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Corporate Capital Strategies

01/12/2011

Greetings from the snowy Northeast!  The abundance of early winter snow reminds me of our "2009 Winter of Discontent."  However, the capital markets are certainly trading much more favorably than during the historically dark days of early 2009.

The expectations for 2011, mine included, are extremely high.  Can we achieve them?

For my frequent readers,  you know that answer.  I believe that yes we can.  In a "catch up" year, when the potential for a return to normal exists, I fear the biggest risk to investors is not to participate - to continue to believe the other shoe is about to drop.

My expectation for a solid 2011 is buoyed by corporate capital strategies - returning capital to shareholders via dividends, purchasing back their own shares, and multiple acquisitions to purchase global growth. Early in this new year, I am not disappointed.  Corporate activity is strong and suggestive of "confidence" in the return to normal.

On Wednesday January 5, Qualcomm (QCOM) agreed to purchase Atheros Communications (ATHR) for $3.2 billion in cash. Qualcomm's willingness to pay $3.2 billion, all cash, to make its first ever acquisition of a publically traded company signals that this is an extremely positive deal on many fronts.  The global growth of phone handsets, smartphones, and tablets is placing strain on typical cellular connectivity. The solution to the strain is Wi-Fi connectivity. QCOM has purchased an entry into the much needed Wi-Fi delivery of content and paid a premium for growth. 

On Tuesday January 11,  Cliffs Natural Resources (CLF) offered to buy Canadian iron ore miner Consolidated Thompson Iron Mines (CLM) for C$4.9 billion or US$4.95 billion, all cash. We had the privilege of talking with the Cliffs CEO Joseph Carrabba on Fast Money the following day. That conversation highlighted near term strength in the capital markets - corporate confidence in the recovery and the willingness to pay a premium for expanding ownership of global resources.

Finally, financial institutions await approval from the Federal Reserve to potentially reinitiate dividends or even buyback shares. The capital strategy plans, submitted January 7th, will be answered by mid-March. The Fed's approval would be the ultimate vote of confidence in a return to normal - allowing banks to move capital off their balance sheets - no longer needing to hoard cash for further loan losses. 

This certainly is not our 2009 Winter of Discontent.

Virtus Investment Partners provides this communication as a matter of general information. The opinions stated herein are those of the author and not necessarily the opinions of Virtus, its affiliates or its subadvisers. Portfolio managers at Virtus make investment decisions in accordance with specific client guidelines and restrictions. As a result, client accounts may differ in strategy and composition from the information presented herein. Any facts and statistics quoted are from sources believed to be reliable, but they may be incomplete or condensed and we do not guarantee their accuracy. This communication is not an offer or solicitation to purchase or sell any security, and it is not a research report. Individuals should consult with a qualified financial professional before making any investment decisions.