Did Annie's Just Become a Takeover Target?

A powerful parent could solve some of the company's problems, and the stock is getting cheap.

Jun 10, 2014 at 10:24AM

Despite my best efforts to warn investors about Annie's (NYSE:BNNY) cost difficulties as well as the huge red flag of accounting troubles yesterday, Annie's stock closed Monday almost 8% higher. With no new news out of the company, why would investors erase a good chunk of the stock's recent losses?

A white knight?
The first reason might simply be random chance. Like the dead cat after which the term "dead cat bounce" is named, any stock that falls fast enough is bound to have a small bounce before it hits the ground again. As of Friday, Annie's was down nearly 20% in just a week, and over 40% since its high last October. Monday's bounce could just be investors seeing the price fall and blindly buying shares without seeing the signs of trouble.

More likely, it has to do with the rumors, stoked by the likes of Credit Suisse and JPMorgan Chase, that Annie's would make a good acquisition target. On the recent conference call, Annie's CEO responded to a question about the possibility of a takeover, saying, "We're going to continue to try to grow the company independently, focused on our mission and values. But as I said, we also have to do the right thing for shareholders." So, there's no official reason to expect a buyout, but Annie's isn't ruling it out, either.

A takeover might make sense. Since its IPO two years ago, the company's enterprise value has fallen by a quarter, while EBITDA is up 64%, giving it an EV/EBITDA ratio of just 16.70, fairly low for a growth stock. As noted, one of the main difficulties facing Annie's is the rising cost of wheat, but if the company had a powerful parent like Kraft, whose revenues are a hundred times higher than Annie's, it might be able to negotiate better prices for its input costs, while giving that parent the benefit of a fast-growing brand.

The expertise of a large conglomerate might also be able to help with its accounting troubles, but for now, it might also discourage any potential buyers, at least until the company's financial picture is clearer. Until then, the stock may resume its decline, presenting a potential buyer with a better opportunity.

The Foolish bottom line
Ultimately, a buyout seems possible, and it would be a quick win for anyone buying the stock at these depressed levels, assuming they don't get much worse before they get better. But it would certainly be a raw deal for anyone who bought a few months ago, or even long-term investors buying the stock now, hoping to stay with the stock as it grows, develops new products, and rewards patient investors.

Top dividend stocks for the next decade
You don't have to wait for Annie's to mature to find some solid returns in the market. The smartest investors know that dividend stocks simply crush their non-dividend-paying counterparts over the long term. That's beyond dispute. They also know that a well-constructed dividend portfolio creates wealth steadily, while still allowing you to sleep like a baby. Knowing how valuable such a portfolio might be, our top analysts put together a report on a group of high-yielding stocks that should be in any income investor's portfolio. To see our free report on these stocks, just click here now.

Jacob Roche has no position in any stocks mentioned. The Motley Fool owns shares of Annie's and JPMorgan Chase. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

©1995-2014 The Motley Fool. All rights reserved. | Privacy/Legal Information