Buyout or Sellout?

From tiny acquisitions to massive combinations, Wall Street's urge to merge remains strong. How can we tell the dealmakers from the deal breakers?

Breaking down the buildup
To help, we'll turn to the 115,000-plus investors in Motley Fool CAPS. Our data suggests that top-rated stocks offer the best oppportunity for the best returns. A combination of two companies with high CAPS ratings -- four or five stars -- should bode well for the new company, while a high-rated company joining 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 are a handful of recently announced deals, and the ratings for each participating company on CAPS' five-star scale:

Acquirer

CAPS Rating

Target

CAPS Rating

Deal Price

Gerber Scientific (NYSE: GRB  )

**

Virtek Vision International

NR

$33.1 million

Altria (NYSE: MO  )

*****

UST (NYSE: UST  )

****

$10.3 billion

Manitou

NR

Gehl (Nasdaq: GEHL  )

***

$450 million

Global Payments (NYSE: GPN  )

****

ZAO United Card Service

NR

$120 million

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

A merger of equals?
It's understandable that Altria wants to put a little pinch between its cheek and gums with the acquisition of Skoal smokeless tobacco maker UST, but the wine cellar that comes with it provides an interesting opportunity to expand its portfolio of vice. Yet the most likely scenario is that it would sell that part of the business to a company like Constellation Brands (NYSE: STZ  ) , the world's largest distributor of wines by volume. Still, CAPS member heritagehank finds the combination intriguing.

Bad economic times are often the best time for vices. Smoking, Drinking and gambling often increase as a person's personal situation decreases. This could be the hedge against the falling market.

Back in June, top-rated All-Star CAPS member JDSancho made a prescient prediction about UST and Altria or Reynolds American (NYSE: RAI  ) and believed that brand loyalty made the company valuable, even as a long-term buy-and-hold pick.

UST makes the top two smokeless tobacco products: Skoal and Cope. I used to dip, and I know the loyalty consumers have to tobacco products. The value brands of dip, wine, and other ops are all thrown in for free as far as I'm concerned. I love ginormous 4.7% yield and respectable share repurchase program. ... Frankly, I'm looking for consolidation in the space. I think UST is a prime take-over target by Altria, Imperial, or Reynolds.

Construction equipment maker Gehl generates nearly a third of its revenues from foreign operations, but it's actually the domestic side of the business that attracted French equipment maker Manitou. Manitou claims to be the world's largest manufacturer of rough terrain equipment and has been looking to expand its presence in the U.S. Its bid comes when Gehl was experiencing how the turmoil in the housing industry affected its results: Profits fell 40% in the latest quarter on sales that were 18% lower. CAPS member acaptivatinglady likes the deal for Gehl.

At the present time this stock is flying high! It has to do with a buyout from Manitou, a French owned company. They are purchasing all available stock at $30.00 per share....

Normally, they have depended on the US market to keep them going. With the slow down of construction, business is down. Their overseas market has continued to grow since 2004, but that has not been fast enough.

Manitou is taking advantage of the weak US dollar... The good news is with Manitou's foreign contacts and a brisk overseas growth trend, you can expect this company to do very well.

A value-added offer
What's your take on these deals? Let us know on Motley Fool CAPS. And while you're there, you can start your own research on these or other stocks. Read a company's financial reports, scrutinize key data and charts, and examine the comments your fellow investors have made -- all from a stock's CAPS page. There's more than you think.

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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