Buyout or Sellout?

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 "diworsification" -- weakening a business' 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 110,000 investors in Motley Fool CAPS. A combination of two companies with high CAPS ratings should bode well for the new company'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(Out of 5)

Target

CAPS Rating

Deal Price

Nokia (NYSE: NOK  )

****

Symbian

NR

264 million euros

Tibco (Nasdaq: TIBX  )

***

Insightful

NR

$25 million

Credence Systems (Nasdaq: CMOS  )

**

LTX

**

$176.6 million

Republic Services

****

Allied Waste (NYSE: AW  )

***

$6.1 billion

Bunge (NYSE: BG  )

***

Corn Products

****

$4.4 billion

Blackstone (NYSE: BX  )

**

Apria Health Care

**

$1.6 billion

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

A smart idea
Mobile-phone maker Nokia is buying the rest of mobile-device open-platform developer Symbian in an effort to ensure that it maintains its position in the smartphone market. Heading off Apple (Nasdaq: AAPL  ) , which is set to roll out its iPhone to more than 70 countries this year, is a key reason behind the move.

Nokia's dominant market share in the rest of the world has many investors liking its relatively low valuation. As CAPS All-Star analyst saunafool observes:

Nokia has 40% of the growing mobile device market. They dominate in Africa, India, China, and other parts of the developing world. They may seem a bit stodgy to American tastes -- slow to develop flip phones, slow to bring a touch screen to market. ... They have one of the top 10 strongest brands in the world, they lead the smartphone segment worldwide (even with almost no presence in U.S. market), and they have new upside possible from data, navigation, and music download revenue streams. ... [Nokia] has bought back over 10% of the total float in the past few years. At this point, it is cheap enough to get the green thumb.

Creature feature
Business-software maker Tibco Software is buying up statistical data-analysis company Insightful to complement areas in its own portfolio that are growing strongly. Yet analysts at JPMorgan find Tibco to be an acquisition target itself; they call the software maker the "last remaining best-of-breed true middleware play." At just 14 times forward earnings estimates, it could indeed be an undervalued asset.

Since earlier this year, players over on CAPS have also been calling it a takeover candidate. In a reply to an earlier post, CAPS player gotchame identified a couple of big-name potential takers:

[The] company has flourished since adding [Spotfire]. [As] it is expanding overseas, there is no stopping its growth and share of the [market's] software. [Since] [BEA Systems] was bought, there now opens the door for [IBM] or [Hewlett-Packard] to be interested in acquiring [Tibco] for anywhere up to $12 a share

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

Apple is a Motley Fool Stock Advisor recommendation. Republic Services is a Motley Fool Income Investor pick. Try any of our Foolish newsletter services free for 30 days.

Fool contributor Rich Duprey does not have a financial position in any of the stocks mentioned in this article. You can see his holdings. The Motley Fool has a disclosure policy.


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