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Politics : Ask Michael Burke -- Ignore unavailable to you. Want to Upgrade?

To: Knighty Tin who wrote (80415)	5/4/2000 10:11:00 AM
From: Freedom Fighter	Read Replies (1) \| Respond to of 132070

Mike, I have a few positions in the food group. The Uniliever bid for Bestfoods put the group back into the spotlight. However, there's something I don't understand about the acquisition prices in this sector. The bids are generally so high that pre-tax profits + amortization of goodwill will just about cover the interest expense of the deal. They are priced like LBOs. Sometimes they are even more aggressive than that. I assume that anticipated cost savings and synergies are part of the reason for the aggressively priced deals, but I've never really understood the rationale behind doing a deal that won't be accretive to earnings almost immediately. You own the new asset. It adds nothing to earnings and it weakens the balance sheet. Why not just invest in your own business or repurchase shares (when that makes sense). You are immediately adding something to the value and EPS. It would make more sense if they were selling off pieces and realizing some profit because the parts were worth more than the whole (like they did in the 80s). But I am seeing deals that add nothing in the first year (some are dilutive) and barely add anything a year or two later. It seems to me they are overpaying using this leveraged buyout mentality. Wayne