Kokomo Tribune; Kokomo, Indiana

National news

March 5, 2014

US companies spend heavily on big mergers in 2014

(Continued)

Companies are also able to do deals because financing is cheap.

Interest rates are still low. The yield on the 10-year U.S. Treasury note, which is a benchmark for many different types of loans from mortgages to corporate debt, stands at around 2.6 percent. Investors are also eager to buy corporate bonds, which makes financing a deal historically cheap for companies.

For example, Verizon Communications was able to sell $47 billion in bonds in September, the largest corporate bond sale in history.

Companies are also able to use their stock, much of it trading at all-time highs, as currency. After a weak start to the year, the stock market snapped back in February and ended Tuesday at a record high.

Facebook is mostly using stock to purchase WhatsApp. Comcast's proposed merger with TimeWarner Cable is an all-stock deal, and Actavis is using a combination of stock and cash to buy Forest Labs.

The high prices reflect the strength of corporate balance sheets and the confidence of CEOs. That encourages more deals.

"A healthy M&A market ultimately represents a flourishing economy," said Martyn Curragh, head of U.S. deals for PricewaterhouseCoopers. "Seeing a big deal come together successfully helps bring confidence to other companies who are possibly looking at doing a deal," he said.

"I don't think we've seen the floodgates open yet," Walsh said, "but looking six, 12 months down the road, we're definitely looking at a big increase."

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