Foreign M&A Fuels Need For US Dollars
Written by: Aaron Katsman | July 23, 2008
What to do about the strong Shekel? That is a question I hear about 10 times a day form my clients. Everyone has been talking about the impact the strong local currency has had on the economy. The Bank of Israel has even attempted intervening in the currency markets, mostly with little success. So what to do? Let the free market work its magic.
Once again we see how market forces are able to correct short-term imbalances. Over the last week the US Dollar has surged more than 6% against the Shekel. Part of this was due to BOI intervention, but most of the impact has come from two large Israeli companies taking advantage of a strong currency to make very large foreign acquisitions.
Teva Pharmaceuticals (TEVA) $7.5 billion acquisition of Barr (BRL) and Koor Industries $900 million investment into Credit Suisse (CS) has sparked Dollar buying by these acquiring firms to complete the deals. According to a Globes article: ” Bank Leumi will provide Teva with $1.8 billion in financing, is expected to boost domestic demand for foreign currency. Capital market sources say that Teva has been buying dollars on a large scale in the past few days for the acquisition. In addition, IDB Holding Corp. Ltd. subsidiary Koor Industries Ltd.’s announced that it plans to double its investment in Credit Suisse Group to NIS 3 billion, and has also been buying foreign currency for this purpose.”
We have also recently seen European companies buying up American firms, for the same reason. They also have a strong currency and want to get good deals. Be it Genentech (DNA) or Anheuser-Busch (BUD) while their price tags were massive, the acquiring firm actually bought these companies for a 20-30% discount in local currency. Now they need to go out and get the Dollars to complete the deal. This should help the greenback as well.
The lesson we can learn: leave markets alone, and let them do their thing, and ultimately, aberrations will work themselves out.
Aaron Katsman, IsraelNewsletter.com
Disclosure: Author’s fund has a position in TEVA as of 7/23/08.
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Aaron Katsman is Managing Editor of the Israel Opportunity Investor newsletter. He is lead portfolio manager for the Israel Growth Portfolio and Managing Director of America Israel Investment Associates, LLC. For more information, go to www.israelnewsletter.com or call 1-888-327-6179, or email aaron@profile-financial.com.
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