March 8, 2013 3:10 pm

Letter from Lex: all-time highs and lows

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The Dow Jones hits an all-time high as some large M&A deals begin to unravel

Break out the champagne…the Dow Jones is at an all-time high! But hold on a minute. Just take a quick sip and get back to work as things are not as good as they may first appear. Just ask Japanese companies, which have been underperforming their Korean rivals for years. The Bank of Japan’s new governor, Haruhiko Kuroda, should point out that corporate efficiency is not all it should be. As if to emphasise the point, Samsung used $110m of its $21bn net cash to plug gaps in the balance sheet of ailing electronics maker Sharp. Over at the world’s biggest carmaker, Toyota, management was being reshuffled for the second time in two years, but the company remains a play on exchange rates and global vehicle sales.

Meanwhile some of the big deals that got the year off to a flying start are stalling. Hedge fund manager John Paulson raised objections to T-Mobile’s reverse merger with MetroPCS while Carl Icahn and Southeastern Asset Management rightly demanded more information about Michael Dell’s $24bn attempt to take the company he founded private. Glencore’s mega-merger with Xstrata looks to be in better shape despite both reporting large falls in net income in 2012. The M&A department at Vodafone has also been busy as rumours of various deals swirl about – the latest being possibilities for its stake in Verizon Wireless.

The US media world was also a hive of activity this week. Time Warner decided against merging its magazines with publisher Meredith in favour of spinning them off later this year. News Corp unveiled plans for a new sports network, but in a world moving towards à la carte programming, its timing may not be good. As always, many investors could take lessons from Warren Buffett, who has managed to make money from US newspapers even as the industry is in decline.

Finally, banks and insurers are still repairing the damage done. Only one of the 18 US banks “failed” the latest stress tests while HSBC is in better shape after ditching 47 businesses and cutting 13 per cent of staff over the past two years. New international accounting rules to provision for likely losses are also a step in the right direction, but they are only a start. UK insurance groups Aviva and Legal & General are moving in the right direction, but the real challenge for both is to find growth. So maybe not quite time for champagne just yet.

John Casey, Lex Publisher

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