Corporate Acquirers Get Last Laugh in 2007

For corporate acquirers, the second half of 2007 marked the end of all that pesky interference from private-equity firms. Now they have yet another reason to smile.

An analysis of Thomson Financial’s list of the 10 largest corporate acquisitions of U.S. companies that closed in 2007 shows that, on average, the deals have gotten off to a pretty good start. The stocks of the acquirers have risen an (unweighted) average of 15% since the deals closed. In only two cases are the stocks down. The S&P 500 rose only 4% this year.

Leading the pack is Freeport-McMoRan Copper & Gold, which closed its $25.8 billion purchase of Phelps Dodge on March 19. Since then, the shares have jumped 64%.

A few caveats are necessary. There are, of course, other factors that affect an acquirer’s stock that have nothing to do with its deal-making acumen. In Freeport’s case, for instance, the strength of global demand for mining products has put a big gust of wind in its sales. And months are hardly enough time to judge the ultimate success of a deal.

Still, the results should give at least temporary pause to merger critics who say acquisitions invariably cost acquirers’ shareholders money. And who knows, maybe all that criticism is starting to sink in, and corporate executives and their boards have gotten discriminating enough to pull the trigger only on purchases that have a good chance of succeeding.

There is also a non-silver (leaden?) lining in the data for some acquirers. One of the two stocks that fell belongs to a foreign acquirer: AstraZeneca, which bought MedImmune for $14.6 billion in June. The U.K company’s shares are down 17% since then. (The other is Bank of America, which bought ABN Amro’s U.S. banking arm in October; BofA shares are down 19% since then.) And the foreign company that did the next-largest deal — Sweden’s SSAB — saw its shares fall 30%.

Should those results give other foreign deal makers pause, another piece of commonly held wisdom may need to be re-examined: that the weak U.S. dollar will bring foreign acquirers to these shores in droves.