DEALTALK-Stronger U.S. dollar only small factor in deals

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By Jessica Hall

While the strengthening U.S. dollar may give corporations more buying power as they look for international acquisitions, the global gloom will overshadow any benefits.

For much of this year, the weak dollar gave international companies some leverage in making acquisitions of U.S. companies by making assets relatively cheap to acquire.

The timing of the dollar's rebound, however, will likely prevent the reverse trend from happening since U.S. corporations may be reluctant to part with cash during the economic crisis, investment bankers and analysts said.

"The dollar is strengthening this time because the U.S. is a source of strength at a time of great tumult. You have to put the dollar's rebound in context -- it's coming at a time of indescribable global chaos," said Herald Ritch, president and co-chief executive officer of investment bank Sagent Advisers.

"Strategic deal-doers don't wake up and look at the currency spreads and say 'Let's do a deal.' That's not where things start. On the margins, does it factor in to many decisions? Yes. But currency doesn't dictate deals," Ritch said.

WEAK DOLLAR HAD PUT U.S. ON SALE

So far this year, international deals involving U.S. companies totaled $365.2 billion, down 40 percent from a year ago, according to Thomson Reuters data. Yet the volume of deals in which a U.S. company had been the target had dropped by only 28.5 percent, the data showed.

Some major U.S. companies to fall into foreign hands this year included beer brewer Anheuser-Busch Cos Inc (BUD.N: Quote, Profile, Research, Stock Buzz), which is being bought for $52 billion by InBev NV (INTB.BR: Quote, Profile, Research, Stock Buzz); and eye care company Alcon Inc (ACL.N: Quote, Profile, Research, Stock Buzz), which is being bought by Switzerland's Novartis AG (NOVN.VX: Quote, Profile, Research, Stock Buzz) for about $27.7 billion.

While some investment bankers said U.S. companies became more attractive targets earlier this year due in part to the weak dollar, the greenback's recent rebound will not be enough to offset the global financial crisis.

So far this year, the euro has lost about 11 percent of its value against the U.S. dollar, while sterling has fallen more than 17 percent against the greenback.

"Currency exchange should be a minor factor in doing a deal," said Phil Stamatakos, a partner specializing in mergers and acquisitions with law firm Jones Day.

"It may play a role for some companies, but M&A decisions ought to be based on the fundamentals of the deal and the assets you're buying," Stamatakos said.

WHERE CURRENCY CHANGES MIGHT HURT

Some international deals could be affected by currency fluctuations if a buyer needs to borrow significant funds to finance the purchase or has offered a foreign stock as currency in the deal, investment bankers said.

When drugmaker Roche Holding AG (ROG.VX: Quote, Profile, Research, Stock Buzz) made its $43.7 billion offer in July to buy the 44 percent of Genentech Inc (DNA.N: Quote, Profile, Research, Stock Buzz) it does not already own, it cited the weak dollar as an attractive incentive.

Since then, the more than 10 percent increase in the value of the U.S. dollar versus the Swiss franc has prompted some analysts to question whether the deal has become too costly for Roche to pursue. The stronger dollar would make it more expensive to raise funds for the deal.

Genentech has rejected the $89 per share offer, saying it undervalued the company. Roche said earlier this month it remained committed to its offer and aimed to reach a negotiated deal.

Until the overall economic gloom lifts, the strengthening U.S. dollar should have minimal affect on dealmaking, analysts and investment bankers said.

"Strategic and financial buyers shouldn't be making purchasing decisions based on a currency play. If they have that much foresight into currency, they should be in forex (foreign exchange) arbitrage, not M&A," Stamatakos said. (Reporting by Jessica Hall, editing by Matthew Lewis) (For more M&A news and our DealZone blog, go to here).