Buyout or Sellout?

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 130,000-plus 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. Or, like this week, they might just slow to a trickle. Here are a handful of recently announced deals, and the ratings for each participating company on CAPS' five-star scale:

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

Wedding bells or death knells?
Sometimes less is more. Witness the complicated transaction John Malone is crafting to merge his holdings in DirecTV and Liberty Entertainment. He currently holds 33% of Liberty, with supervoting shares; after the convoluted deal is done, those holdings will shrink to just 24% of the new DirecTV. However, that percentage will be greater than the 17% he currently holds in the satellite TV provider -- the vehicle analysts believe he wants to use to make more acquisitions. So Malone, as is often the case, comes out on top.

Yet there is speculation that satellite television isn't the only thing in Malone's orbit. Radio, in the form of Sirius XM (NASDAQ:SIRI), is also a rumored target, and the consolidation he's performing with DirecTV might just be the launch pad for a takeover at Sirius.

DirecTV investors may admittedly benefit from the streamlined ownership structure alongside Malone, even if he ultimately benefits more. But even before the deal was announced, CAPS member Turbo91 felt that a short-term investment made sense:

Low P/E and price/cash flow than average industry. Lower capital investments than industry because their infra is "shoot it up to the sky and rake in the bucks" (e.g. they are not pulling wire). They will get increased competition from FIOS, but their HD lineup is better and they will do okay in the short-term. A 1-year play for me.

The sum of all hopes
It's always just a bit flattering to have people fighting over you. Personnel development and management software maker SumTotal Systems is the object of desire in a bidding war between two private equity firms. Vista Equity Partners juiced its bid from $3.25 a share to $4.50, after SumTotal had agreed to Accel-KKR's competing offer of $3.80 a share. Whoever wins, the back-and-forth should add up nicely for SumTotal shareholders.

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.