After snapping up almost everything they could get their hands on, European firms appear to be winding down a record two-year buying spree that has seen nearly 1,000 American companies worth $400 billion come under European ownership.
From Ben & Jerry's to Arco, from Paine Webber to Universal Studios, American firms have proved irresistible to European buyers looking for a piece of the action in the biggest, fastest growing economy around.
But now, economic analysts on both sides of the Atlantic suggest, the wave has crested, to the relief of American stockholders who are often reluctant to hold shares in foreign firms. "European companies are shifting away from more acquisitions and towards integrating their businesses," says John Montgomery, senior international economist at Morgan Stanley Dean Witter. "That will dampen the trend."
"This has been going on too long.... The process has gone too far," adds Norbert Walter, chief
economist at Deutsche Bank. "Prices of US assets have gone up in a crazy way, and reality should set in soon."
One sign of this new reality: The French Danone group backed away from a bid to buy Quaker Oats last Thursday, saying the price was too high.
For the past two years, however, price has been no object for European firms anxious to buy into the American boom.
"For a company getting globally minded, the United States looks to be the place you want to invest in, as the fastest growing major industrial country," says Mr. Montgomery. "It's a way to access the US market, or to add a US piece to your global marketing strategy."
As globalization takes hold, "the starting point for a European company is making sure the American market is covered," adds David Wood, an official with the Confederation of British Industry in London.
At the same time, return on investment has clearly been more rewarding in the US. "You have superlative growth, extraordinary productivity growth, and a strong currency," points out Paul Horne, an analyst with investment bankers Salomon Smith Barney in London.
Taking advantage of these attractions, adds Mr. Horne, is a new generation of internationally minded European business leaders whose horizons are broader, such as Jean-Marie Messier of Vivendi (which bought Seagram, and with it Universal Studios this summer) or Ron Sommer of Deutsche Telekom. "That's made a big difference," Horne says. "They have all traveled a lot, they all speak English, and many were educated in the US."
They have also been able to take advantage of another change in Europe - the creation of the common European currency, the euro. That has made it easier and cheaper to raise funds than it once was, especially for companies in smaller countries where interest rates were high.
And they have been buying American despite the fact that the euro has lost nearly 30 percent of its value against the dollar over the past two years - making American companies 30 percent more expensive. Indeed, the massive sums Europeans have spent on American companies is one of the reasons the euro has fallen: The purchasers have had to buy dollars so as to buy the companies.
By the same token, the dollar is high, and the wave of European acquisitions has been good for America on another front, too. The capital flows have helped finance America's current account deficit.
The buying spree has attracted little attention in America, and nothing like the resentment that boiled over when Japanese investors bought up such American icons as New York's Rockefeller Center in the 1980s. In fact, resentment has more often come from shareholders in the European firms doing the buying, as it becomes clear that mergers and acquisitions are by no means the sure path to profits and shareholder value they were once thought to be. DaimlerChrysler shares, for example, are down 40 percent since the German carmaker took over its American rival in 1998. Other firms, such as the Spanish Internet company Terra, and Vivendi, have seen share prices fall since venturing into the American market.
"There is a clear dichotomy between market expectations and the reality of what can be achieved in a merger that might take years to bed down," says Stephen Reitman, an automotive analyst at Merrill Lynch's London office.
Other mergers face cultural problems. The founders of Ben & Jerry's, for example, are wondering whether to stay with their ice-cream company because they are not convinced that Unilever, the Anglo-Dutch multinational to whom they sold the firm last April, will stick to the firm's social policies.
Share prices can also fall because of "flowback," when American stock market players sell shares in companies taken over by European firms because they prefer to hold US stocks.
It was partly because of worries that shareholders in Quaker Oats would not want Danone shares, and so would sell them, that Danone shares fell more than 10 percent just on the news that Danone was bidding for the US food manufacturer.
In big sectors of the global economy, such as telecommunications and oil, "consolidation has happened," says Montgomery, suggesting that the era of transatlantic megadeals may be coming to an end.
Meanwhile, prospects in Europe are looking brighter. The gap between the return on assets in America and in the euro zone has narrowed from 3 percent to 1 percent since 1995, and as European governments liberalize and reduce corporate taxes, "there will be less incentive to invest in America rather than in Europe," says Horne.
Deutsche Bank's Mr. Walter says he is "surprised that so far there has been so little capital flow in the opposite direction," from American companies buying European targets. But that is coming, he predicts. "Already, the smartest US companies are on the lookout here," he says.
(c) Copyright 2000. The Christian Science Publishing Society