Transcripts

The Bulls Are Back...But Are They Staying?

SUSIE GHARIB: A bull run on Wall Street today. The Dow surged 145 points and the NASDAQ jumped 31. Recent concerns about credit eased today as expectations grew that the Federal Reserve will soon cut interest rates. Also pushing stocks higher, news about several high profile deals and the hope that they signal a return to robust merger and acquisition activity. But as Suzanne Pratt reports, experts say the M&A window is only opening slightly.

SUZANNE PRATT, NIGHTLY BUSINESS REPORT CORRESPONDENT: After a quiet month in the M&A world, takeover talk is warming up on Wall Street. Shares of MGM Mirage surged today after the company said the government of Dubai agreed to buy a stake. Nymex holdings also jumped on word the world`s largest energy exchange may be sold and there was fresh buzz about a deal between online brokerages Etrade and Ameritrade. Nevertheless, M&A expert Tom Burnett says investors are getting ahead of themselves in thinking M&A activity is making a comeback.

THOMAS BURNETT, PRESIDENT, MERGER INSIGHT: Financing is harder. You`ve still got fear of a recession. And even though the markets are recovering, a lot of that deal flow that was on the sidelines is probably going to stay there.

PRATT: It was a swarm of mergers and acquisitions that helped drive stocks to record highs earlier this summer. M&A experts say getting those deals done is what`s critical to the marketplace rather than hunting for new ones.

BURNETT: Right now, the focus at Blackstone and KKR and Texas Pacific is, let`s close the ones we have. Remember, huge fees are at stake here and these fees are what keep the LBO private equity firms going.

PRATT: In the last month, as financing evaporated, the window for M&A deals has closed. But, some experts say it has not been nailed shut. According to Thomson Financial, there have been a scant $34 billion in announced deals so far in August. That compares to $205 billion in all of July and a monthly average of $169 billion in the first half of the year. Value investors are ultimately expected to enter the market and scoop up distressed companies. Thomson Financial`s Richard Peterson believes the environment for some consolidation remains positive.

RICHARD PETERSON, SR. RESEARCH ANALYST, THOMSON FINANCIAL: There`s plenty of liquidity. Corporate profits are very strong. Companies` cash holdings are very good. Corporate balance sheets remain intact. What we`re seeing now is more a financial situation rather than an economic situation.

PRATT: Peterson says when the deal-making picks up, it`s likely to involve strategic combinations between companies in similar businesses and he believes private equity will become a much smaller piece of the M&A pie. Suzanne Pratt, NIGHTLY BUSINESS REPORT, New York.