Liquidity Fuels M&A, Autos' Revival

The trappings of excess liquidity in the financial markets are so easy to spot on these merger Mondays. The Monday before Christmas '06 was no different. Investors awakened to news of about $60 billion in M&A activity -- no small portion of which was driven by private equity investment.

The deals boosted the market for a bit, but stocks couldn't hang onto their gains amid lingering worries about what happens if and when the liquidity dries up.

After trading as high as 12,491 early on, the Dow Jones Industrial Average closed down fractionally at 12,441.27 while the S&P 500 slipped 0.3% to close at 1422.48. The Nasdaq Composite had the worst day of the three major indices, slipping 0.9% to close at 2435.57%.

Among the deals announced Monday, pharmacy services company Express Scripts(ESRX Quote) announced an unsolicited offer for Caremark RX(CMX Quote) for $26 billion. Their shares were up 1.9% and 10.5%, respectively.

Private equity firm Apollo Group was busy Monday, announcing plans to buy Realogy(H Quote) for $6.65 billion, sending its shares up 19.2%. Also, Harrah's Entertainment(HET Quote) jumped 3.4% on news it is reportedly close to accepting a higher, nearly $17 billion buyout bid from Apollo and Texas Pacific Group.

Health care company Biomet(BMET Quote) agreed to accept a $10.9 billion bid to be taken private by a consortium of firms including Blackstone Group, Goldman Sachs Capital Partners, Kohlberg Kravis Roberts and Texas Pacific Group, along with Biomet founder Dane Miller. Biomet shares slipped 1%, but that comes after a strong run since the deal was first reported.