Market Overview
The volatility that has been the hallmark of recent trading sessions has not shown any signs of abating. After international markets plunged last week, the Fed stepped in ahead of its scheduled January 30th meeting to make a 75bp rate cut, dropping the federal funds rate to 3.5 percent. The aggressive rate cut helped appease Wall Street but has some economists questioning the long-term impact of continued rate cuts as inflation continues to be a concern. Final numbers for 2007 show overall prices increasing 4.1 percent, the highest increase in 17 years, and core prices grew 2.4 percent, above the Fed’s stated 1-2 percent comfort zone.
The housing slump and continued credit crunch have led to the r-word becoming much more prevalent in economic discussions. According to a Fortune Magazine poll, nineteen percent of Americans believe we are already in a recession, with another fifty-seven percent expecting an economic downturn in 2008. Despite all this doom and gloom the US economy continued to expand in December, and from November to December showed strong growth in exports and nonfinancial services such as health care and legal services.
The ongoing market turmoil, coupled with declining economic indicators and weakening consumer confidence, has also prompted the recent economic stimulus package reportedly agreed upon in Washington. President Bush had outlined a $150B aid package that included tax rebates for both individuals and businesses and received support on both sides of the aisle on Capitol Hill.
Deal Overview
Despite the fact that an ongoing credit crunch is garnering a lot of recent attention, there is evidence that significant capital remains available. According to Thomson Financial, PricewaterhouseCoopers and the National Venture Capital Association, venture capital investments in the US reached $29.4 billion in 2007, an 11 percent increase from 2006 and a six-year high in venture investing. In addition, venture capitalists raised $34.7 billion for future investments during 2007, a 9 percent increase from the previous year.
The health care and software sectors have continued to see some high profile acquisitions, as strategic buyers have made several large purchases recently. In January, Ventana Medical Systems Inc. finally agreed to be acquired by Roche Holding AG in a deal valued at $3.1 billion. Roche had approached Ventana five times since June and reached an agreement after raising its offer by approximately 19 percent, to $89.50 per share. Ventana Medical Systems develops and sells instruments and chemicals used to automatically prepare tissue samples for cancer screening and the testing of new drugs and will allow Roche to increase its product portfolio.
Oracle and Sun Microsystems also made high profile acquisitions recently, with Oracle continuing its acquisition strategy by agreeing acquire BEA Systems for approximately $7.85 billion, a significantly higher price tag than its previous offer of around $6.7 billion. However, the agreed upon price of $19.375 per share was below the $21 per share that BEA’s board had demanded in October. Sun announced a $1 billion deal to acquire MySQL, a leading open-source database software provider. The acquisition continues Sun’s focus on open-source applications and provides inroads into Web-based companies, a market in which MySQL commands a dominant market share at the expense of database software providers such as Microsoft and Oracle.
