Ford, GM to Acquire Each Other
Detroit, August 19, 2009 -- Automotive giants Ford Motor Company (F) and General Motors (GM) galvanized American stock markets early this afternoon with nearly simultaneous hostile bids to acquire each other.
Ford was out first, issuing a bid to buy all outstanding shares of GM for $40 a share, a 30% premium on Friday's closing price. Mere seconds later, GM announced a bid to acquire Ford for $9 a share, a 35% premium. Shares in both industrial giants skyrocketed during the subsequent buying frenzy.
"It's quite rare for two companies to simultaneously offer huge hostile premiums on each other's stock," Mervyn Ash, an investment analyst with Horn Saber Investments, said. "What we'll be seeing now is some strong market volatility with a short-term positive trend."
Horn Saber raised its recommendation on both Ford and GM to "impulse buy" on the announcements.
"The powerful synergies implied by both purchases make good market sense," Hugh Clewe, automotive analyst for Sprocketz, an industry weekly, said. "If Ford were to acquire GM, or the other way around, or ideally both, we'll see some aggressive shelving of unprofitable product lines and a real commitment to production efficiencies. With the significant market premiums each company is prepared to offer on the other, there'll be major improvements in capitalization opening up for much-needed infrastructure investments and workforce paring. That will further strengthen investor confidence in both companies, which should lead to a stronger and less volatile share price."
Within minutes of the announcements, a buying spree drove Ford and GM stocks up nearly 40% to $11.38 and $46.09, respectively, countering a week-long sell-off in the wake of the companies' dismal quarterly reports.
"Prior to the takeover announcements, either one of the acquisitions would have had to have been highly leveraged," Mr. Ash said. "Credit markets are still unstable in the wake of last year's subprime mortgage debacle, which could easily have thrown a wrench in the works. The whole equation's changed, however, following this afternoon's run-up."
Mr. Ash said he was counselling stockholders to reject the bids at this stage.
"I don't see any reason why they won't go higher," he said. "Given the positive structural dynamics of a Ford-owned GM or a GM-owned Ford, or both, I'd say the bids are, if anything, on the stingy side."
Insiders at both Ford and GM, as well as market analysts including Mr. Ash, took advantage of the spike in share prices to unload an estimated 129 million shares, leading to a slight dip during aftermarket trading.
"I wouldn't want to say anything to make our stockholders lose sleep," a spokesman for Ford said after market close, "but we may have to reconsider our offer. GM's looking a little too pricey after today's activity."
A spokesman for GM echoed the sentiment regarding Ford. Rumors that the hostile takeover bids may be retracted forced share prices down in aftermarket trading and both companies are expected to open sharply lower tomorrow.
"Given current market sentiment," Mr. Ash said, "we're adjusting our recommendations on both Ford and GM to 'panic sell'".
By Ion Zwitter, Avant News Editor
- World Leader, Inc. World Leader at World Leading
- Citigroup, Bank of America Announce ATM Instant Equity Exchange Program
- Fed Chief Bernanke Ups Interest Rates 1.25% "Just To Mess With People's Heads"
- Rogue Societe Generale Trader "Just Got His Millions and Billions Mixed Up"
- Bush Backs Investment Banker Bonus Bailout In Wake of Subprime Crisis
- Wal-Mart Goes Green: The New Wal-Mart Employee Emissions Reduction Program
- Lipodiesels Shine at 2010 LA Auto Show
- Wider Panama Canal Makes Room for Airbus A380
- Federal Minimum Wage Rate Reduced To Button