Expect More Buys Like Georgia-Pacific
This column was originally published on RealMoney on Nov. 14 at 8:42 a.m. EST. It's being republished as a bonus for TheStreet.com readers.
The anomaly is in our face every day: How could companies get so little respect in the public markets and yet be so lusted after in the private markets? Georgia-Pacific (GP) has been disrespected for several decades on Wall Street. Whether it be asbestos, or questionable acquisitions that ultimately worked out, or spinoffs that made others fortunes but not G-P (Georgia Gulf (GGC)!), G-P just never got a multiple. I mean, this thing has been selling at 12 times earnings since it was invented.
Until Sunday, when a smart company with the natural resources to cut the big energy bill got together with it. The combination is so sweet that the acquirer, Koch Industries, had room to pay a substantial premium.
Now, I know that the word out there among the graybeards is that there is too much money, too much buyout money, chasing equities these days and that when rates go up, it will become a fools' game.Has anyone simply considered the other side? That after six years of stocks doing nothing, they now often are worth less than the companies themselves? We've taken rates up 12 times and the deals are still happening. I believe that's because our markets have suffered a neglect that has brought many companies to valuations that actually make no sense to a company like a Koch, which actually thrives on cyclicality. In other words, our endless fascination with growth on Wall Street has created a glut of really good companies like Georgia-Pacific that never will have the kind of growth we want yet can make someone an awful lot of money privately. Look for more of these deals; they just make too much sense. P.S. from TheStreet.com Editor-in-Chief, Dave Morrow:
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