From tiny acquisitions to massive conglomerate 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 to capture the best returns. 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 are a handful of recently announced deals or potential deals, and the ratings for each participating company on CAPS' five-star scale:
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Acquirer
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CAPS Rating
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Target
|
CAPS Rating
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Deal Price
|
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Actuant (NYSE: ATU )
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*****
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Cortland
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NR
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$230 million
|
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MidAmerican Energy
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NR
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Constellation Energy (NYSE: CEG )
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****
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$4.7 billion
|
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McAfee
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**
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Secure Computing
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*****
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$465 million
|
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Gap Stores (NYSE: GPS )
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*
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Athleta
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NR
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$150 million
|
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Cameron International (NYSE: CAM )
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*****
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KB Industries
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NR
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$85 million
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Bristol Myers Squibb (NYSE: BMY )
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****
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ImClone Systems (Nasdaq: IMCL )
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**
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$4.7 billion
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Tyson (NYSE: TSN )
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**
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3 Brazilian Poultry Producers
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NR
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NA
|
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Ebix
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*****
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HealthAxis
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NR
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$6.8 million
|
CAPS ratings courtesy of Motley Fool CAPS; NR = not rated.
A merger of equals?
Although Wall Street's financial meltdown continues to create buying opportunities for those with deep enough pockets -- and clean enough balance sheets -- there's plenty of drama elsewhere to keep viewers tuning in. To get your fill of plot twists, look no further than the story unfolding between Bristol-Myers Squibb and ImClone Systems.
Carl Icahn initially scoffed at Bristol-Myers' $60 per share bid (or $4.5 billion), only to later reveal that a much higher $70-per-share bid was made by a mysterious, as-yet-unrevealed company. Bristol reluctantly upped its bid to $62 a stub, saying it would take its offer directly to shareholders. That led to an exchange of letters between the two companies' executives that was hardly cordial, even if it remained civil.
In the aftermath, some CAPS members have begun to wonder exactly which company is being more up-front. Biopharminvestor is suspicious of ImClone, which he charges has a history of bluster:
Take over rumors....company has over-hyped itself in other situations. I suspect they're doing so now. Fool me once, shame on you; fool me twice, shame on me.
On the other hand, CAPS member stockdoc00 notes Bristol-Myers' underrated drug pipeline, suggesting that acquiring ImClone isn’t the company's primary concern:
As safe as they come in this industry. While it has potential challenges with patent expirations especially with Plavix, it has an underrated pipeline, strong balance sheet and a solid, dependable 5% dividend (hasn't missed a dividend payment in over 50 years!). In this uncertain market, this is stock that you can buy and sleep easy on.
The story's not over, but it definitely provides a nice break from the other major stories on Wall Street these days.
In other news...
Warren Buffett rarely gets upstaged, but Electricite de France seems to have pulled it off. The utility company made a $35-a-share bid for Constellation Energy last week that seems to have left the Oracle's $26.50 offer looking beggarly in comparison. That didn't stop Constellation's CEO from saying he preferred Buffett's bid because of less uncertainty over regulatory issues -- not to mention an immediate $1 billion cash infusion. Whether shareholders will agree to reject an extra $1.5 billion in value remains to be seen, but shares were trading above Buffett's offer, suggesting that the market may expect him to raise his bid a bit.
A value-added offer
What's your take on these deals? Let us know on Motley Fool CAPS. 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.
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