January 18, 2006

Read the Tea Leaves

The euphoric signs in the tech market have been discussed here ad nauseum. It is important to keep learning from all the selloffs, they generally come from the same issue - complacency.

It is not just technology. The medical industry is seeing it. Mergers are wild and wooly but they should be long supported by a strong underlying commodity. Don't let that fool you. I think the commodity boom still has a way to go based on all the skepticism - especially on CNBC.

Jeff Matthews covers another story well that outlines a warning sign - management stupidity. These Boston Scientific guys sound like real assholes by the way and history should play out much like he says RJR's did. Buy JNJ is the best way to play these Yahoo's. Here is the post:

“Vince, It Looks Like Jim and Larry are Going All In! Incredible!”

Mr. Tobin suggested a dramatic new offer at $78 a share -- then headed out to a Rolling Stones concert… —Wall Street Journal

Thus the CEO of Boston Scientific raises the price of his company’s bid for Guidant by $1.5 billion, and then goes out to see Mick and Keith play “Satisfaction” for the zillionth time.

But wait—Boston Scientific’s CFO had an even better idea! Read on!

Over the weekend, Chief Financial Officer Larry Best suggested an even bolder bid of $80 a share…

And so it was that Boston Scientific, which had just weeks before, metaphorically speaking, emerged from the crowd, bellied up to the poker table opposite J&J, and audaciously starting bidding for the Guidant pot, went “all-in” with an $80 a share bid for Guidant, as described in today’s Wall Street Journal.

That kind of mano-a-mano bid-hiking might make great ratings for Mike and Vince covering a match at the Mohegan Sun casino, but it is not necessarily the way to spend $27 billion on a company that needs serious attention to recover its leadership in a notoriously complex business.

I have no idea who’s going to “win” the bidding war for Guidant, and I have no idea if in the long run the “winner’s” shareholders will come to celebrate or regret this kind of testosterone-charged deal-making.

But the last headline-splashing, high-stakes takeover-poker-match I recall was RJR. And after the initial thrill of walking away from the table with all the chips, KKR spent years living it down.

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