U.S. market.

Still, you have to put yourself in an acquirer's shoes. If a company has cash it can deploy for an acquisition, where do you think it would look first? I know where I would look: where the price to buy is cheaper than other parts of the world, and right now that place is right here.
 

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