Investor/ An insider's guide to the market: The takeover of YouTube by internet giant Google for $1.65 billion (€1.31 billion) is yet another manifestation of buoyant conditions in financial markets.

Those whose memory of the dotcom bubble era is still fresh could be forgiven if they feel a sense of deja vu. YouTube has grown in just 19 months from a start-up in a garage to a multi-billion dollar company.

YouTube allows users to upload their own videos and watch other people's videos. It is the first internet company to turn online video into a mass market business that streams more than 100 million short videos a day to an audience of more than 30 million in the US alone.

Whilst many of YouTube's users upload homemade videos, many of them contain clips from music videos and TV programmes. This has created copyright issues and although YouTube has signed distribution agreements with major record labels, some analysts warn that Google could be on the receiving end of lawsuits with this acquisition. The deal, however, thrusts Google into the emerging market for video advertising, where it has only a tiny foothold compared with Yahoo and start-ups.

One aspect of this deal that is reminiscent of the late 1990s technology bubble is it is an all-share deal. Google is one of the world's most highly-rated companies with its shares trading on a price/earnings (p/e) of 60 to give it a market capitalisation of $117 billion. According to company officials, the all-share deal was structured to make it tax-free for YouTube shareholders and cheaper for Google than cash.

In the current environment, all-share takeovers have become a rarity, with the majority of recent takeovers occurring for cash.

Many current deals are being driven by private equity funds and hedge funds that have enormous cash resources. The potential acquisition firepower of these funds is then multiplied through the use of leverage. The current and prospective economic environment of low interest rates and solid economic growth should continue to underpin a very active merger and acquisition marketplace.

Over the past week or so, the Irish market has been transfixed by Ryanair's dawn raid on Aer Lingus. The ramifications of the move go far beyond the narrow confines of the Irish equity market with the Government, trade unions and the travelling public all having a direct interest in the outcome. Not surprisingly, positions have become increasingly polarised with the Government and unions on one side and Ryanair on the other. A surprising feature is how easily Ryanair managed to amass a large stake in the airline apparently at an average price not much more than a 10 per cent premium to the placing price of €2.20. This suggests that a significant minority of investors in the IPO were somewhat sceptical of Aer Lingus's long-term strategy. With the shares trading above €2.80, Ryanair cannot purchase any more shares unless it raises its offer price for the entire share capital. Therefore, anyone purchasing shares above €2.80 is banking on a higher offer from Ryanair or the entry of a white knight.

This corporate action has generated intense debate in the Republic, but is just one of many corporate news stories abroad. However, the end result will be heavily influenced by overseas considerations and institutions. The European competition authorities hold centre stage rather than the Irish Competition Authority. One aspect that has received some comment is the attitude of Ryanair's major shareholders. Investor has reread Ryanair's 2006 annual report to find the directors (including Michael O'Leary) hold only 6.3 per cent of the issued share capital. According to the annual report, as at July 31st, 2006, the following were the major shareholders: Fidelity Investments (14.4 per cent); Gilder Gagnon Howe & Co. LLC (6.8 per cent); Wellington Investment Management (7.8 per cent), and Capital Group Companies Inc. (7.0 per cent).

It is notable that no Irish institution makes this list and that the combined shareholding of these four investors amounts to a very significant 36 per cent - six times that of the directors.

These shareholders are in a position to evaluate this take-over attempt dispassionately and will only support it if the commercial logic is compelling.

Investor says...

Ryanair managed to amass a large stake in Aer Lingus at not much more than a 10 per cent premium to the placing price of €2.20. This suggests that a significant minority of investors in the IPO were somewhat sceptical of Aer Lingus's long-term strategy