Does this week's spike in corporate mergers signal an economic rebound?

In late April, large mergers and acquisitions—friendly, hostile, cash, stock—have been blossoming like daffodils. On Monday, April 20, Oracle said it would buy Sun Microsystems for $7 billion. The same day, Pepsi bottled up two of its largest bottlers for $6 billion, and drug giant Glaxo Smithkline struck a $3 billion deal to acquire Stiefel Laboratories, a specialist in skin-care products.

"The activity is very positive," said Steven Kaplan, a corporate finance expert at the University of Chicago. "More deals means we are no longer falling." Companies don't make acquisitions unless they have some confidence in the future, he notes.

Deals are like Viagra for the stock market, especially hostile unsolicited offers such as the one chip designer Broadcom made on April 21 for Emulex, a company that makes network gear. Traders love such deals because they can ignite exciting, profitable bidding wars. Analysts view acquisitions as excellent barometers for the level of testosterone and optimism in the markets, a gauge of what economist John Maynard Keynes called "animal spirits." Perhaps most important, deals throw off fees to all involved, from the investment banker (whose role consists largely of saying, "Great idea, dude") to the companies that make the little gewgaws distributed when transactions close.

For almost two years, the markets have been in dire need of the mood-elevator that deal-making frenzy provides. In 2007, when credit was cheap and plentiful, when stock prices were high, when we were all richer, younger, and better-looking, corporate empire-builders had plentiful currency with which to conduct deals. Nine of the 10 largest leveraged buyouts in history were announced between July 2006 and July 2007. In the glory days, 11-figure deals were commonplace. But in the first quarter of 2008, global deals were the lowest they had been since mid-2004, according to Thomson/Reuters.

During the boom, many of the biggest takeovers were offensive—pulled off by companies seeking to break into new markets or by swashbuckling private-equity magnates looking to build empires. But today's deals seem more defensive. In early 2008, CEOs of blue-chip companies would acknowledge that the United States was slowing but would crow about their results in China, India, or Brazil, markets that were growing by leaps and bounds. No longer.

The International Monetary Fund warned in late April that the global economy would shrink by 1.3 percent this year, with tepid growth to follow in 2010. Rather than being decoupled from the United States, the rest of the world is following America into recession. And when you don't have much hope of organic growth, the corporate playbook reads, you buy it. By purchasing two of its bottlers, Pepsi Bottling Group and PepsiAmericas, Pepsi isn't looking to break into new markets or diversify. It's seeking to save money: The release described "annual pre-tax synergies estimated to be more than $200 million"—i.e., cost savings.