Foreign firms eye U.S. assets as on sale

| Sunday, Dec. 16, 2007

Neither Kennywood Entertainment nor The Meadows were for sale when they agreed to be acquired by foreign buyers last week.

But the companies essentially had been marked down -- due to a weak dollar that makes takeover currency stronger for foreign acquirers.

Nor are the two, marquee entertainment businesses the only local companies to be in foreign hands. There are dozens of foreign-owned companies in the Pittsburgh area. They include big stalwarts such as:

= Westinghouse Electric Co., acquired by Toshiba Corp. of Japan in October 2006 from British Nuclear Fuels Ltd., which bought Westinghouse in 1998.

= Duquesne Light Holdings, acquired by the Macquarie Group of Australia in May.

= Citizens Bank, whose parent Royal Bank of Scotland acquired Mellon Bank's branches in 2001 and changed the name.

"What we're seeing is the familiar phenomenon of globalization," said Norman Robertson, economic adviser to Smithfield Trust Co., Downtown.

"When you have integration of economies, you have free movement of labor, capital, and goods and services. So this should come as no surprise," said the economist of the region's two latest foreign deals.

On Tuesday, Parques Reunidos of Madrid agreed to acquire Kennywood Entertainment for an undisclosed price. The deal includes the iconic amusement park in West Mifflin, which has been in local family hands since 1906, as well as Idlewild & SoakZone, Sandcastle Waterpark and other properties.

The very next day, Australia's Crown Ltd. said it would pay $1.75 billion for the parent of The Meadows racetrack and casino in Meadow Lands, Washington County. The deal includes three Las Vegas casinos owned by Nevada-based Cannery Casino Resorts, which bought The Meadows in 2006.

The Meadows, in fact, had been foreign-owned before -- twice. That is, the race track part was sold for $53 million by Hilton Group plc, the British hotelier, to Magna Entertainment Corp., of Ontario, Canada.

American anxiety over perceived "U.S.-assets-for-sale" signs grew in the late 1980s when trophy properties were swept up. Japanese interests bought icons such as Rockefeller Center, Columbia Pictures and Pebble Beach Golf Links.

Just last year, blowback from the controversial takeover of security operations at six major U.S. ports by Dubai Ports World as part of its purchase of London's Peninsular and Oriental Steam Navigation within weeks caused United Arab Emirates' Dubai Ports to divest the U.S. properties to AIG of New York.

The dollar has declined in value for years against other currencies, including the euro, the currency of Spain's Parques, and the Australian dollar, the currency of Crown. Specifically, the Australian dollar has increased nearly 16 percent against the U.S. dollar since December 2005, and the euro has jumped about 20 percent.

So, Crown will spend 15.7 percent less in Australian dollars than it would have paid two years ago because the currency has risen that much against the U.S. dollar.

"They (Parques and Crown) are both from countries with strong currencies," said Peter Morici, labor economist and business professor at the University of Maryland, College Park. "Right now, U.S. assets seem like a particularly good bargain."

Richard Golding, CEO of Parques Reunidos, said in an interview with the Tribune-Review last week that the weakened dollar was not really an issue in the Kennywood deal because his company is paying in dollars.

But the acquisition mentality is not static, said Chris Telmer, associate professor of financial economics at Carnegie Mellon University's Tepper School of Business.

"It's not so much the value of the dollar (currently), but what you think the dollar is going to do in the future," said Telmer. "These acquisitions reflect foreign optimism about the value of the U.S. dollar. History tells us this (decline) will only go so far" before it reverses itself.

Assuming that's true -- and other economists agree with Telmer -- the theory is that Parques' and Crown's cash flow from their acquisitions should be worth more in the future because customers' U.S. dollars pumped into Kennywood's rides and The Meadows' ponies and slots would be worth more.

"It's quite a coincidence that both are in the entertainment business, which are investment-intensive businesses," said Tom Nist, economist and Donahue chair, investment management at Duquesne University.

"But they generate a lot of cash," Nist said. "So, if the dollar recovers and improves, that's another source of return for them."

The dollar has dropped for several reasons, especially because the growth rate of other nations' economic output exceeds that of the United States. In addition, heavy imports of foreign oil, outsourcing jobs overseas and bulging U.S. trade deficits cheapen the dollar. It's the age-old equation of supply and demand, said Jay Sukits, finance professor at the University of Pittsburgh's Katz Graduate School of Business

"The more U.S. dollars that get pushed out of the country and do not get repatriated back to our country, the more it puts pressure on the U.S. dollar, forcing it down lower," said Sukits. "The bigger the supply of U.S. dollars (abroad), the lower the value of the dollar. And that's what's been happening in the last four to five years."

But historically, the tide of dollars tends to reverse, he said, and the greenback reaches an equilibrium against foreign currencies. Veteran economist Robertson recalled post-World War II when the U.S. economy was whirring, Americans were saving, less oil came from abroad, trade balances tilted in America's favor -- and it was U.S. concerns with mighty dollars doing the buying.

"Americans were gobbling up everything else in the world for 20 to 30 years after the war," he said.

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