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First prelude: The age of takeovers

  Recent years have seen the emergence of corporate takeovers on a scale unprecedented in the history of commerce, whether measured by the number of transactions, the total size of the deals, the audacity of the raiders, or the creativity of the instruments devised to finance the acquisitions.

Why is this? Why should corporations embark on a binge of devouring one another when equity market valuations are close to all-time highs measured by earnings and dividend yield, when interest rates on the debt used to finance takeovers are at historically high values, and why should these takeovers continue unabated after the worst stock market crash in history and the advent of a primary bear market marking the end of the longest period of economic expansion in decades? Are we witnessing an epiphany of Mammon where greed and rapacity trample reason, or is there an underlying rationale for these deals here, now? I believe there is, and that it illustrates the central importance of the time value of money.

When a ``corporate raider'' solicits the owners of a corporation to tender their shares at above the prevailing market price he is, in essence, saying that he disagrees with a valuation for a body of visible assets arrived at by the largest, most efficient, market ever created. Why do so many people who are wealthy beyond imagination have the audacity to dismiss the judgement of the marketplace? Ego?...greed?...or something else?

Perhaps the takeover artists are not the cause, but the effect, of a historic imbalance in the time value of money.

Editor: John Walker