We have this crazy, old-fashioned idea that shareholders actually own public corporations – not management teams and certainly not the government. We believe the owners of a business have the right to decide whether or not to go forward with important changes to the capital structure – like mergers and acquisitions. It is, after all, their property. So when Bank of America’s management team decided to buy Merrill Lynch despite Merrill’s enormous $15 billion fourth-quarter loss and its decision to accelerate billions worth of employee bonuses, we think Bank of America’s rightful owners should have been appraised of these significant developments before shareholder vote.

You probably heard what happened instead: The government leaned on Ken Lewis to keep quiet about Merrill’s losses. And he caved. Then in a move of utter cowardice, Ken Lewis tried to blame the affair on Merrill’s former CEO. We hope shareholders sue the government for tortuous interference with the contract. They’ll win. We hope Ken Lewis goes to jail for securities law violations – for which he is clearly guilty. We hope Bank of America’s rightful owners will one day have their property returned to them. So I guess you could say we’re on the side of property owners and against the endless number of leeches who try to con, steal, and muscle in on them.

This from Today’s Financial News:

If you want to make money in today’s market with its super-efficient flow of information, you need advanced insight. Remember, this is not your father’s buy-and-hold stock market.

Sure, crunching a few ratios and digging into a company’s balance sheet and income statement will give you a strong head start, but if you want to truly excel, you have to understand the psychological side of Wall Street.

For a perfect example, check out the headlines surrounding Pfizer (NYSE:PFE). The company went out of its way to tell reporters this morning that it is open to acquisitions of its rivals, big and small, if they will lead to revenue growth.

Well, duh. What company is not open to acquisitions if it will increase shareholder value?

There is much more to this story. The headlines are only an invitation to dig deeper.

No need for a crystal ball

Fortunately, you do not need an ultra-secret Wall Street decoder ring to figure out what is happening. All you need is an understanding of signaling theory.

The notion behind the influential theory is the idea of asymmetric information. There are unequal flows of knowledge in the investing world. In other words, a company’s executives and insiders know more about the company than even the most well-connected investor.

Signaling is a very important variable for dividend investors. A company’s willingness to expand or continues its dividend “signals” that the top brass has confidence in its future earnings potential.

But what is going on when a company’s CEO picks up the phone and tells the world it is willing to buy its rivals? Unfortunately, it is not a positive signal.

Pfizer’s performance over the past five years has been less than stellar. An investor that put $100,000 into the company in January of 2004 would have a position worth just $50,000 today (excluding dividends).

The company, and its Big Pharma kin, have had more than their share of troubles recently. Research and development costs are soaring, insurance companies are tightening the healthcare noose and generic competition is heating up. That means revenue growth is stagnant and margins are decreasing. It is not a recipe for shareholder profits.

Read between the lines

By telling the world his company needs a large acquisition, Pfizer’s CEO, Jeff Kindler, is signaling that 2009 will not look any different. The only way the mature company will grow is by purchasing the growth.

That means shareholders are going to take a hit and possibly a sizeable one, at least in the short-term. Smart investors will heed the warning of today’s signal and take appropriate action.

As I write, shares of Pfizer are closing in on the $19 mark, nearly 20% off their 10-year low reached in late November. The recent surge could be setting investors up for a drastic near-term reversal, especially if more merger news hits the press.

Basic investors should do their best to avoid a position in Pfizer. Investors with a bit more tolerance to speculation should take a look at a short position on the equity or some mid-term put options. As this story develops, Pfizer’s woes will only increase.

Keep an eye out for more news on the situation. Pfizer may be a bad choice, but the companies in its acquisition sights will be good investment targets.

I am positive we will have more “signals” in the very near future.

Source: Pfizer shouts its message to the world

• From 2005 to 2010 alone, worldwide wealth will soar from $118 trillion to more than $200 trillion — with the newly capitalist markets of Asia and Europe accounting for the biggest share.
• Over the next 25 years, America’s share of the worldwide economic pie will slip from 28% to 24%…
• While during that same stretch Asia’s share of the global market will almost double — meaning it will account for a whopping 55% of the global economy by 2030.

Money Morning managing editor William Patalon III has put together are 10 that hottest profit opportunities in the global capital markets at different times over the next 12 months or more.

1) Cash in on the Cash Barons: Sovereign wealth funds from China and the Middle East are pouring billions into stocks too many investors would rather ignore.

2) Energize With Energy: Energy will be a recurrent theme in the months to come – and not just in terms of oil and gasoline. Crude oil will remain in the forefront of the profit plays to come. But that’s not all: Alternative energy opportunities such as uranium and so-called “green energy” investments will benefit from soaring prices for conventional energy sources. When it comes to these profit plays, it will pay to keep all your bases covered.

3) Buy into Buyouts: Mergers and acquisitions, management buyouts and private-equity deals helped fuel the record run in the U.S. stocks in the first half of 2007. The subprime-mortgage mess and ensuing credit crisis will make it tougher to do deals in the next 12 months, but the choicest buyouts still will get done.

