Buyout or Sellout?

Motley Fool Stock Advisor

Since 2002, David and Tom Gardner have returned 29.67% while the S&P 500 returned -10.96%. Try Stock Advisor free for 30 days.

• Try it Free

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

Breaking down the buildup
To help, we'll turn to the 125,000-plus investors in Motley Fool CAPS. Our data suggests that top-rated stocks offer the best opportunity 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, and the ratings for each participating company on CAPS' five-star scale:

Acquirer	CAPS Rating	Target	CAPS Rating	Deal Price
Endo Pharmaceuticals	****	Indevus Pharmaceuticals (Nasdaq: IDEV)	***	$89 million
Mastercard (NYSE: MA)	***	Orbiscom	NR	$370 million
Wyeth (NYSE: WYE)	****	Crucell	****	$1.35 billion
Chemical & Mining Co. of Chile (NYSE: SQM)	*****	Anagra	NR	undisclosed
Lionsgate (NYSE: LGF)	**	TV Guide properties from Macrovision	**	$225 million
Boston Scientific (NYSE: BSX)	***	Labcoat	NR	undisclosed
FTI Consulting (NYSE: FCN)	***	CXO	NR	undisclosed

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

There were no real blockbuster deals to start the year. What we see instead are companies apparently using the depressed markets to tuck in some small acquisitions that diversify or expand their current offerings.

Into it deep
Many think that the next rung on the financial crisis ladder will be credit cards. The theory is that as the recession deepens, consumers will begin defaulting on their credit-card debt. While it's possible that that scenario could unfold, CAPS member jerkimo isn't concerned that it will touch MasterCard any time soon, because the company is primarily just a payment processor:

[MasterCard] has a fantastic business model & their growth prospects (both share price & dividend) look very promising in this shift to a cashless society. Do they care if people can't honor their debts - maybe, but luckily for them it doesn't affect their business. As a payment processor they get paid every time someone swipes their debit or credit cards - how genius is that?

Its purchase of Orbiscom will give it the opportunity to assist its customers in developing new payment options. Since MasterCard only facilitates the transaction, it is looking to make the whole process smoother.

Playing in the margins
The FDA has at times seemed to care more about the process of drug approval than getting helpful drugs to market, such as when it held up Indevus Pharmaceutical's application for Nebido because of a single instance of short-term cough at the time of ingestion. However, the regulatory agency eventually modified its stance, and the pharma is looking forward to getting approval to have the drug on the market this year.

It was back in October that CAPS All-Star member mellster figured that the list of products already on the market, as well as its pipeline, could make Indevus an attractive investment:

Lots of drugs on the market already that generate substantial revenues, Nebido (blockbuster testosterone drug) approval in reach, Pagoclone and Valstar updates in the near-term are likely.

It would seem that Endo Pharmaceuticals would agree with that assessment, allowing it to expand beyond its own narrow focus of pain management.

A value-added offer
What's your take on these deals? Let us know on Motley Fool CAPS. And while 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.

On Jan. 12, 2009, Fool co-founder David Gardner, Jeff Fischer, and their Motley Fool Pro team will accept new subscribers to their real-money portfolio service. Motley Fool Pro is investing $1 million of the Fool’s own money in long and short positions in a range of securities, including common stocks, put and call options, and exchange-traded funds (ETFs). They also incorporate proprietary CAPS "community intelligence" data into their research. To learn more about Motley Fool Pro and to receive a private invitation to join, simply enter your email address in the box below.