Why is the U.S. stock market up so high? Maybe because high is in the eye of the beholder. To business people in other countries, where stocks have soared even higher, U.S. companies look like bargains. And so, though they may be chasing an illusion, overseas investors have been buying U.S. properties with great gusto.
Australians are prominent currently. Entrepreneur Alan Bond is paying $1.2 billion to acquire G. Heileman Brewing Co., the Wisconsin-based producer of such beers as Rainier, Black Label and Colt 45 Malt Liquor.
That's a surprisingly high price for Heileman, whose business is declining. But Bond was pushed by the hefty price paid recently for Carling's of Canada by Elders IXL, another Australian company.
Meanwhile, Australian publisher John Fairfax Ltd. is buying Ms. magazine, which, like Heileman, appears to be a fading property. Australian press baron Kerry Packer recently acquired long-troubled California magazine.
What's behind it all? Partly a desire to spread beyond Australia's limited home market--16 million people in a land the size of the United States, without Alaska and Hawaii. Adrian Palser of Capel Court Pacific, a Melbourne and Sydney investment bank with an office in Los Angeles, reports that 400 Australian companies have interests in the United States. "It's an entrepreneurial country," says Palser of the land of Crocodile Dundee.
So it is. But dash and daring aside, the Aussies are buying U.S. companies for the same reason that British advertising firms last year bought agencies on Madison Avenue and Japanese companies are buying U.S. real estate: because it's cheap in their money. The British used high stock values in London to acquire lower-priced U.S. ad agencies, and Japanese investors are using a strong yen to buy buildings in New York and Los Angeles.
The Australians, on the other hand, seem to be trading temporary values for ones that they believe to be more permanent. Stock prices have been going up faster on the Sydney exchange than on any other market in the world, and the Australian dollar has been buoyed by international money flowing to Australia for the 12% to 14% interest rates being paid there.
That's a danger signal. Australia's high rates cover 9% local inflation, which means its stock prices and currency values may be short-lived. So Aussie business people are using their temporary values to buy assets elsewhere.
Bond, for example--the fellow whose yacht won the America's Cup in 1983--owns breweries and TV stations in Australia. Using their value as a base, he is borrowing $1.15 billion from U.S. banks and the investment banking firm Salomon Bros. to buy Heileman. Ultimately he will use high interest, or "junk" bonds, to finance the purchase--with Heileman's cash flow intended to pay the interest.
But that may present a problem. Heileman's cash flow wouldn't cover the interest on $1 billion now, and U.S. interest rates seem headed up, not down.
So Bond will need to squeeze out more profit--but how? Heileman has been well managed, but has suffered because local brands everywhere are losing out to Budweiser and Miller, the national brands. Yet, launching his own national brand would be prohibitively expensive for Bond. And he may have trouble finding buyers as generous as the Australians if he needs to sell some of Heileman's assets.
Which means that Bond's Heileman, like many of today's leveraged acquisitions, may run into trouble. "They're next year's disaster," says a money manager who wants to be anonymous when talking of crashing markets.
A disaster for whom? Well, the banks may get stuck with some more bad loans. First National Bank of Boston, Continental Illinois, Wells Fargo and others are leading the Heileman financing. And some Wall Street firms may lose money.
But look on the bright side. The shareholders of Heileman, and other companies, have been paid well by foreign investors. And the Aussies may end up with more U.S. business, which is what they wanted in the first place. No wonder the market is high.