4) Build With Biotech: This isn’t your father’s biotech sector. No longer are we talking only about the “Big Pharma” drug-development firms. Some of the biggest players are now trying to solve the world’s food and fuel shortages – with some notable successes. With special, more-environmentally friendly herbicides and higher-yielding, genetically engineered crop seeds, these companies have already engineered big increases in sales and profits – and there’s a lot more to come.

5) Home in on Housing: Housing’s down, but it’ll never be out. The turnaround is still some time off, but this sector isn’t going to go away. It’ll take careful and patient investing to profit here, but keep the sector on your radar screen – if for no other reason than to use it as a barometer for the rest of the currently moribund U.S. economy.

6) Invest in Income: Studies show time and again that income is key to any portfolio’s success. And those same studies show that if you call the dividend play during a bearish market, your portfolio will easily beat “the spread” – in this case, the market averages as measured by the Standard & Poor’s 500 Index and Dow Jones Industrial Average. And if you can’t decide between stocks or bonds for income, don’t flip – our report covers both sides of the coin.

7) Hit the “BRICs:” BRIC is a Goldman Sachs Group Inc. (GS) acronym for “Brazil, Russia, India and China.” Three of the four – Brazil, India and China – are not to be ignored in the months to come. After the wild ride Chinese stocks have provided in recent months, too many U.S. investors are ready to give up on the Red Dragon. Don’t make that mistake. We’ve seen some life in China’s stock market in recent days, and there will be plenty of ways to profit from that emerging economic colossus, some of which involve only moderate risk. [To find out how you can obtain a free copy of investing guru Jim Roger’s new bestseller, “A Bull in China,” which details investing strategies for that burgeoning market, please click here].

Go for Gold: The yellow metal has enjoyed a record run. And it’s subsequently dropped back. But don’t let that disappoint you: With global demand for commodities of all kinds soaring, there’s plenty of yardage left on this play. Besides, if inflation escalates as many experts expect, gold will provide a terrific portfolio hedge.

9) Couple up With Commodities: The gangbusters global growth that’s causing gold and crude oil prices to “go long” is having the same effect on such commodities as wheat, corn and soybeans. Even Jim Rogers says the global demand for commodities is only going to escalate, meaning this is a play you can call now with a high degree of confidence and score again and again.

10) Don’t Give up on the Greenback: The U.S. dollar has been sinking against virtually every other major currency, a trend that could well continue for some time to come. That doesn’t mean you should ignore the greenback. Run a reverse and look for ways to profit on its pain. Not only will you score now, you’ll be focused in and ready to profit when playing field changes and the U.S. greenback reverses course on its own run for the end zone.

After a private bid went unanswered, Blockbuster made an unsolicited $1 billion acquisition bid for wounded electronics retailer Circuit City Stores Inc. (CC) for at least $6 a share – a move that sent Circuit City’s shares up 60% in pre-market trading Monday.

Blockbuster said it first approached Circuit City Chairman and Chief Executive Officer Phillip Schoonover with the offer on Feb. 17, but when the movie-rental giant didn’t get a response, Blockbuster decided to take its proposal public “because it believes the shareholders of Circuit City should have the opportunity to participate in determining the destiny of the company.”

However, Blockbuster already has an outline with regard to what that “destiny” would be: The merged companies would create a $18 billion retail enterprise that would benefit from their complementary products, marketing, distribution and financial synergies.

“Our vision for the ‘new’ Blockbuster is to be the most convenient source for media entertainment,” Blockbuster Chairman and Chief Executive Officer James Keyes wrote in a letter to Schoonover.

A Blockbuster Deal for a Browbeaten Market

Circuit City is the second-largest electronics chain in the United States, but the company has struggled recently. Over the past year the company has slashed retail management positions, eliminated jobs at its corporate offices and laid off 3,400 retail workers.

Making matters even worse: Circuit City not only lost more market share to industry leader Best Buy Co. Inc. (BBY), on March 28 it lost its spot in the Standard & Poor’s 500 Index.

Blockbuster hasn’t faired much better. Once an innovative icon in family entertainment and a cornerstone in the realm of media distribution, Blockbuster has more recently been the victim of increased competition and such technological changes as “video-on-demand” that have threatened its business. So it’s cut marketing costs and shed unprofitable customers in a desperate bid to fend off the Internet-based Netflix Inc. (NFLX).

The company’s troubles have led some – including Circuit City – to question whether or not Blockbuster even has the capital to follow through on its $1 billion all-cash offer.

“To date Blockbuster has been unable to satisfy Circuit City and its advisers that Blockbuster’s proposal could be financed,” Circuit City said in a statement.

The statement also questioned whether the proposed acquisition would require debt financing (and, if so, what the terms and structure would be) and how large a rights offering would be required to fund the transaction.

