Oracle and Peoplesoft, Symantec and Veritas, Sprint and Nextel or is that Verizon? What about Johnson & Johnson and Guidant?
A flurry of mergers sends several different messages to the market. I would expect that the over the next few days as some of these mergers, both real and proposed, play out we will hear about different interpretations about what all this means. Some mergers come from weakness which I think may be the case with Oracle/Peoplesoft. Some come from strength like Symantec/Veritas and JNJ/Guidant. And some I'm not sure about Sprint and whoever. For disclosure, my clients own SYMC, JNJ and VZ.
The argument for weakness is how could Oracle otherwise grow its business? The market treats it like a mature company who's best days are behind it. The market has liked Symantec and if they do buy Veritas it lets them offer a more complete suite of software and Veritas has higher profit margins.
On Today's Business Europe, Barry Hyman had a good quote, what good for the brokerage industry is good for the economy. All these mergers are good for the brokers (insert your favorite joke here).
My take is a little different it reverts to supply and demand. Do you think a lot of tech mutual funds own both Peoplesoft and Oracle? Me too. Its a cash deal. After the deal there are less big, not mega, software stocks to chose from. This is good for the remaining names.
I don't think that cash will be going into Oracle. If I'm only half right about that last comment you've got about $5 billion buying a lot of tech, specifically a lot of software stock. Someone that runs money that gets cash from a takeover is highly likely to replace what was taken over with a similar stock. That would be good for other software stocks.
The Fed is going to raise rates today by 25 beeps ( beeps is jargon for basis points). There is nothing new there. Some folks think the story will be what the Fed will say. The comments could be the story but I doubt the Fed wants to be the story. I have felt the big thing here is at what point is the Fed's policy neutral? I said in an interview that I think neutral is 2.5%-3.25%, probably the higher end of that range. The point at which the Fed stops the cycle could influence what the bond market does in other parts of the yield curve. Brian Westbury is the guest on Squawk, and the guy is very smart. He thinks the Fed will keep raising until it gets to 4%. I don't think the strength of the economy can handle that. For 4% to make sense he must see accelerating growth. I'm not so optimistic.
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2 comments:
A lot of people soft customers are getting ready to run, they won't do it right away, but these are firm believers in a product. Oracle may not be able to merge easily.
And Oracle does have problems. It's years away from power play but open source mySQL has a lot of potential power, growing loyalty from labs that need and can harness multiple processors and an environment where a lot of players such as IBM are thinking less of stressing their products, but increasingly of what sharing what works, dumping what doesn't sell and making money on putting these things together and supporting them. Variations on the open source method, it did build the net and it is for many tasks the most efficient model.
One has to put it's development into any medium or long term prediction of many tech stocks. It's kind of like a "secular bear market," you might not believe in it, but you have to give it a 5 or 10 or more percent probability.
The emergence of the cellphone is another factor, it is mobile computing for the masses. Applications built from the Apache/php/mysql structure have a chance to position themselves for the new frontend. You are going to have a whole extended set of people connecting to databases on the run, using things like small screens and t9 organizing through things like the "swarm organization" (see smartmobs.com is a good place to keep up on this, but an example would be people posting relevant links into a comment section in a blog, there are whole different models of "information processing" developing and they *might* have radical effects on old datastructures which become more routine and cheaper every few years.)
On the other issue you brought up, interest rates (like the dollar) are a trap. There seems to be a need to rebalance them to deal with certain issues, but doing so can smash everything or at least give lots of flks a nasty thumping.
I wonder if enhanced information distrbution will cause markets to behave differently? You do have a first wave of what was once the general public keeping up with information once primarily known by professionals. Presumably this might provide a layer of rationality that will buffer volatility. The effects will be moderate now, but I wonder about shifts such as a lot of people holding cash and knowing that if the S&P p/e follows below 14 that's by historical standards a good value. Are things like the "secular bear market" in the seventies moderated?
David Bennett
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