Kokomo Tribune; Kokomo, Indiana

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March 5, 2014

US companies spend heavily on big mergers in 2014

(Continued)

In an effort to lift earnings and please shareholders, S&P 500 companies have also announced plans for nearly $1 trillion in buybacks over the next several years, and more than four-fifths of them now issue a dividend, the highest proportion since 1998.

With their tool box nearly depleted, corporations "are looking for that extra bump" in sales now, Walsh said. A lot of Deloitte's M&A business has been with companies "looking to expand their product lines or expand geographies."

Buying Time Warner Cable gives Comcast roughly 30 million customers in markets such as New York City. For Facebook, WhatsApp is an opportunity to buy a fast-growing message service that is popular in emerging markets and Europe. Facebook CEO Mark Zuckerberg has said he expects WhatsApp, which currently has 400 million users, to grow to 1 billion users in the near future. Ireland-based Actavis gains both a broader variety of drugs to sell and a larger sales presence in the U.S. with its acqusitions of Forest Labs.

Another example is Japanese liquor company Suntory Holdings, which in January said it would buy Beam Inc., the maker of Jim Beam and Maker's Mark, for $14 billion. The deals will "allow us to achieve further global growth," said Nobutada Saji, president and chairman of Suntory.

Getting into the whiskey business is next to impossible, said Thomas Mullarkey, an equity analyst at Morningstar. The popular liquor needs to be aged in barrels for years. While Suntory has a good niche market selling Japanese whiskey to the Japanese, it could never replicate or grow that business in the U.S.

"It's faster and cheaper for Suntory to buy Beam," he said.

Corporate finances are also strong. Companies have been hoarding cash on their balance sheets since the financial crisis, stashing away around $1.6 trillion, according to the Federal Reserve, and investors are increasingly demanding that companies figure out what to do with it. While investors like companies to keep cash on their balance sheets, having too much is like stuffing money into a mattress — it doesn't do anything. Investors want to see money put to work, earning a return of some sort.

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