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Cheap Dollar Puts U.S. Firms in Takeover Danger

MICHELE NORRIS, host:

More now on the weakening dollar. One of Canada's leading banks, Toronto-Dominion, known as TD, bought New Jersey's Commerce Bancorp for $8.5 billion. Yesterday, the Finnish company, Nokia, bought Chicago's Navteq for $8.1 billion. European and Canadian companies seem to be on a buying spree lately, snapping up U.S.-based companies. That has some wondering if a weak dollar is creating a fire sale on U.S. firms.

NPR's Adam Davidson reports.

ADAM DAVIDSON: The U.S. dollar is so weak.

Unidentified Group: How weak is it?

DAVIDSON: It's so weak, the floating eye in the pyramid is crying. In fact, the dollar is so devalued…

Unidentified Group: How devalued is it?

DAVIDSON: …rappers are wearing diamond-encrusted pesos around their neck.

(Soundbite of laughter)

DAVIDSON: Seriously, though, it's so weak…

Unidentified Group: How weak is it?

DAVIDSON: The dollar is so weak that Commerce Bancorp in New Jersey must have looked like a steal to Canada's Toronto-Dominion. After decades worth much less than the U.S. dollar, the Canadian Loonie just reached parity. And so, Canadian companies must be looking at the U.S. like it's one, big fire sale, right?

Mr. BRAD SMITH (Analyst, Blackmont Capital): This is not a fire-sale price. This is a premium price for what management views as a strategic imperative.

DAVIDSON: Brad Smith with Blackmont Capital says Toronto-Dominion has been carefully planning for years to get bigger in the U.S. market. In other words, this deal is the result of long-term strategy, not any short-term currency fluctuation. But what about yesterday's big deal, when the Finnish company, Nokia, bought Chicago-based Navteq? Were the Fins taking advantage of a strong Euro to gobble up a U.S. asset?

Mr. JACK GOLD (Principal Analyst, J.Gold Associates): No, I don't think so because they overpaid. You know, they spent a lot of money buying these guys.

DAVIDSON: Jack Gold of J.Gold Associates says Nokia desperately needed this American company at just about any price. Nokia has done great as a hardware maker mostly of phones. But to expand their business, Gold says, Nokia needs more and better content. So, they bought Navteq, which is one of the world's leading digital mapping companies. The Euro has gained around 11 percent in the last year, so Nokia got to buy Navteq at a nice discount now versus 12 months ago.

Mr. GOLD: But if they had bought them a year ago, the valuation probably would have been 50 percent less just because Navteq wasn't as big and wasn't making as much revenue.

DAVIDSON: The point that Gold and Smith are making is that currency valuation is only one factor that companies consider when deciding whether or not to buy another firm. The main thing is strategy. Does the acquisition fit into their long-term business plans? Then, there are a host of other issues. How much debt does the company carry? How good is the cultural match and on and on.

Gene DuPrez is a consultant with IBM. He advises big companies on whether or not to buy other companies. I asked him where the weak U.S. dollar ranks among the top 10 issues companies consider before an acquisition.

Mr. GENE DuPREZ (Consultant, IBM): It has not been a top 10 issue in the analysis that we have done, for the most part.

DAVIDSON: It's not that the dollar's decline doesn't matter, DuPrez says, it's just that so many other things matter so much more.

Adam Davidson, NPR News, New York.

NORRIS: If you want to know how a weaker dollar might affect you, whether you're traveling abroad or shopping at home, go to our website, npr.org. Transcript provided by NPR, Copyright NPR.

NPR transcripts are created on a rush deadline by an NPR contractor. This text may not be in its final form and may be updated or revised in the future. Accuracy and availability may vary. The authoritative record of NPR’s programming is the audio record.

Adam Davidson is a contributor to Planet Money, a co-production of NPR and This American Life. He also writes the weekly "It's the Economy" column for the New York Times Magazine.