Europe's M&A Star Rising

BASF's(BF Quote - Cramer on BF - Stock Picks) hostile bid for New Jersey chemical maker Engelhard(EC Quote - Cramer on EC - Stock Picks) woke up Wall Street on the first trading day of 2006. But it was no surprise to investment bankers, who have watched for a year as Europe's appetite for mergers has grown rapacious.

BASF's $4.9 billion offer ranks as the largest-ever hostile bid by a German company for an American one and is fourth-largest ever in the history of the continent. It's also part of a buyout craze that saw merger volume, as tracked by Thomson Financial, rise 40% in Europe last year to $1.0 trillion, a level not seen since 2000.

To be sure, U.S. firms were also acquisitive in 2005, with total M&A volume surging 33% to $1.1 trillion. But the trend lines look poised to diverge in 2006, as European companies seek growth through scale while U.S. companies -- though flush with cash -- rethink the conglomerate model. Many believe BASF's takeover bid for Engelhard could be the first of many across-the-pond overtures.

"It certainly seems that European companies are branching out overseas for growth opportunities, as well as looking in their own backyards," said Brian Hicks, co-manager of the global resources fund at U.S. Global Investors. European companies seem to be moving toward consolidated models just as U.S. companies begin to turn away from them, Hicks says.

Last year marked a record year for cross-border deals, with European countries, most notably Germany, leading the charge. German deal volume, as measured in dollars, almost doubled last year, while the number of transactions rose by almost 20%, according to Dealogic. Other countries also saw gains. German companies made a string of bids for U.S. firms in 2005, including Adidas AG's acquisition of Reebok(RBK Quote - Cramer on RBK - Stock Picks) for $3.0 billion and three U.S. buyouts by Siemens.

Meanwhile, on their own turf, Europe-based companies were responsible for some of the biggest mergers of the year. Spain's Gas Natural launched an unsolicited tender offer for Endesa(ELE Quote - Cramer on ELE - Stock Picks) for $51.2 billion, and Spain's Telefonica(TEF Quote - Cramer on TEF - Stock Picks) planned a $31.8 billion offer for the U.K.'s O2.

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