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Thursday
Jul122007

There Is Always A Bigger Fish

There is a saying that “There is Always a Bigger Fish”, meaning that no matter how big and scary a fish may be, there is always a bigger one that could swallow him up.

There Is Always A Bigger Fish

This saying can also be applied to the stock market, where speculation over what merger and acquisition activity there might be, with investors always looking to the large companies to takeover the smaller stocks. Usually it is the bigger companies that take out the smaller ones, for they are usually the ones with enough financing for the deal and a nice new company can fit into the cogs of a large corporation quite easily.

In the mining industry, whenever takeovers are mentioned, it seems that the same old names keep cropping up again and again. The large companies are always “rumoured” to be buyers of this and that and although there may be absolutely no truth in the rumour, people associate the big companies with takeovers all the time, just because it makes sense. For example, in the recent merger talks surrounding Meridian and Yamana Gold, a variety of names cropped up as “potential buyers”. All of a sudden, Agnico-Eagle, Kinross, Barrick and many more names were rumoured to be involved. Why does this happen?

Well generally, it happens because people take one look at the news release, and see that a gold merger may take place. When considering other possible players in the deal, having read the word “gold” they begin thinking of every household gold mining company they can and proceed to blurt them out as “potential buyers”. Of course, these companies are potential buyers, as is every single company on the stock market for every single other company on the market. So speculating who could be a potential buyer is little more than guess work, as all one is doing is looking at other large companies on the stock market in the same sector of that of the deal.

In the uranium sector, whenever takeover talks are mentioned, Cameco is put forward almost as a default candidate. Other large uranium stocks are also put forward as buyers of smaller uranium companies as that is how it works, big buys little and gets bigger. Or is this actually the case?

Rarely do people consider that the big companies might also be bought out. Rarely to you see the headline, Cameco to be bought by X. Rarely do people in the uranium industry stop to think that companies like Cameco are actually small fish in the grand scheme of things and they could easily be swallowed by the really big fish, companies like Rio Tinto and BHP Biliton which are worth ten times as much!

However, does this mean that big fish like BHP are untouchable?

Absolutely not. Not only are there bigger fish then BHP but a company does not have to be bigger than another company to take them over. All a small company has to do to take over a company many times their size is to convince a bank or another financial institution that financing their takeover deal will be a profitable operation. Alternatively, a group of smaller companies could form a partnership to take down one of the larger stocks.

The point is that everyone is a takeover target. Do not assume large cap miners are safe from hostile takeovers, anyone can take anyone else out before you have time to blink. Its a dog eat dog world and targets can become predators.

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