Dividends decrease as American Business goes Overseas

by | Jul 18, 2008 | Asset Management, Stock Market Comments

Another theme I’m surprised hasn’t been discussed more often will be more foreign firms trying to make acquisitions of US-based companies in the next few years. Here’s a few reasons foreign companies — and US based firms — may be interested in deals:

  1. The value of the dollar has never been lower at any point in the last 25 years. For a foreign company, this makes their “home currency” more valuable and easier to finance a US-based transaction.
  2. Despite the credit crunch, there is still capital available to get deals done.
  3. US GAAP Accounting is the most stringent accounting regulations on the planet. There are many other places around the globe where accounting principles are far less strict than what you find right here at home. That may be appealing to companies dealing with Sarbanes-Oxley the past few years.
  4. Federal officials are preparing to propose a series of regulatory changes, which would allow (and actually encourage) this kind of action to happen. Remember, foreign corporations are beyond the reach of Congress and the SEC.

Right now you’re seeing a Belgian company (InBev) purchasing Anheuser-Busch (the makers of Budweiser). Now if they can just find a way to move the Cardinals to Belgium (or at least out of the National League), that would be great.

Increased foreign ownership WILL rile some investors and MOST public officials. It’ll foster more of the “let’s keep America in the hands of Americans” feelings. But unless the United States is willing to do something about the value of the dollar, it really will be hard to stop.
And as long as corporations continue to play accounting tricks — so their quarterly earnings will keep up the illusion that business is actually growing — we should expect more and more foreign companies making a move to buy US assets. Why not?

When getting involved with foreign stocks, individual investors are often amazed at how “laid back” foreign corporations can sometimes be about missing quarterly earnings. It’s a shock to many US stockholders that most foreign companies will change — or eliminate — dividends they pay shareholders every single year. Many retired investors rely on interest and dividends for a large portion of their income. Now having an unpredictable dividend stream from investments really doesn’t foster a warm fuzzy feeling.

Here’s a terrific article from the New York Times on this very topic.

What’s your opinion? Suppose a company involved in defense products, or something security-related were to attract a foreign buyer? Should there be some policies preventing that?

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