Buy Out or Sell Out?

From tiny acquisitions to massive conglomerate combinations, Wall Street's urge to merge remains strong. Some of these deals might generate sought-after synergy, but others could create what Peter Lynch called "de-worse-ification" -- weakening a business's core competency by grafting on wildly unrelated subsidiaries. How can we tell the good deals from the dealbreakers?

Breaking down the buildup
To help, we'll turn to the 86,000 investors in Motley Fool CAPS. A combination of two companies with high CAPS ratings should bode well for the new firm's future results, while a high-rated company that joins a lower-rated one may benefit one set of investors more than the other.

Despite troubles in the capital markets, the deals won't stop; they simply might involve more stock and less cash. Here's a handful of recently announced deals, and the ratings for each participating company on CAPS' five-star scale:

Acquirer

CAPS Rating (5 max)

Target

CAPS Rating

Deal Price

C.R. Bard (NYSE:BCR)

****

Specialized Health Products

NR

$68 million

Eastern Bancorp

NR

MassBank (NASDAQ:MASB)

NR

$170 million

Immucor (NASDAQ:BLUD)

****

BioArray Solutions

NR

$117 million

Nationwide Mutual

NR

Nationwide Financial Services (NYSE:NFS)

**

$2.2 billion

TriQuint Semiconductor (NASDAQ:TQNT)

***

WJ Communications (NASDAQ:WJCI)

NR

$68.7 million

Analogic (NASDAQ:ALOG)

***

Copley Controls

NR

$68.8 million

CAPS ratings courtesy of Motley Fool CAPS; NR = not rated.

So what do CAPS investors think about these targets and acquirers? Seems they generally approve of most of the companies, as their three-star or better ratings suggest. But these are relatively small deals that should not dramatically impact the bottom lines of many of the companies, underscoring perhaps the tight credit markets.

A bloody mess
In a fragile market that needs companies to at least meet expectations the possibility that an acquisition will serve as a drain on earnings for several years is enough to send the buyer into a tailspin. Such is the case with Immucor, a manufacturer of blood testing products that will be acquiring BioArray, a developer of molecular diagnostic systems.

With analysts expecting the blood testing company to earn $0.94 a share, the news that the BioArray purchase would hurt earnings by at least $0.20 a share in the first year was enough to cause Immucor's shares to gap 20% lower. The blood testing company said such costs were likely to remain baked into earnings until it was able to get FDA approval for advances made to the diagnostic testing technology. Further, it was going to be automating the BioArray products, which would also be a costly endeavor.

Until now, some 96% of CAPS investors who weighed in with an opinion had gotten their blood going positively over Immucor. Even the company's naysayers, like morgan628 who last October marked Immucor with an underperform rating, acknowledges the leadership position it holds.

Unless the company does something extraordinary I do not see much upside to this stock. [Admittedly] Immucor is a leader in the area of blood testing... [I]t seems that the street has already priced this stock in line with growth for the next 3 years... I think there are better opportunities to invest money in at this point in time.

Still, CAPS bulls think the sell-off has been a bit much. Investor EagleEyeStocks says that even if it's not a stock that's on fire, the underlying business of Immucor doesn't warrant the bloodying the stock took. "Nothing in the company's underpinings justifies its 30% drop in price. While not a spectacular company, this is being pummelled for no reason."

A value-added offer
What's your take on these deals? At Motley Fool CAPS, your opinion counts, right alongside the pros'. Tell the CAPS community whether the urge to merge is good to go, or whether you think it's better for the firms involved to remain independent.


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