Is the U.S. getting LBOed?

Dennis Berman has an interesting take:

China and the Gulf states are hungry, and they've just sat down for an American buffet. In the last few months alone, state-affiliated funds and companies have taken bites of American icons, picking up small stakes in Advanced Micro Devices, MGM Mirage, Nasdaq Stock Market, Blackstone Group and Bear Stearns.

The deals were designed to be small enough to avoid scrutiny from the U.S. government. This conveniently played into the hands of sellers, who were able to offload pricey positions while giving virtually nothing in return, such as board seats or veto rights.

But the mergers-and-acquisitions story of 2008 will be how these foreign sovereign funds -- sitting on an estimated $2 trillion to $3 trillion of reserves -- direct their appetites. Fattened by the U.S.'s own trade imbalances and encouraged by favorable currency rates, they aren't likely to stay so compliant for long. Further down the buffet line sit entire U.S. companies.

Foreign investments touch a nerve, especially when so much American economic power appears at the mercy of China, which holds U.S. Treasury bills, or the Gulf states, which have such a big say over U.S. energy costs. For 2007, foreign buyers have accounted for 20% of M&A in the U.S., according to Dealogic, the second-highest level since 1995.

Can the U.S. accept the foreign investments as an essential element for lubricating a dynamic economy? Tighter economic ties create less incentive for war and terrorism. And below the radar, a recent series of foreign investments have closed without incident. "No one raised serious objections when Sabic [a state-owned Saudi Arabian company] bought GE Plastics in a competitive auction. Are we culturally ready? We're a very welcoming and open society," adds Mr. Schlager.

Until it's not. Already the country has proven touchy, famously fretting when a Japanese businessman overpaid for the Pebble Beach golf resort back in 1990, or when a Dubai-backed company looked to take over a series of U.S. ports in 2006, setting off a talk-radio furor that squelched the deal.

The irony is the U.S. is, in essence, funding its own potential takeover. In Wall Street parlance, they call it getting LBOed. "We're moving to a sharecropper economy," said Mr. Mulloy in an interview. "The other guys are going to be owning, and we're going to be working for them."

I'm not that worried. The S&P500 alone is worth about $12 trillion, and a foreign buyer would need to pay a hefty 20-40% premium for most corporations. We can see from the Japanese buying frenzy in the Eighties, from Rockefeller Center in Manhattan to golf courses in Hawaii, that sometimes the U.S. wins twice, selling really high, and buying back much lower in the future.