Oregon public companies hoard cash

Portland Business Journal:

Oregon public companies that have been stuffing cash in the mattress since the economic collapse are sitting on a mountain of money that could fuel a wave of mergers and acquisitions in 2011.

Combined, the state’s 10 biggest companies had more than $6.3 billion in cash and short-term investments on their balance sheet as of their latest annual statements filed with the U.S. Securities and Exchange Commission. That’s well above any of the past years. (View a searchable database of cash reserves at Oregon public companies.)

Most companies started conserving cash after the Lehman Bros. collapse in 2008 sent the economy into a spiral. At the time, to pay short-term bills such as salaries, leases and overhead, companies saved aggressively in case sales dropped or suppliers went out of business.

As the economy improves, companies no longer need the massive cash cushions. Experts predict a busy mergers and acquisitions market in 2011.

“Companies that have been sitting there like deer in the headlights are going to loosen up the purse strings and go shopping, just like consumers,” said Mary Ann Frantz, head of the business practice at the law firm Miller Nash LLP.

There have already been 64 deals in Oregon this year, according to Dealogic, which tracks such data. That’s one more than last year. And this year’s $1.25 billion in deals is already ahead of last year’s $1.14 billion.

Oregon hit a five-year high in 2006 when acquisitions topped $9.5 billion. Oregon companies did 81 deals in 2007, a five-year high.

Experts say the increased number of deals is a result of the economy improving.

“There’s more confidence in terms of just the business forecasts and just what’s gonna happen over the next six months, and that’s just as important as the cash on the balance sheet,” said Ken MacFadyen, editor of the Mergers & Acquisitions Journal. “The healthier performance of companies gives them confidence to pursue top-line growth. They’ve made the necessary cuts in terms of improving the business.”

Washington County-based Nike, Oregon’s biggest company, could make the biggest splash in the M&A arena next year. The apparel and footwear giant had more than $5.1 billion in cash and short-term investments when it filed its most recent annual statement.

“They’re gonna end up buying somebody else down the road, but I don’t know who,” said Sam Poser, a senior equity analyst who covers Nike for Sterne Agee.

Poser predicts the company’s acquisition strategy will line up with its goal of pursuing international sales.

The company didn’t immediately return a comment.

At its annual meeting this summer, Nike Chief Financial Officer Don Blair said the company is looking at several opportunities for the cash on its balance sheet.

Oregon’s other Fortune 500 company, Portland-based Precision Castparts Corp., had more than $112 million on its balance sheet when it filed its last annual statement. It should soon have more. Analysts predict the company will generate $1 billion in cash in the next fiscal year.

“Generating cash has never been a problem because of their strong operating performance,” said Peter Arment, managing director of American Technology Research in Greenwich, Conn.

Precision Castparts has been aggressively acquiring companies over the past several years, and is known for a disciplined acquisition strategy.

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