Market doldrums open door to mergers

As share prices have fallen, U.S. and foreign companies have seized on the opportunity to gobble up rivals.

The latest case in point: Manhattan Beach-based sneaker seller Skechers USA Inc. on Wednesday offered to buy Heelys Inc., a maker of children's shoes with wheels, for $143 million. Eighteen months ago, Heelys' stock market value topped $1 billion.

The day before, drugstore chain CVS Caremark Corp. rolled out a $2.6-billion deal for Longs Drug Stores Corp., and Japan's Mitsubishi UFJ Financial Group announced a $3-billion offer for the 35% of California's UnionBanCal Corp. that it doesn't already own.

Although the overall U.S. mergers-and-acquisitions market remains in the doldrums because of a drought in private-equity deals, so-called strategic mergers -- in which one company buys another, usually in the same industry -- are ahead of their pace in 2007, at least in dollar terms.

"Strategic M&A is really where the action is these days," said Joel Cohen, chairman of Sagent Advisors Inc., a New York-based investment bank.

This year through Monday, $800 billion in strategic deals had been announced, up 5% from $761 billion in the same period last year, according to research firm Dealogic Inc.

The deal-making has heated up as stock-market weakness has persisted. Strategic deals worth $56 billion were announced in May, June and July, easily outdistancing the $339 billion registered in the first four months of the year, Dealogic data show.

Until the credit crunch took hold last year, the stock market enjoyed a buyout mania as easy money encouraged private-equity firms -- using mostly borrowed funds -- to acquire companies at ever-higher prices. But those buyers, especially larger firms doing billion-dollar transactions, have been sidelined lately as banks shied away from financing deals.

Companies that want to bulk up, meanwhile, have been attracted by the lack of competition from private-equity firms.

"Corporate buyers were effectively squeezed out of the market for the last three years," said Dan Alpert, managing director at Westwood Capital, an investment bank in New York. "This is their day in the sun."

The weak dollar also is playing a role. Foreign companies are using their richly priced currencies to snap up U.S. assets.