Is the LBO "put" era drawing to a close?

By Kristina Cooke - Analysis

NEW YORK (Reuters) - So much for the LBO put.

The notion that this market had a nearly impenetrable floor on the bet that everything from big box retailers to media conglomerates were in the sights of some private equity firm helped lift Wall Street stock indexes to record after record.

But that looks like it is about to change.

As credit becomes more expensive and less readily available, the probability of companies being "taken out" is plummeting, said Richard Bernstein, chief investment strategist at Merrill Lynch.

He says that with financial market volatility spiking upward, equity investors should stop looking backward and cease discussing so-called "takeover premiums" -- when a stock rises above its value, because investors think it may be about to be bought out.

"The rationing of credit means equity investors should discontinue their speculation regarding takeovers and LBOs," Bernstein wrote in a note to clients.

Investors are already backing out of some stocks which had been touted as targets. The retail sector, for example, which had attracted takeover premium-seekers like bees to honey has seen huge losses as worries about financing of deals grew.

The S&P retail index .RLX fell 3.4 percent on Thursday, while department store chain Macy's Inc. (M.N: Quote, Profile, Research, Stock Buzz) -- which this month has had buyout speculation swirl around it -- dropped 6.6 percent.