Leon Cooperman of Omega Advisors is said to be the hardest-working man in the hedge fund game, boasting an 18 year track record of 16% annual returns versus the S&P 500’s 10% according to Fortune Magazine.
In a wide-ranging interview with Fortune, Cooperman makes the case that there is still room to make money in this market to the upside, evidenced by the fact that takeovers are happening at healthy premiums…
What’s behind the recent increase in takeovers?
It reflects the fact that the stock market is selling about in line with replacement costs. With the credit markets improving and business getting a little better, corporations are showing a willingness to buy other businesses, and they are paying up for them.
We have seen a large number of deals where the average premium over the market price has been approximately 40%. When Air Products (APD) bids $5 billion in cash for AirGas (ARG), which is 38% over market price, Air Products is telling us they feel sufficiently comfortable about their own business that they are willing to take on a lot of debt to do the deal.
It’s the same thing with Merck AG’s $7 billion offer to buy Millipore (MIL) and Simon Property’s (SPG) $10 billion bid to acquire General Growth Properties (GGP). When you buy a share in a business, you’re buying a share of its brick, mortar, machinery, and earning power. What corporations are saying is that the equity market is not overvalued.