Why Family Dollar, International Game Technology, and Intercept Phamaceuticals Jumped Today

After a rash of new records last week, investors began the new week exactly where they'd left off before the weekend. Modest gains for the Dow and S&P 500 were enough to set new records yet again, and traders have their eyes firmly set on milestones like Dow 17,000 and S&P 2,000 as near-term targets for the popular benchmarks. Monday's gains leave the S&P just a few percentage points from having tripled from its early 2009 levels, and Family Dollar (NYSE: FDO  ) , International Game Technology (NYSE: IGT  ) , and Intercept Pharmaceuticals (NASDAQ: ICPT  ) all helped lead the markets higher today.

Carl Icahn. Source: Twitter.

Family Dollar rose 13% as activist investor Carl Icahn announced taking a 9.4% position in the dollar store company's shares. The dollar-store industry has been intensely competitive lately, with rivals making huge expansion plans in order to grab up as much market share as possible. But Icahn believes that now might be the right time for consolidation in the industry, with potential mergers reducing the need for the proliferation of store locations that we've seen from dollar-store players in recent years. For its part, Family Dollar has been trying to streamline its operations, closing poor-performing stores in favor of new ones in better locations. Nevertheless, exploring possible combinations of existing dollar-store companies could prove difficult, especially as high-profile investors start flexing their muscles over the stock.

International Game Technology climbed 14% as investors speculated that the maker of slot machines and other gaming-industry technology could be preparing itself for a sale. Reports cited sources that International Game Technology has hired advisors to help it explore strategic options like a sale, with possible acquirers including other gaming-industry companies and private-equity investors. With the company having seen its stock slump amid falling revenue and earnings, it might take a big transformation in order to get the most benefit from IGT's business, and investors buying shares today are making a big bet in assuming that a willing buyer will pay a premium to buy out the slot-machine maker.

Intercept Pharmaceuticals gained 7%, rising in sympathy with Idenix Pharmaceuticals (NASDAQ: IDIX  ) and its 228% gain. For Idenix, gains came after Dow component Merck agreed to buy the developer of hepatitis C treatments for $3.85 billion or $24.50 per share, a huge premium over the $7.23 price at which Idenix shares closed Friday. Idenix has a huge pipeline of hep-C prospects, but more broadly, its overall process for developing therapies appears to complement Merck's programs well. Still, concerns over Idenix's past track record have some worried that the price to capture its pipeline was too high, even though Merck shares also gained ground on the day. For now, it appears that the health of the M&A market is supporting the broader stock market's gains and could keep doing so for the foreseeable future, and that has investors in Intercept and its own stable of prospects thinking they could cash in on the lucrative trend as well.

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