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Merrill Lynch is warning equity investors to "discontinue their speculation regarding takeovers and LBOs," saying fixed-income spreads are widening and new financing deals are stalling because investors want more, or better, compensation for their risk. Equity investors who continue to bank on takeover premiums and LBO take-out values are "behaving as though the real economy has no connection to the financial economy," Merrill's strategists suggest. With the debt markets quickly moving to ration credit, "the probability of companies being taken out is plummeting, in our judgment."

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