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Reasons to be Cheerful

Monday, 12 Mar 2007 | 7:39 AM ET

The CEO of Akzo Nobel, Hans Wijer probably couldn’t believe his luck when the call came through from Schering-Plough , saying "we’d like to buy your Organon business, and by the way we would like to pay a few billion euros more than you will get by IPOing it."

I don’t suppose they were the exact words spoken by Schering-Plough’s CEO, Fred Hassan -- but that is in effect what he has committed to do. The pop in Akzo’s share price is a clear indication that the market was surprised by this largesse. After all, Akzo had already hawked the business round the market once and the IPO route was the fall back strategy when no trade buyers turned up at the right price. On Mr. Wijer’s own admission, the two companies put this deal together in about a week and a half!

Whatever the strategic benefits of the deal -- and the newswires are already full of comments about cost savings and job losses -- the equity investor will also be cheered by this indication that the trade buyer is willing to spend money. In fact, this morning’s headlines were dominated by companies being taken over or doing the taking over, all supportive for equity prices.

Equity strategists may be concerned by: end of the carry/sub-prime mortgage market/Iran/earnings slowdown/interest rates/technical double-top -- delete as appropriate. But, says our guest host from this morning, Philippe Gijsels of Fortis Bank, we will still have a positive return for the markets this year of at least 6%-8%. Don’t be tempted to buy now he argues, there will be an opportunity to buy at lower prices. He thinks the market is still not through this patch of turbulence.

Sectors he likes: TMT (tech is his favourite), energy and insurance.

Feedback welcome - here.