In a conference call, Blockbuster’s Keyes said the company has the support of billionaire board member Carl Icahn.

Presuming Blockbuster does indeed secure the proper financing, Louis Basenese, an mergers and acquisitions (M&A) expert and the editor of The Takeover Trader newsletter, said the deal bodes well for both companies, but mainly because independently, they are headed for the trash heap.

“This is clearly a merger to fight off extinction,” Basenese said. “Combining forces might only delay the inevitable.”

Technology business blog, the Digital Home, called Blockbuster’s proposal “laughable.”

“Blockbuster is nothing more than an irrelevant shadow of its former self. For years, the company stood atop the rental business and destroyed any and all competitors in its path,” Digital Home author Don Reisinger wrote. “But once Netflix saw it fit to change the way the rental business works, Blockbuster couldn’t adapt and its once booming business turned into an overpriced cesspool of old business models.”

A 2008 M&A Revival

A recent report from Thomson Financial indicated that the global volume of M&A plunged 31% to $661 billion in the first quarter of 2008. But that drop-off comes after a banner year for M&A activity. Total global deal volume checked in at $4.5 trillion in 2007, up 24% from the previous high-water mark set in 2006.

Since then, credit conditions have tightened significantly as many banks were badly burned by credit defaults. But while an era of “easy money” has come to an end, there is still ample opportunity for takeovers and tie-ups.

Basenese attributes most of the drop-off in M&A to a shift in the balance of power. Over the past several years, private equity firms had established themselves as the main drivers behind M&A activity by outbidding companies for assets.

However, it was those same buyout firms that led to the collapse in first quarter deals, with a 77% drop in acquisitions. And that has opened the door for companies flush with cash to get back down to business.

“Corporations are sitting with almost near record amounts of cash on their balance sheets,” Basenese said. And with that, they can “take advantage of the depressed stock prices of competitors without the fear of being outbid by overly aggressive private equity shops.”

Deals on the Docket

Microsoft made its move with an unsolicited $44.6 billion bid for Internet portal operator Yahoo! Inc. (YHOO). So far, Yahoo has done its best to thwart Microsoft’s advances, but most analysts believe Microsoft will get its way if it ups its $31 a share offer.

If that buyout goes through, it will be the largest-ever acquisition in the high-tech sector, exceeding even Kohlberg Kravis Roberts & Co.’s $26 billion buyout of First Data Corp. However, Yahoo’s explicit opposition to the takeover makes it impossible to rule out a narrow escape.

The culprit? The end of the boom in leveraged lending and the dwindling pace of mergers and acquisitions.

Wall Street has already axed more than 34,000 jobs since the credit crisis kicked off last July, the most jobs lost on the Street since the dot-com bubble popped in 2001.

While droves of Wall Street suits face the chop, those who remain in their plum jobs face being harassed by the hoi polloi, says James Howard Kunstler.James sees the “very first sign of a much broader citizen revolt against the extraordinary protections being shown to crapped-out investment banker boyz — at the expense of millions of equally crapped-out poor shlubs facing the default and re-po of their McDwelling places.”

“Last Wednesday, a bunch of peeved mortgagees protesting government favoritism in the Bear Stearns case entered the lobby of the company’s (soon-to-be-former) headquarters building in midtown Manhattan.

“Wait until summer gets underway and The New York Post gossip page resumes its coverage of hijinks in the Hamptons. The executives of Goldman Sachs, J.P. Morgan / Chase, and other dealers in fraudulent securities, plus the art world and show biz glitteratti who party together out there, might all find themselves the object of considerable grievance and resentment as the beaching season ramps up, and the limos roll around the charity lobster roasts, and the guests stray down the lawns, chardonnays in hand, to plot divorce from their over-leveraged husbands…. God knows what seekers-of-vengeance will be creepy-crawling the privet plantings along Gin Lane in the crepuscular gloom, searching for trophy wives to garrote.

Swiss drug maker Novartis is taking Nestle’s 77% slice US eye-care company Alcon for $39 billion. Yahoo!, meanwhile, is sending smoke signals to Microsoft that it wouldn’t be against a bid if the price is right.

According to CityWire in Britain, the FTSE 100 broke through the 6,000 level “on a flurry of major corporate merger and acquisition reports from across the Atlantic.”

“The deal-making market is a key to the health of the US stock market,” says Jason Simpkins.

“The US buyout market is about to enter a new phase as corporate takeovers pick up where private-equity firms left off last fall. During much of 2006 and 2007, it was the steady stream of private-equity buyouts and corporate mergers and acquisitions (M&A) deals that propelled the key U.S. stock indices to one record high after another.

“When the deals are flowing, investors are willing to pay more for their shares, figuring the odds for a nice payday are higher. And the deal market was white-hot through the middle half of last year. Private-equity firms had amassed huge war chests. They were buying stakes in big companies and were buying smaller companies outright.”